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[G.R. No. 126554.

May 31, 2000]

ARB CONSTRUCTION CO., INC., and MARK MOLINA, petitioners, vs. COURT OF
APPEALS, TBS SECURITY AND INVESTIGATION AGENCY represented by CECILIA R.
BACLAY, respondents.

DECISION

BELLOSILLO, J.:

ARB CONSTRUCTION CO., INC. (ARBC) and MARK MOLINA, Vice President for Operations
of ARBC, in this consolidated petition, assail the Decision of the Court of Appeals in CA-G.R.
SP Nos. 36330 and 36489 as well as the orders of the trial court dated 9 September 1994 and 9
December 1994 granting private respondent TBS Security and Investigation Agencys Motion for
Leave to File Amended and Supplemental Complaint and denying petitioner Mark
Molina's Motion to Dismiss, respectively.

On 15 August 1993 TBS Security and Investigation Agency (TBSS) entered into two (2) Service
Contracts with ARBC wherein TBSS agreed to provide and post security guards in the five (5)
establishments being maintained by ARBC. Clause 10 of the Service Contracts provides -

10. This contract shall be effective for a period of one (1) year commencing from
15th August 1993 and shall be considered automatically renewed for the same
period unless otherwise a written notice of termination shall have been given by
one party to the other party thirty (30) days in advance.

In a letter dated 23 February 1994 ARBC informed TBSS of its desire to terminate the Service
Contracts effective thirty (30) days after receipt of the letter. Also, in a letter dated 22 March
1994, ARBC through its Vice President for Operations, Mark Molina, informed TBSS that it was
replacing its security guards with those of Global Security Investigation Agency (GSIA).

In response to both letters, TBSS informed ARBC that the latter could not preterminate the
Service Contracts nor could it post security guards from GSIA as it would run counter to the
provisions of their Service Contracts.

On 23 March 1994 Molina wrote TBSS conceding that indeed the "security contract dated 15
August 1993 stipulates that the duration of the service shall be for a period of one year, ending
on 15 August 1994 x x x and could not be preterminated until then."[1] Nevertheless, Molina
decreased the security guards to only one (1) allegedly pursuant to Clause 2 of the Service
Contracts which provides -

2. The AGENCY shall adopt a guarding system and post guards in accordance
thereof, in the premises of the client throughout the whole 24 hours daily, using
variable shifts of the guards at such hours as may be designated by the CLIENT
or AGENCY. As required by the CLIENT, the security guards to be assigned by
the AGENCY shall consist initially of the following x x x subject to be increased or
decreased by the CLIENT at its sole discretion depending on the security
situation or the exigency of the service, by giving the AGENCY at least SEVEN
(7) days prior notice.[2]
Thus on 28 March 1994 TBSS filed a Complaint for Preliminary Injunction against ARBC and
GSIA praying -

A. Forthwith and Ex-parte, that a Temporary Restraining Order be issued


declaring the status quo and directing the Defendants or any person(s) acting in
their behalf from performing acts of replacing the Plaintiffs security guards from
other agencies;

B. After due hearing that a Writ of Preliminary Injunction, in like tenor, be issued
upon posting of such bond as the Honorable Court may require;

C. After due hearing, that judgment be rendered -

1. Declaring the two (2) contracts for Security Services between


Plaintiff and ARBC to be subsisting until August 15, 1994;

2. Ordering Defendant GLOBAL to refrain from taking over the


security services of ARBC and to withdraw its guards from the
premises of ARBC, if they have been posted earlier;

3. Ordering ARBC to pay Plaintiff attorneys fees in the amount


of P50,000.00 x x x [3]

In Answer, ARBC claimed that it decreased the number of security guards being posted at its
establishments to only one (1) as the security guards assigned by TBSS were found to be
grossly negligent and inefficient, citing the following incidents -

8. On February 6, 1994, a Mitsubishi roadgrader of herein defendant was


stripped of parts amounting to P58,642.00;

9. On February 25, 1994, a concrete vibrator and mercury light assembly were
stolen from the construction site of the Multipurpose Hall beside the swimming
pool of herein defendant which is worth P2,800.00 x x x x[4]

In conclusion, it prayed that the complaint against it be dismissed for lack of merit.

On 16 May 1994 TBSS filed a Motion for Leave to File Attached Amended and Supplemental
Complaint. TBSS submitted that it now desired to pursue a case for Sum of Money and
Damages instead of the one previously filed for Preliminary Injunction. It maintained that
the Amended and Supplemental Complaint would not substantially alter its cause of action as
both the original and amended complaint were based on the same set of facts.[5]

In addition to the allegations in its original complaint, TBSS alleged in its Amended and
Supplemental Complaint that ARBC illegally deducted from the payroll the amounts
of P15,500.00 and P2,800.00 representing the value of one (1) unit concrete vibrator and
cassette recorder, respectively. It further argued that ARBC withheld additional amounts from its
payroll as payment for the parts of the grader that were stolen.[6] TBSS maintained that ARBC
had an outstanding obligation of P472,080.46. Corollarily, TBSS prayed for moral damages
of P500,000.00, exemplary damages of P200.000.00 and attorney's fees of P50,000.00.
On 2 May 1994 the trial court issued a temporary restraining order but due to the exigency of
the situation TBSS decided to withdraw its security contingent from ARBC's premises on 13
May 1994.

ARBC opposed the Motion for Leave to File Amended and Supplemental
Complaint [7] contending that the cause of action had been substantially altered.

On 9 September 1994 the RTC of Makati, Br. 59, granted the motion of TBSS to file
the Amended and Supplemental Complaint rationalizing thus -

Should the court find the allegations in the pleadings to be inadequate, the Court
should allow the party to file proper amendments in accordance with the mandate
of the Rules of Court that amendments to pleadings are favored and should be
liberally allowed, particularly in the early stages of the law suit, so that the actual
merit of the controversy may be speedily determined without regard to
technicalities and in the most expeditious and inexpensive manner x x x x [8]

ARBC filed a Motion for Reconsideration but on 3 November 1994 the motion was denied.

Meanwhile, Mark Molina filed a Motion to Dismiss [9] the Amended and Supplemental
Complaint on the ground that it did not state a cause of action insofar as he was concerned. But
on 9 December 1994 the trial court denied the motion to dismiss and directed Molina instead to
file his answer within ten (10) days from receipt of the order.

On 30 January 1995 ARBC filed a Petition [10] with the Court of Appeals alleging that the trial
court committed grave abuse of discretion in issuing the Orders of 9 September 1994 and 3
November 1994. On 15 February 1995 Molina likewise filed a Petition before the Court of
Appeals similarly attributing grave abuse of discretion to the trial court in issuing the order of 9
December 1994.

Parenthetically, upon motion of TBSS, the petition of Mark Molina in CA-G.R. SP No. 36484
was consolidated with the petition of ARBC in CA-G.R. SP No. 36330.

On 16 August 1996 the Court of Appeals rendered a Decision [11] denying both petitions of
ARBC and Molina. On 3 October 1996 petitioners Motion for Reconsideration [12] was denied.
Hence, this petition.

In their consolidated Petition before this Court, petitioners first submit that THE COURT OF
APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT HAD THE RIGHT TO
CHANGE ITS CAUSE OF ACTION IN VIEW OF A CHANGE IN THE SITUATION OF THE
PARTIES AFTER THE FILING OF THE ORIGINAL COMPLAINT.[13] In support of this assigned
error petitioners insist that -

x x x (T)here was not only a substantial change in private respondents cause of


action but there was even an alteration in the theory of the case x x x (W)hile in
the original complaint the only thing alleged and is being prayed for is for
petitioner ARB (ARBC) to be enjoined from replacing the security guards of
private respondent x x x and for the two contracts x x x to be enforced until
August 15, 1994 and for petitioner ARB (ARBC) to be ordered to pay x x x
attorneys fees, what is alleged and is being prayed for in the amended and
supplemental complaint is for both petitioners to be ordered to pay P171,853.80
(for unpaid services) x x x and P300,226.66 (for lost income) x x x plus moral and
exemplary damages and attorneys fees.

Obviously, petitioner ARB (ARBC) is being required to answer for a liability or


legal obligation under the amended and supplemental complaint wholly different
from that stated in the original complaint such as but not limited to the amount
of P171,852.80 which was never mentioned in the original contract. Under these
circumstances, a different cause of action was introduced by the amendment.

Also, there was a change in the theory of the case. Whereas in the original
contract what is sought for by private respondent is the enforcement of the two
(2) contracts which is what is known in legal parlance as specific performance, in
the amended and supplemental complaint what is sought for is x x x a rescission
of the contracts with damages x x x x [14]

We cannot subscribe to the contention of petitioners that the Amended and Supplemental
Complaint substantially changed TBSS' cause of action nor was there any alteration in the
theory of the case. As correctly observed by the Court of Appeals, "the amendatory allegations
are mere amplifications of the cause of action for damages x x x x An amendment will not be
considered as stating a new cause of action if the facts alleged in the amended complaint show
substantially the same wrong with respect to the same transaction, or if what are alleged refer to
the same matter but are more fully and differently stated, or where averments which were
implied are made in expressed terms, and the subject of the controversy or the liability sought to
be enforced remains the same."[15]

The original as well as amended and supplemental complaints readily disclose that the
averments contained therein are almost identical. In the original complaint, TBSS prays, among
others, that the two (2) Service Contracts be declared as subsisting until 15 August 1994 and
that petitioners be made to pay P50,000.00 as attorneys fees.[16] Significantly, in its penultimate
paragraph, TBSS prays "for such other reliefs that are considered just and equitable under the
premises."[17] This is a "catch-all" phrase which definitely covers the amplifications and
additional averments contained in the Amended and Supplemental Complaint. Due to events
supervening after the filing of the original complaint, it became incumbent upon TBSS to amend
its original complaint. One of the supervening events was the withholding by petitioner ARBC of
some amounts intended for the payroll of TBSS due to pilferage or losses which allegedly
occurred due to the negligence and inefficiency of TBSS' security guards. Plainly, this
withholding of the payroll was only an offshoot of the pretermination of the two (2) Service
Contracts on the part of ARBC.

Significantly, the pretermination of the Service Contracts was already alleged in the original
complaint. In fact it was one, if not the most basic, issue discussed therein. Since the
withholding of the payroll was only an offshoot of the issue on the pretermination of the contract,
we can safely conclude that the allegation on the withholding of the payroll in the Amended and
Supplemental Complaint was only an amplification of an issue that was already included and
discussed in the original complaint. It was therefore error on the part of petitioners to conclude
that private respondent changed its cause of action in the Amended and Supplemental
Complaint. Neither could they say that they were being made to answer for a liability or legal
obligation that was wholly different from that stated in the original complaint.
Grave abuse of discretion therefore could not be imputed to the trial court for admitting
the Amended and Supplemental Complaint of private respondent TBSS. It also follows that the
appellate court could not be faulted for putting its stamp of approval on the order of the trial
court admitting the same.

Petitioners also argue, as their second assigned error, that THE COURT OF APPEALS ERRED
IN HOLDING THAT THE ALLEGATIONS IN THE AMENDED AND SUPPLEMENTAL
COMPLAINT WERE SUFFICIENT TO HOLD PETITIONER MOLINA LIABLE TO PRIVATE
RESPONDENT IN HIS PERSONAL CAPACITY. In support of their contention petitioners submit
-

x x x (W)hen x x x Molina allegedly applied P171,853.80 payable to private


respondent to the losses suffered by petitioner ARB (ARBC) due to the
negligence and indifference of the private respondents security guards and when
petitioner Molina replaced the said security guards x x x Molina was not acting in
his personal capacity but x x x as officer of petitioner ARB (ARBC).

Since petitioner Molina did not so act in his personal capacity but only in his
official capacity as officer of petitioner ARB (ARBC) then petitioner Molina cannot
be held personally liable for the alleged liability of petitioner ARB (ARBC) x x x
x [18]

In affirming the order of the trial court denying petitioner Molinas Motion to Dismiss, the
appellate court ruled -

Similarly, We find no error committed by respondent Judge in denying the motion


to dismiss.

In paragraphs 5, 17, 18 of the amended and supplemental complaint, it is


alleged:

5. But fate would have it that defendant ARBC would


subsequently breach the aforesaid contracts by surreptitiously
preterminating the same and as precursor thereto, defendant
ARBC, through defendant Mark Molina, would impute against
plaintiff pretended and fabricated violations and baselessly blame
plaintiff for alleged losses of company properties by just deducting
the values thereof from plaintiffs billings without even complying
with the procedure agreed upon in the contracts x x x x

It may be pertinent to state that all these accusations and


imputations, albeit false and concocted, were made by defendant
Mark P. Molina x x x x

17. Such unsalutary breach of contract by defendant ARBC through defendant


Mark Molina has resulted to plaintiffs damage and prejudice by way of lost
income consisting of the unexpired portion of the contract, i.e., up to August 15,
1994, entailing a total amount of P300, 266.66 x x x x
The above allegations, particularly the subparagraph, "It may be pertinent to
state that all these accusations and imputations, albeit false and concocted, were
made by defendant Mark P. Molina," are sufficient statement of a cause of action
against petitioner Mark Molina in his personal capacity.[19]

In this regard, we agree with petitioners. It is basic that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it as well as from that of
any other legal entity to which it may be related. As a general rule, a corporation may not be
made to answer for acts or liabilities of its stockholders or those of the legal entities to which it
may be connected and vice versa. However, the veil of corporate fiction may be pierced when it
is used as a shield to further an end subversive of justice; or for purposes that could not have
been intended by the law that created it; or to defeat public convenience, justify wrong, protect
fraud, or defend crime; or to perpetuate deception; or as an alter ego, adjunct or business
conduit for the sole benefit of the stockholders.[20]

Prescinding from the foregoing, the general rule is that officers of a corporation are not
personally liable for their official acts unless it is shown that they have exceeded their
authority.[21]Article 31 of the Corporation Code is in point -

Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who


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

On the basis hereof, petitioner Molina could not be held jointly and severally liable for any
obligation which petitioner ARBC may be held accountable for, absent any proof of bad faith or
malice on his part. Corollarily, it is also incorrect on the part of the Court of Appeals to conclude
that there was a sufficient cause of action against Molina as to make him personally liable for
his actuations as Vice President for Operations of ARBC. A cursory reading of the records of the
instant case would reveal that Molina did not summarily withhold certain amounts from the
payroll of TBSS. Instead, he enumerated instances [22] which in his view were enough bases to
do so.

Finally, petitioners contend that THE COURT OF APPEALS ERRED IN HOLDING THAT THE
TRIAL COURT DID NOT GRAVELY ABUSE ITS DISCRETION IN GRANTING PRIVATE
RESPONDENTS MOTION FOR LEAVE TO FILE AMENDED AND SUPPLEMENTAL
COMPLAINT AND IN DENYING PETITIONER MOLINAS MOTION TO DISMISS. In support
hereof, petitioners submit that -

x x x (T)he trial court admitted the amended and supplemental complaint which
substantially changed the cause of action and theory of the case of the private
respondent. Therefore, there is (sic) abuse of discretion on the part of the trial
court contrary to the ruling of the Court of Appeals that there is none.[23]

As already discussed, the Amended and Supplemental Complaint did not substantially alter the
cause of action and theory of the case. Consequently, the trial court and the appellate court
could not be charged with grave abuse of discretion in admitting the same.
WHEREFORE, the PETITION is PARTIALLY GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. SP No. 36489 affirming the 9 December 1994 Order of the Regional Trial
Court-Br. 59, Makati City, which denied the Motion to Dismiss of petitioner Mark Molina is
REVERSED and SET ASIDE.

However, the assailed Decision of the appellate court in CA-G.R. SP No. 36330 affirming the 9
September 1994 Order of the Regional Trial Court-Br. 59, Makati City, granting TBS Security
and Investigation Agency's Motion for Leave to File Amended and Supplemental Complaint is
likewise AFFIRMED. The case is remanded to the trial court for further proceedings. No costs.

SO ORDERED.

JOSE C. TUPAZ IV and G.R. No. 145578


PETRONILA C. TUPAZ,
Petitioners,
Present:
Davide, Jr., C.J.,
Chairman,
- versus - Quisumbing,
Ynares-Santiago,
Carpio, and
Azcuna, JJ.

THE COURT OF APPEALS and


BANK OF THE PHILIPPINE Promulgated:
ISLANDS,
Respondents. November 18, 2005

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

DECISION
CARPIO, J.:

The Case

This is a petition for review[1] of the Decision[2] of the Court of Appeals dated 7 September 2000

and its Resolution dated 18 October 2000. The 7 September 2000 Decision affirmed the ruling of

the Regional Trial Court, Makati, Branch 144 in a case for estafa under Section 13, Presidential

Decree No. 115. The Court of Appeals Resolution of 18 October 2000 denied petitioners motion

for reconsideration.

The Facts

Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners) were Vice-President for

Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation (El Oro

Corporation). El Oro Corporation had a contract with the Philippine Army to supply the latter with

survival bolos.

To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El

Oro Corporation, applied with respondent Bank of the Philippine Islands (respondent bank) for

two commercial letters of credit. The letters of credit were in favor of El Oro Corporations

suppliers, Tanchaoco Manufacturing Incorporated[3] (Tanchaoco Incorporated) and Maresco

Rubber and Retreading Corporation[4] (Maresco Corporation). Respondent bank granted

petitioners application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco

Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco Corporation.

Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in

favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV (petitioner Jose

Tupaz) signed, in his personal capacity, a trust receipt corresponding to Letter of Credit No. 2-

00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to sell the goods covered by the
letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not

sold, on or before 29 December 1981.

On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation,

a trust receipt corresponding to Letter of Credit No. 2-00914-5 (for P294,000). Petitioners bound

themselves to sell the goods covered by that letter of credit and to remit the proceeds to

respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981.

After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro

Corporation, respondent bank paid the former P564,871.05 and P294,000, respectively.

Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made

several demands for payments but El Oro Corporation made partial payments only. On 27 June

1983 and 28 June 1983, respondent banks counsel[5] and its representative[6] respectively sent

final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its

debt because the Armed Forces of the Philippines had delayed paying for the survival bolos.

Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. 115

(Section 13)[7] or Trust Receipts Law (PD 115). After preliminary investigation, the then Makati

Fiscals Office found probable cause to indict petitioners. The Makati Fiscals Office filed the

corresponding Informations (docketed as Criminal Case Nos. 8848 and 8849) with the Regional

Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 (trial court) on

20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued. During the trial,

respondent bank presented evidence on the civil aspect of the cases.

The Ruling of the Trial Court

On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable

doubt. However, the trial court found petitioners solidarily liable with El Oro Corporation for the
balance of El Oro Corporations principal debt under the trust receipts. The dispositive portion of

the trial courts Decision provides:


WHEREFORE, judgment is hereby rendered ACQUITTING both accused
Jose C. Tupaz, IV and Petronila Tupaz based upon reasonable doubt.

However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz,


are hereby ordered, jointly and solidarily, to pay the Bank of the Philippine Islands
the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with
the stipulated interest at the rate of 18% per annum; plus 10% of the total amount
due as attorneys fees; P5,000.00 as expenses of litigation; and costs of the suit.[8]

In holding petitioners civilly liable with El Oro Corporation, the trial court held:

[S]ince the civil action for the recovery of the civil liability is deemed
impliedly instituted with the criminal action, as in fact the prosecution thereof was
actively handled by the private prosecutor, the Court believes that the El Oro
Engraver Corporation and both accused Jose C. Tupaz and Petronila Tupaz,
jointly and solidarily should be held civilly liable to the Bank of the Philippine
Islands. The mere fact that they were unable to collect in full from the AFP and/or
the Department of National Defense the proceeds of the sale of the delivered
survival bolos manufactured from the raw materials covered by the trust receipt
agreements is no valid defense to the civil claim of the said complainant and surely
could not wipe out their civil obligation. After all, they are free to institute an action
to collect the same.[9]

Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal

operates to extinguish [their] civil liability and (2) at any rate, they are not personally liable for El

Oro Corporations debts.

The Ruling of the Court of Appeals

In its Decision of 7 September 2000, the Court of Appeals affirmed the trial courts ruling. The

appellate court held:

It is clear from [Section 13, PD 115] that civil liability arising from the violation of
the trust receipt agreement is distinct from the criminal liability imposed therein. In
the case of Vintola vs. Insular Bank of Asia and America, our Supreme Court held
that acquittal in the estafa case (P.D. 115) is no bar to the institution of a civil action
for collection. This is because in such cases, the civil liability of the accused does
not arise ex delicto but rather based ex contractu and as such is distinct and
independent from any criminal proceedings and may proceed regardless of the
result of the latter. Thus, an independent civil action to enforce the civil liability may
be filed against the corporation aside from the criminal action against the
responsible officers or employees.

xxx

[W]e hereby hold that the acquittal of the accused-appellants from the
criminal charge of estafa did not operate to extinguish their civil liability under the
letter of credit-trust receipt arrangement with plaintiff-appellee, with which they
dealt both in their personal capacity and as officers of El Oro Engraver Corporation,
the letter of credit applicant and principal debtor.
Appellants argued that they cannot be held solidarily liable with their corporation,
El Oro Engraver Corporation, alleging that they executed the subject documents
including the trust receipt agreements only in their capacity as such corporate
officers. They said that these instruments are mere pro-forma and that they
executed these instruments on the strength of a board resolution of said
corporation authorizing them to apply for the opening of a letter of credit in favor of
their suppliers as well as to execute the other documents necessary to accomplish
the same.

Such contention, however, is contradicted by the evidence on record. The trust


receipt agreement indicated in clear and unmistakable terms that the accused
signed the same as surety for the corporation and that they bound themselves
directly and immediately liable in the event of default with respect to the obligation
under the letters of credit which were made part of the said agreement, without
need of demand. Even in the application for the letter of credit, it is likewise clear
that the undertaking of the accused is that of a surety as indicated [in] the following
words: In consideration of your establishing the commercial letter of credit herein
applied for substantially in accordance with the foregoing, the undersigned
Applicant and Surety hereby agree, jointly and severally, to each and all
stipulations, provisions and conditions on the reverse side hereof.

xxx

Having contractually agreed to hold themselves solidarily liable with El Oro


Engraver Corporation under the subject trust receipt agreements with appellee
Bank of the Philippine Islands, herein accused-appellants may not, therefore,
invoke the separate legal personality of the said corporation to evade their civil
liability under the letter of credit-trust receipt arrangement with said appellee,
notwithstanding their acquittal in the criminal cases filed against them. The trial
court thus did not err in holding the appellants solidarily liable with El Oro Engraver
Corporation for the outstanding principal obligation of P624,129.19 (as of January
23, 1992) with the stipulated interest at the rate of 18% per annum, plus 10% of
the total amount due as attorneys fees, P5,000.00 as expenses of litigation and
costs of suit.[10]
Hence, this petition. Petitioners contend that:

1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE


CIVIL LIABILITY OF PETITIONERS[;]

2. GRANTING WITHOUT ADMITTING THAT THE QUESTIONED


OBLIGATION WAS INCURRED BY THE CORPORATION, THE SAME IS
NOT YET DUE AND PAYABLE;

3. GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY


DUE AND PAYABLE, xxx PETITIONERS ARE NOT PERSONALLY LIABLE
TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF
CREDIT AS SURETY AS OFFICERS OF EL ORO, AND THEREFORE, AN
EXCLUSIVE LIABILITY OF EL ORO; [AND]

4. IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE


SIMULATED AND VOID.[11]

The Issues

The petition raises these issues:

(1) Whether petitioners bound themselves personally liable for El Oro Corporations debts

under the trust receipts;

(2) If so

(a) whether petitioners liability is solidary with El Oro Corporation; and

(b) whether petitioners acquittal of estafa under Section 13, PD 115 extinguished

their civil liability.

The Ruling of the Court


The petition is partly meritorious. We affirm the Court of Appeals ruling with the modification that

petitioner Jose Tupaz is liable as guarantor of El Oro Corporations debt under the trust receipt

dated 30 September 1981.

On Petitioners Undertaking Under


the Trust Receipts

A corporation, being a juridical entity, may act only through its directors, officers, and employees.

Debts incurred by these individuals, acting as such corporate agents, are not theirs but the direct

liability of the corporation they represent.[12] As an exception, directors or officers are personally

liable for the corporations debts only if they so contractually agree or stipulate.[13]

Here, the dorsal side of the trust receipts contains the following stipulation:

To the Bank of the Philippine Islands

In consideration of your releasing to under the terms of this Trust Receipt the goods
described herein, I/We, jointly and severally, agree and promise to pay to you, on
demand, whatever sum or sums of money which you may call upon me/us to pay
to you, arising out of, pertaining to, and/or in any way connected with, this Trust
Receipt, in the event of default and/or non-fulfillment in any respect of this
undertaking on the part of the said . I/we further agree that my/our liability in this
guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on
your part to take any steps or exhaust any legal remedies that you may have
against the said . before making demand upon me/us.[14] (Capitalization in the
original)

In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El

Oro Corporation. Thus, under petitioner Petronila Tupazs signature are the words Vice-

PresTreasurer and under petitioner Jose Tupazs signature are the words Vice-PresOperations.

By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro
Corporations obligation. In Ong v. Court of Appeals,[15] a corporate representative signed a

solidary guarantee clause in two trust receipts in his capacity as corporate representative. There,

the Court held that the corporate representative did not undertake to guarantee personally the

payment of the corporations debts, thus:

[P]etitioner did not sign in his personal capacity the solidary guarantee
clause found on the dorsal portion of the trust receipts. Petitioner placed his
signature after the typewritten words ARMCO INDUSTRIAL CORPORATION
found at the end of the solidary guarantee clause. Evidently, petitioner did not
undertake to guaranty personally the payment of the principal and interest of
ARMAGRIs debt under the two trust receipts.

Hence, for the trust receipt dated 9 October 1981, we sustain petitioners claim that they are not

personally liable for El Oro Corporations obligation.

For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose

Tupaz signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not

indicate that he was signing as El Oro Corporations Vice-President for Operations. Hence,

petitioner Jose Tupaz bound himself personally liable for El Oro Corporations debts. Not being a

party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under

such trust receipt.

The Nature of Petitioner Jose Tupazs Liability


Under the Trust Receipt Dated 30 September 1981

As stated, the dorsal side of the trust receipt dated 30 September 1981 provides:

To the Bank of the Philippine Islands

In consideration of your releasing to under the terms of this Trust Receipt the goods
described herein, I/We, jointly and severally, agree and promise to pay to you, on
demand, whatever sum or sums of money which you may call upon me/us to pay
to you, arising out of, pertaining to, and/or in any way connected with, this Trust
Receipt, in the event of default and/or non-fulfillment in any respect of this
undertaking on the part of the said . I/we further agree that my/our liability in
this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever
on your part to take any steps or exhaust any legal remedies that you may have
against the said . Before making demand upon me/us. (Underlining supplied;
capitalization in the original)

The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable

with El Oro Corporation for the latters debt under that trust receipt.

This is error.

In Prudential Bank v. Intermediate Appellate Court,[16] the Court interpreted a

substantially identical clause[17] in a trust receipt signed by a corporate officer who bound himself

personally liable for the corporations obligation. The petitioner in that case contended that the

stipulation we jointly and severally agree and undertake rendered the corporate officer solidarily

liable with the corporation. We dismissed this claim and held the corporate officer liable as

guarantor only. The Court further ruled that had there been more than one signatories to the trust

receipt, the solidary liability would exist between the guarantors. We held:

Petitioner [Prudential Bank] insists that by virtue of the clear wording of the
xxx clause x x x we jointly and severally agree and undertake x x x, and the
concluding sentence on exhaustion, [respondent] Chis liability therein is solidary.

xxx

Our xxx reading of the questioned solidary guaranty clause yields no other
conclusion than that the obligation of Chi is only that of a guarantor. This is further
bolstered by the last sentence which speaks of waiver of exhaustion, which,
nevertheless, is ineffective in this case because the space therein for the party
whose property may not be exhausted was not filled up. Under Article 2058 of the
Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor
before he may be held liable for the obligation. Petitioner likewise admits that the
questioned provision is a solidary guaranty clause, thereby clearly distinguishing
it from a contract of surety. It, however, described the guaranty as solidary
between the guarantors; this would have been correct if two (2) guarantors had
signed it. The clause we jointly and severally agree and undertake refers to the
undertaking of the two (2) parties who are to sign it or to the liability existing
between themselves. It does not refer to the undertaking between either one or
both of them on the one hand and the petitioner on the other with respect to the
liability described under the trust receipt. xxx
Furthermore, any doubt as to the import or true intent of the solidary
guaranty clause should be resolved against the petitioner. The trust receipt,
together with the questioned solidary guaranty clause, is on a form drafted and
prepared solely by the petitioner; Chis participation therein is limited to the affixing
of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be
strictly construed against the party responsible for its preparation. [18] (Underlining
supplied; italicization in the original)

However, respondent banks suit against petitioner Jose Tupaz stands despite the Courts

finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment

against a guarantor. The guarantor can still demand deferment of the execution of the judgment

against him until after the assets of the principal debtor shall have been exhausted. [19] Second,

the benefit of excussion may be waived.[20] Under the trust receipt dated 30 September 1981,

petitioner Jose Tupaz waived excussion when he agreed that his liability in [the] guaranty shall

be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent

bank] to take any steps or exhaust any legal remedies xxx. The clear import of this stipulation is

that petitioner Jose Tupaz waived the benefit of excussion under his guarantee.

As guarantor, petitioner Jose Tupaz is liable for El Oro Corporations principal debt and

other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust

receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9 October 1981)

provided for payment of attorneys fees equivalent to 10% of the total amount due and an interest

at the rate of 7% per annum, or at such other rate as the bank may fix, from the date due until

paid xxx.[21] In the applications for the letters of credit, the parties stipulated that drafts drawn

under the letters of credit are subject to interest at the rate of 18% per annum.[22]
The lower courts correctly applied the 18% interest rate per annum considering that the

face value of each of the trust receipts is based on the drafts drawn under the letters of credit.

Based on the guidelines laid down in

Eastern Shipping Lines, Inc. v. Court of Appeals,[23] the accrued stipulated interest earns 12%

interest per annum from the time of the filing of the Informations in the Makati Regional Trial Court

on 17 January 1984. Further, the total amount due as of the date of the finality of this Decision

will earn interest at 18% per annum until fully paid since this was the stipulated rate in the

applications for the letters of credit.[24]

The accounting of El Oro Corporations debts as of 23 January 1992, which the trial court

used, is no longer useful as it does not specify the amounts owing under each of the trust

receipts. Hence, in the execution of this Decision, the trial court shall compute El Oro Corporations

total liability under each of the trust receipts dated 30 September 1981 and 9 October 1981 based

on the following formula:[25]

TOTAL AMOUNT DUE = [principal + interest + interest on interest] partial


payments made[26]
Interest = principal x 18 % per annum x no. of years from due date[27] until
finality of judgment

Interest on interest = interest computed as of the filing of the complaint (17


January 1984) x 12% x no. of years until finality of judgment

Attorneys fees is 10% of the total amount computed as of finality of


judgment

Total amount due as of the date of finality of judgment will earn an interest
of 18% per annum until fully paid.

In so delegating this task, we reiterate what we said in Rizal Commercial Banking Corporation

v. Alfa RTW Manufacturing Corporation[28] where we also ordered the trial court to compute the

amount of obligation due based on a formula substantially similar to that indicated above:
The total amount due xxx [under] the xxx contract[] xxx may be easily
determined by the trial court through a simple mathematical computation based on
the formula specified above. Mathematics is an exact science, the application of
which needs no further proof from the parties.

Petitioner Jose Tupazs Acquittal did not


Extinguish his Civil Liability

The rule is that where the civil action is impliedly instituted with the criminal action, the civil

liability is not extinguished by acquittal

[w]here the acquittal is based on reasonable doubt xxx as only preponderance of


evidence is required in civil cases; where the court expressly declares that the
liability of the accused is not criminal but only civil in nature xxx as, for instance, in
the felonies of estafa, theft, and malicious mischief committed by certain relatives
who thereby incur only civil liability (See Art. 332, Revised Penal Code);
and, where the civil liability does not arise from or is not based upon the criminal
act of which the accused was acquitted xxx.[29] (Emphasis supplied)

Here, respondent bank chose not to file a separate civil action[30] to recover payment under

the trust receipts. Instead, respondent bank sought to recover payment in Criminal Case Nos.

8848 and 8849. Although the trial court acquitted petitioner Jose Tupaz, his acquittal did not

extinguish his civil liability. As the Court of Appeals correctly held, his liability arose not from the

criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex contractu)

of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September 1981 in

his personal capacity.

On the other Matters Petitioners Raise

Petitioners raise for the first time in this appeal the contention that El Oro Corporations debts

under the trust receipts are not yet due and demandable. Alternatively, petitioners assail the trust
receipts as simulated. These assertions have no merit. Under the terms of the trust receipts dated

30 September 1981 and 9 October 1981, El Oro Corporations debts fell due on 29 December

1981 and 8 December 1981, respectively.

Neither is there merit to petitioners claim that the trust receipts were simulated. During the trial,

petitioners did not deny applying for the letters of credit and subsequently executing the trust

receipts to secure payment of the drafts drawn under the letters of credit.

WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of Appeals

dated 7 September 2000 and its Resolution dated 18 October 2000 with the

following MODIFICATIONS:

1) El Oro Engraver Corporation is principally liable for the total amount due under the

trust receipts dated 30 September 1981 and 9 October 1981, as computed by the

Regional Trial Court, Makati, Branch 144, upon finality of this Decision, based on the

formula provided above;

2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporations total debt under

the trust receipt dated 30 September 1981 as thus computed by the Regional Trial

Court, Makati, Branch 144; and

3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust

receipt dated 9 October 1981.

SO ORDERED.
[A.M. No. P-01-1464. March 13, 2001]

SALVADOR O. BOOC, complainant, vs. MALAYO B. BANTUAS, SHERIFF IV, RTC,


BRANCH 3, ILIGAN CITY, respondent.

RESOLUTION
DE LEON, JR., J.:

An affidavit-complaint dated August 31, 1999 was filed before the Office of the Court
Administrator (OCA) by Salvador Booc charging Malayo B. Bantuas, Sheriff IV of the Regional
Trial Court (RTC), Branch 3, Iligan City with Gross Ignorance of the Law and Grave Abuse of
Authority relative to Civil Case No. 1718 entitled, Felipe G. Javier, Jr. vs. Rufino Booc.
Complainant is the President of five Star Marketing Corporation. On August 22, 1994 herein
respondent Sheriff Malayo B. Bantuas, pursuant to a Writ of Execution issued in Civil Case No.
1718 filed a Notice of Levy with the Register of Deeds, Iligan City over a parcel of land covered
by TCT No. T-19209 and owned by Five Star Marketing Corporation. Complainant alleged that
respondent sheriff, at the instance of plaintiff, former Judge Felipe Javier, proceeded to file the
Notice of Levy despite respondent sheriffs knowledge that the property is owned by the
corporation which was not a party to the civil case.
On July 31, 1995, the corporation through the complainant reiterated to respondent sheriff
that it was the owner of the property and Rufino Booc had no share or interest in the
corporation. Hence, the corporation demanded that respondent sheriff cancel the notice of levy,
otherwise the corporation would take the appropriate legal steps to protect its interest.
Respondent sheriff, however, did not heed the corporations demand inasmuch as on August
20, 1999 the corporation received a Notice of Sale on Execution of Real Property, dated August
11, 1999, covering the subject property. Respondent sheriff scheduled the public auction on
August 31, 1999. Consequently, the corporation, to protect its rights and interests, was compelled
to file an action for Quieting of Title with the RTC, Branch 4 of Iligan City.
Respondent sheriff, in his answer to the complaint filed against him before the OCA, said that
he filed a Notice of Levy with the Register of Deeds of Iligan City on the share, rights, interest and
participation of Rufino Booc in the parcel of land owned by Five Star Marketing
Corporation. Respondent sheriff claimed that Rufino Booc is the owner of around 200 shares of
stock in said corporation according to a document issued by the Securities and Exchange
Commission.
Respondent sheriff stressed that the levy was made on the share, rights and/or interest and
participation which Rufino Booc, as president and stockholder, may have in the parcel of land
owned by Five Star Marketing Corporation. Claiming that he was only acting pursuant to his duties
as sheriff, respondent cited Section 15, Rule 39 of the Rules of Court which states that

x x x The officer must enforce an execution of a money judgment by levying on all the property,
real and personal of every name and nature whatsoever, and which may be disposed of for
value of the judgment debtor not exempt from execution.
Real property stocks, shares, debts, credits, and other personal property, or any interest in
either real or personal property, may be levied upon in like manner and with like effect as under
a writ of execution.

Respondent sheriff said that while complainant Salvador Booc made a demand for the
cancellation of levy made, the former deemed it wise to have the judgment satisfied in accordance
with Section 39 of the Rules of Court. Respondent sheriff added that the trial court where the case
for Quieting of Title filed by the corporation was pending ordered the auction sale of the shares of
stock of Rufino Booc. The corporation allegedly never questioned said order of the RTC.
Finally, respondent sheriff averred that the corporation is merely a dummy of Rufino Booc
and his brother Sheikding Booc. Respondnet sheriff submitted as an exhibit an affidavit executed
by Sheikding Booc wherein the latter admitted that when Judge Felipe Javier won in the civil case
against Rufino Booc, the latter simulated a transfer of his shares of stock in Five Star Marketing
Corporation so that the property may not be levied upon.[1]
Complainant, in his reply to respondent sheriffs comment belied the latters allegation that the
corporation never questioned the auction sale. Complainant averred that contrary to the
respondent sheriffs assertion, the trial court in fact issued a restraining order which was withdrawn
after plaintiffs counsel manifested that the respondent sheriff would only auction Rufino Boocs
shares of stock in the corporation and not the subject property.
The OCA found respondent sheriff liable for the charges filed against him, stating that
respondent sheriff acted in bad faith when he auctioned the subject property inasmuch as Judge
Mangotara had already warned him that the public auction should pertain only to shares of stock
owned by Rufino Booc in Five Star Marketing Corporation. Respondent sheriff, however, in
violation of the order issued by Judge Mangotara and in disregard of the manifestation filed by
plaintiffs counsel that the sale should involve only the shares of stock, proceeded to auction the
subject property. The OCA, thus, made the recommendation that:
1) The instant case be RE-DOCKETED as a regular administrative matter; and
2) Respondent Sheriff Malayo B. Bantuas be FINED in the amount of Ten Thousand
Pesos (P10,000.00) for conducting the auction sale in violation of the terms of the
order issued by Acting Presiding Judge Mamindiara P. Mangotara with a STERN
WARNING that a commission of the same or similar acts in the future shall be dealt
with more severely.
A careful scrutiny of the records shows that respondent sheriff, in filing a notice of levy on the
subject property as well as in the certificate of sale, did not fail to mention that what was being
levied upon and sold was whatever shares, rights, interests and participation Rufino Booc, as
president and stockholder in Five Star Marketing Corporation may have on subject
property. Respondent sheriff, however, overstepped his authority when he disregarded the
distinct and separate personality of the corporation from that of Rufino Booc as stockholder of the
corporation by levying on the property of the corporation.Respondent sheriff should not have
made the levy based on mere conjecture that since Rufino Booc is a stockholder and officer of
the corporation, then he might have an interest or share in the subject property.
It is settled that a corporation is clothed with a personality separate and distinct from that of
its stockholders. It may not be held liable for the personal indebtedness of its stockholders. In the
case of Del Rosario vs. Bascar, Jr.,[2] we imposed the fine of P5,000.00 on respondent sheriff
Bascar for allocating unto himself the power of the court to pierce the veil of corporate entity and
improvidently assuming that since complainant Esperanza del Rosario is the treasurer of Miradel
Development Corporation, they are one and the same. In the said case we reiterated the principle
that the mere fact that one is a president of the corporation does not render the property he owns
or possesses the property of the corporation since the president, as an individual, and the
corporation are separate entities.
Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority
when he levied the property of Five Star Marketing Corporation. The fact, however, that
respondent sheriff, in levying said property, had stated in the notice of levy as well as in the
certificate of sale that what was being levied upon and sold was whatever rights, shares interest
and/or participation Rufino Booc, as stockholder and president in the corporation, may have on
the subject property, shows that respondent sheriffs conduct was impelled partly by ignorance of
Corporation Law and partly by mere overzealousness to comply with his duties and not by bad
faith or blatant disregard of the trial courts order. Hence, we deem that the penalty of a fine of
Five Thousand Pesos (P5,000.00) to be imposed on respondent sheriff would suffice.
WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of the RTC of Iligan City , Branch
3, is hereby FINED in the sum of Five Thousand Pesos (P5,000.00) with the STERN WARNING
that a repetition of the same or similar acts in the future will be dealt with more severely.
So ordered.

G.R. No. 82797 February 27, 1991

GOOD EARTH EMPORIUM INC., and LIM KA PING, petitioners,


vs.
HONORABLE COURT OF APPEALS and ROCES-REYES REALTY INC., respondents.

A.E. Dacanay for petitioners.


Antonio Quintos Law Office for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the December 29, 1987 decision * of the Court of
Appeals in CA-G.R. No. 11960 entitled "ROCES-REYES REALTY, INC. vs. HONORABLE
JUDGE REGIONAL TRIAL COURT OF MANILA, BRANCH 44, GOOD EARTH EMPORIUM,
INC. and LIM KA PING" reversing the decision of respondent Judge ** of the Regional Trial
Court of Manila, Branch 44 in Civil Case No. 85-30484, which reversed the resolution of the
Metropolitan Trial Court Of Manila, Branch 28 in Civil Case No. 09639, *** denying herein
petitioners' motion to quash the alias writ of execution issued against them.

As gathered from the records, the antecedent facts of this case, are as follows:

A Lease Contract, dated October 16, 1981, was entered into by and between ROCES-REYES
REALTY, INC., as lessor, and GOOD EARTH EMPORIUM, INC., as lessee, for a term of three
years beginning November 1, 1981 and ending October 31, 1984 at a monthly rental of
P65,000.00 (Rollo, p. 32; Annex "C" of Petition). The building which was the subject of the
contract of lease is a five-storey building located at the corner of Rizal Avenue and Bustos
Street in Sta. Cruz, Manila.
From March 1983, up to the time the complaint was filed, the lessee had defaulted in the
payment of rentals, as a consequence of which, private respondent ROCES-REYES REALTY,
INC., (hereinafter designated as ROCES for brevity) filed on October 14, 1984, an ejectment
case (Unlawful Detainer) against herein petitioners, GOOD EARTH EMPORIUM, INC. and LIM
KA PING, hereinafter designated as GEE, (Rollo, p. 21; Annex "B" of the Petition). After the
latter had tendered their responsive pleading, the lower court (MTC, Manila) on motion of Roces
rendered judgment on the pleadings dated April 17, 1984, the dispositive portion of which
states:

Judgment is hereby rendered ordering defendants (herein petitioners) and all persons
claiming title under him to vacate the premises and surrender the same to the plaintiffs
(herein respondents); ordering the defendants to pay the plaintiffs the rental of
P65,000.00 a month beginning March 1983 up to the time defendants actually vacate
the premises and deliver possession to the plaintiff; to pay attorney's fees in the amount
of P5,000.00 and to pay the costs of this suit. (Rollo, p. 111; Memorandum of
Respondents)

On May 16, 1984, Roces filed a motion for execution which was opposed by GEE on May 28,
1984 simultaneous with the latter's filing of a Notice of Appeal (Rollo, p. 112, Ibid.). On June 13,
1984, the trial court resolved such motion ruling:

After considering the motion for the issuance of a writ of execution filed by counsel for
the plaintiff (herein respondents) and the opposition filed in relation thereto and finding
that the defendant failed to file the necessary supersedeas bond, this court resolved to
grant the same for being meritorious. (Rollo, p. 112)

On June 14, 1984, a writ of execution was issued by the lower court. Meanwhile, the appeal
was assigned to the Regional Trial Court (Manila) Branch XLVI. However, on August 15, 1984,
GEE thru counsel filed with the Regional Trial Court of Manila, a motion to withdraw
appeal citing as reason that they are satisfied with the decision of the Metropolitan Trial Court of
Manila, Branch XXVIII, which said court granted in its Order of August 27, 1984 and the records
were remanded to the trial court (Rollo, p. 32; CA Decision). Upon an ex-parte Motion of
ROCES, the trial court issued an Alias Writ of Execution dated February 25, 1985 (Rollo, p. 104;
Annex "D" of Petitioner's Memorandum), which was implemented on February 27, 1985. GEE
thru counsel filed a motion to quash the writ of execution and notice of levy and an urgent Ex-
parte Supplemental Motion for the issuance of a restraining order, on March 7, and 20, 1985,
respectively. On March 21, 1985, the lower court issued a restraining order to the sheriff to hold
the execution of the judgment pending hearing on the motion to quash the writ of execution
(Rollo, p. 22; RTC Decision). While said motion was pending resolution, GEE filed a Petition for
Relief from judgment before another court, Regional Trial Court of Manila, Branch IX, which
petition was docketed as Civil Case No. 80-30019, but the petition was dismissed and the
injunctive writ issued in connection therewith set aside. Both parties appealed to the Court of
Appeals; GEE on the order of dismissal and Roces on denial of his motion for indemnity, both
docketed as CA-G.R. No. 15873-CV. Going back to the original case, the Metropolitan Trial
Court after hearing and disposing some other incidents, promulgated the questioned Resolution,
dated April 8, 1985, the dispositive portion of which reads as follows:

Premises considered, the motion to quash the writ is hereby denied for lack of merit.
The restraining orders issued on March 11 and 23, 1985 are hereby recalled, lifted and
set aside. (Rollo, p. 20, MTC Decision)

GEE appealed and by coincidence. was raffled to the same Court, RTC Branch IX. Roces
moved to dismiss the appeal but the Court denied the motion. On certiorari, the Court of
Appeals dismissed Roces' petition and remanded the case to the RTC. Meantime, Branch IX
became vacant and the case was re-raffled to Branch XLIV.

On April 6, 1987, the Regional Trial Court of Manila, finding that the amount of P1 million
evidenced by Exhibit "I" and another P1 million evidenced by the pacto de retro sale instrument
(Exhibit "2") were in full satisfaction of the judgment obligation, reversed the decision of the
Municipal Trial Court, the dispositive portion of which reads:

Premises considered, judgment is hereby rendered reversing the Resolution appealed


from quashing the writ of execution and ordering the cancellation of the notice of levy
and declaring the judgment debt as having been fully paid and/or Liquidated. (Rollo, p.
29).

On further appeal, the Court of Appeals reversed the decision of the Regional Trial Court and
reinstated the Resolution of the Metropolitan Trial Court of Manila, the dispositive portion of
which is as follows:

WHEREFORE, the judgment appealed from is hereby REVERSED and the Resolution
dated April 8, 1985, of the Metropolitan Trial Court of Manila Branch XXXIII is hereby
REINSTATED. No pronouncement as to costs. (Rollo, p. 40).

GEE's Motion for Reconsideration of April 5, 1988 was denied (Rollo, p. 43). Hence, this
petition.

The main issue in this case is whether or not there was full satisfaction of the judgment debt in
favor of respondent corporation which would justify the quashing of the Writ of Execution.

A careful study of the common exhibits (Exhibits 1/A and 2/B) shows that nowhere in any of said
exhibits was there any writing alluding to or referring to any settlement between the parties of
petitioners' judgment obligation (Rollo, pp. 45-48).

Moreover, there is no indication in the receipt, Exhibit "1", that it was in payment, full or partial,
of the judgment obligation. Likewise, there is no indication in the pacto de retro sale which was
drawn in favor of Jesus Marcos Roces and Marcos V. Roces and not the respondent
corporation, that the obligation embodied therein had something to do with petitioners' judgment
obligation with respondent corporation.

Finding that the common exhibit, Exhibit 1/A had been signed by persons other than judgment
creditors (Roces-Reyes Realty, Inc.) coupled with the fact that said exhibit was not even alleged
by GEE and Lim Ka Ping in their original motion to quash the alias writ of execution (Rollo, p.
37) but produced only during the hearing (Ibid.) which production resulted in petitioners having
to claim belatedly that there was an "overpayment" of about half a million pesos (Rollo, pp. 25-
27) and remarking on the utter absence of any writing in Exhibits "1/A" and "2/B" to indicate
payment of the judgment debt, respondent Appellate Court correctly concluded that there was in
fact no payment of the judgment debt. As aptly observed by the said court:
What immediately catches one's attention is the total absence of any writing alluding to
or referring to any settlement between the parties of private respondents' (petitioners')
judgment obligation. In moving for the dismissal of the appeal Lim Ka Ping who was then
assisted by counsel simply stated that defendants (herein petitioners) are satisfied with
the decision of the Metropolitan Trial Court (Records of CA, p. 54).

Notably, in private respondents' (petitioners') Motion to Quash the Writ of Execution and
Notice of Levy dated March 7, 1985, there is absolutely no reference to the alleged
payment of one million pesos as evidenced by Exhibit 1 dated September 20, 1984. As
pointed out by petitioner (respondent corporation) this was brought out by Linda Panutat,
Manager of Good Earth only in the course of the latter's testimony. (Rollo, p. 37)

Article 1240 of the Civil Code of the Philippines provides that:

Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.

In the case at bar, the supposed payments were not made to Roces-Reyes Realty, Inc. or to its
successor in interest nor is there positive evidence that the payment was made to a person
authorized to receive it. No such proof was submitted but merely inferred by the Regional Trial
Court (Rollo, p. 25) from Marcos Roces having signed the Lease Contract as President which
was witnessed by Jesus Marcos Roces. The latter, however, was no longer President or even
an officer of Roces-Reyes Realty, Inc. at the time he received the money (Exhibit "1") and
signed the sale with pacto de retro (Exhibit "2"). He, in fact, denied being in possession of
authority to receive payment for the respondent corporation nor does the receipt show that he
signed in the same capacity as he did in the Lease Contract at a time when he was President
for respondent corporation (Rollo, p. 20, MTC decision).

On the other hand, Jesus Marcos Roces testified that the amount of P1 million evidenced by the
receipt (Exhibit "1") is the payment for a loan extended by him and Marcos Roces in favor of Lim
Ka Ping. The assertion is home by the receipt itself whereby they acknowledged payment of the
loan in their names and in no other capacity.

A corporation has a personality distinct and separate from its individual stockholders or
members. Being an officer or stockholder of a corporation does not make one's property also of
the corporation, and vice-versa, for they are separate entities (Traders Royal Bank v. CA-G.R.
No. 78412, September 26, 1989; Cruz v. Dalisay, 152 SCRA 482). Shareowners are in no legal
sense the owners of corporate property (or credits) which is owned by the corporation as a
distinct legal person (Concepcion Magsaysay-Labrador v. CA-G.R. No. 58168, December 19,
1989). As a consequence of the separate juridical personality of a corporation, the corporate
debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit
that of the corporation (Prof. Jose Nolledo's "The Corporation Code of the Philippines, p. 5,
1988 Edition, citing Professor Ballantine).

The absence of a note to evidence the loan is explained by Jesus Marcos Roces who testified
that the IOU was subsequently delivered to private respondents (Rollo, pp. 97-98). Contrary to
the Regional Trial Court's premise that it was incumbent upon respondent corporation to prove
that the amount was delivered to the Roces brothers in the payment of the loan in the latter's
favor, the delivery of the amount to and the receipt thereof by the Roces brothers in their names
raises the presumption that the said amount was due to them.1âwphi1 There is a disputable
presumption that money paid by one to the other was due to the latter (Sec. 5(f) Rule 131,
Rules of Court). It is for GEE and Lim Ka Ping to prove otherwise. In other words, it is for the
latter to prove that the payments made were for the satisfaction of their judgment debt and not
vice versa.

The fact that at the time payment was made to the two Roces brothers, GEE was also indebted
to respondent corporation for a larger amount, is not supportive of the Regional Trial Court's
conclusions that the payment was in favor of the latter, especially in the case at bar where the
amount was not receipted for by respondent corporation and there is absolutely no indication in
the receipt from which it can be reasonably inferred, that said payment was in satisfaction of the
judgment debt. Likewise, no such inference can be made from the execution of the pacto de
retro sale which was not made in favor of respondent corporation but in favor of the two Roces
brothers in their individual capacities without any reference to the judgment obligation in favor of
respondent corporation.

In addition, the totality of the amount covered by the receipt (Exhibit "1/A") and that of the sale
with pacto de retro(Exhibit "2/B") all in the sum of P2 million, far exceeds petitioners' judgment
obligation in favor of respondent corporation in the sum of P1,560,000.00 by P440,000.00,
which militates against the claim of petitioner that the aforesaid amount (P2M) was in full
payment of the judgment obligation.

Petitioners' explanation that the excess is interest and advance rentals for an extension of the
lease contract (Rollo, pp. 25-28) is belied by the absence of any interest awarded in the case
and of any agreement as to the extension of the lease nor was there any such pretense in the
Motion to Quash the Alias Writ of Execution.

Petitioners' averments that the respondent court had gravely abused its discretion in arriving at
the assailed factual findings as contrary to the evidence and applicable decisions of this
Honorable Court are therefore, patently unfounded. Respondent court was correct in stating that
it "cannot go beyond what appears in the documents submitted by petitioners themselves
(Exhibits "1" and "2") in the absence of clear and convincing evidence" that would support its
claim that the judgment obligation has indeed been fully satisfied which would warrant the
quashal of the Alias Writ of Execution.

It has been an established rule that when the existence of a debt is fully established by the
evidence (which has been done in this case), the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such a defense to the claim of
the plaintiff creditor (herein respondent corporation) (Chua Chienco v. Vargas, 11 Phil. 219;
Ramos v. Ledesma, 12 Phil. 656; Pinon v. De Osorio, 30 Phil. 365). For indeed, it is well-
entrenched in Our jurisprudence that each party in a case must prove his own affirmative
allegations by the degree of evidence required by law (Stronghold Insurance Co. v. CA, G.R.
No. 83376, May 29,1989; Tai Tong Chuache & Co. v. Insurance Commission, 158 SCRA 366).

The appellate court cannot, therefore, be said to have gravely abused its discretion in finding
lack of convincing and reliable evidence to establish payment of the judgment obligation as
claimed by petitioner. The burden of evidence resting on the petitioners to establish the facts
upon which their action is premised has not been satisfactorily discharged and therefore, they
have to bear the consequences.
PREMISES CONSIDERED, the petition is hereby DENIED and the Decision of the Respondent
court is hereby AFFIRMED, reinstating the April 8, 1985 Resolution of the Metropolitan Trial
Court of Manila.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.


[G.R. No. 153535. July 28, 2005]
SOLIDBANK CORPORATION, petitioner, vs. MINDANAO FERROALLOY CORPORATION,
Spouses JONG-WON HONG and SOO-OK KIM HONG,*TERESITA CU, and RICARDO
P. GUEVARA and Spouse,** respondents.
DECISION
PANGANIBAN, J.:
To justify an award for moral and exemplary damages under Articles 19 to 21 of the Civil Code
(on human relations), the claimants must establish the other partys malice or bad faith by clear
and convincing evidence.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the December
21, 2001 Decision[2] and the May 15, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR
CV No. 67482. The CA disposed as follows:
IN THE LIGHT OF ALL THE FOREGOING, the appeal is DISMISSED. The Decision appealed
from is AFFIRMED.[4]
The assailed Resolution, on the other hand, denied petitioners Motion for Reconsideration.
The Facts
The CA narrated the antecedents as follows:
The Maria Cristina Chemical Industries (MCCI) and three (3) Korean corporations, namely, the
Ssangyong Corporation, the Pohang Iron and Steel Company and the Dongil Industries
Company, Ltd., decided to forge a joint venture and establish a corporation, under the name of
the Mindanao Ferroalloy Corporation (Corporation for brevity) with principal offices in Iligan City.
Ricardo P. Guevara was the President and Chairman of the Board of Directors of the
Corporation. Jong-Won Hong, the General Manager of Ssangyong Corporation, was the Vice-
President of the Corporation for Finance, Marketing and Administration. So was Teresita R. Cu.
On November 26, 1990, the Board of Directors of the Corporation approved a Resolution
authorizing its President and Chairman of the Board of Directors or Teresita R. Cu, acting
together with Jong-Won Hong, to secure an omnibus line in the aggregate amount
of P30,000,000.00 from the Solidbank x x x.
xxxxxxxxx
In the meantime, the Corporation started its operations sometime in April, 1991. Its
indebtedness ballooned to P200,453,686.69 compared to its assets of only P65,476,000.00. On
May 21, 1991, the Corporation secured an ordinary time loan from the Solidbank in the amount
of P3,200,000.00. Another ordinary time loan was granted by the Bank to the Corporation on
May 28, 1991, in the amount of P1,800,000.00 or in the total amount of P5,000,000.00, due on
July 15 and 26, 1991, respectively.
However, the Corporation and the Bank agreed to consolidate and, at the same time,
restructure the two (2) loan availments, the same payable on September 20, 1991. The
Corporation executed Promissory Note No. 96-91-00865-6 in favor of the Bank evidencing its
loan in the amount of P5,160,000.00, payable on September 20, 1991. Teresita Cu and Jong-
Won Hong affixed their signatures on the note. To secure the payment of the said loan, the
Corporation, through Jong-Won Hong and Teresita Cu, executed a Deed of Assignment in favor
of the Bank covering its rights, title and interest to the following:
The entire proceeds of drafts drawn under Irrevocable Letter of Credit No. M-S-041-2002080
opened with The Mitsubishi Bank Ltd. Tokyo dated June 13, 1991 for the account of Ssangyong
Japan Corporation, 7F. Matsuoka-Tamura-Cho Bldg., 22-10, 5-Chome, Shimbashi, Minato-Ku,
Tokyo, Japan up to the extent of US$197,679.00
The Corporation likewise executed a Quedan, by way of additional security, under which the
Corporation bound and obliged to keep and hold, in trust for the Bank or its Order, Ferrosilicon
for US$197,679.00. Jong-Won Hong and Teresita Cu affixed their signatures thereon for the
Corporation. The Corporation, also, through Jong-Won Hong and Teresita Cu, executed a Trust
Receipt Agreement, by way of additional security for said loan, the Corporation undertaking to
hold in trust, for the Bank, as its property, the following:
1. THE MITSUBISHI BANK LTD., Tokyo L/C No. M-S-041-2002080 for account of Ssangyong
Japan Corporation, Tokyo, Japan for US$197,679.00 Ferrosilicon to expire September 20,
1991.
2. SEC QUEDAN NO. 91-476 dated June 26, 1991 covering the following:
Ferrosilicon for US$197,679.00
However, shortly after the execution of the said deeds, the Corporation stopped its operations.
The Corporation failed to pay its loan availments from the Bank inclusive of accrued interest. On
February 11, 1992, the Bank sent a letter to the Corporation demanding payment of its loan
availments inclusive of interests due. The Corporation failed to comply with the demand of the
Bank. On November 23, 1992, the Bank sent another letter to the [Corporation] demanding
payment of its account which, by November 23, 1992, had amounted to P7,283,913.33. The
Corporation again failed to comply with the demand of the Bank.
On January 6, 1993, the Bank filed a complaint against the Corporation with the Regional Trial
Court of Makati City, entitled and docketed as Solidbank Corporation vs. Mindanao Ferroalloy
Corporation, Sps. Jong-Won Hong and the Sps. Teresita R. Cu, Civil Case No. 93-038 for Sum
of Money with a plea for the issuance of a writ of preliminary attachment. x x x
xxxxxxxxx
Under its Amended Complaint, the Plaintiff alleged that it impleaded Ricardo Guevara and his
wife as Defendants because, [among others]:
Defendants JONG-WON HONG and TERESITA CU, are the Vice-Presidents of defendant
corporation, and also members of the companys Board of Directors. They are impleaded as
joint and solidary debtors of [petitioner] bank having signed the Promissory Note, Quedan, and
Trust Receipt agreements with [petitioner], in this case.
xxxxxxxxx
[Petitioner] likewise filed a criminal complaint x x x entitled and docketed as Solidbank
Corporation vs. Ricardo Guevara, Teresita R. Cu and Jong Won Hong x x x for Violation of P.D.
115. On April 14, 1993, the investigating Prosecutor issued a Resolution finding no probable
cause for violation of P.D. 115 against the Respondents as the goods covered by the quedan
were nonexistent:
xxxxxxxxx
In their Answer to the complaint [in the civil case], the Spouses Jong-Won Hong and Soo-ok
Kim Hong alleged, inter alia, that [petitioner] had no cause of action against them as:
x x x the clean loan of P5.1 M obtained was a corporate undertaking of defendant
MINFACO executed through its duly authorized representatives, Ms. Teresita R. Cu and Mr.
Jong-Won Hong, both Vice Presidents then of MINFACO. x x x.
xxxxxxxxx
[On their part, respondents] Teresita Cu and Ricardo Guevara alleged that [petitioner] had no
cause of action against them because: (a) Ricardo Guevara did not sign any of the documents
in favor of [petitioner]; (b) Teresita Cu signed the Promissory Note, Deed of Assignment, Trust
Receipt and Quedan in blank and merely as representative and, hence, for and in behalf of the
Defendant Corporation and, hence, was not personally liable to [petitioner].
In the interim, the Corporation filed, on June 20, 1994, a Petition, with the Regional Trial Court
of Iligan City, for Voluntary Insolvency x x x.
xxxxxxxxx
Appended to the Petition was a list of its creditors, including [petitioner], for the amount
of P8,144,916.05. The Court issued an Order, on July 12, 1994, finding the Petition sufficient in
form and substance x x x.
xxxxxxxxx
In view of said development, the Court issued an Order, in Civil Case No. 93-038, suspending
the proceedings as against the Defendant Corporation but ordering the proceedings to proceed
as against the individual defendants x x x.
xxxxxxxxx
On December 10, 1999, the Court rendered a Decision dismissing the complaint for lack of
cause of action of [petitioner] against the Spouses Jong-Won Hong, Teresita Cu and the
Spouses Ricardo Guevara, x x x.
xxxxxxxxx
In dismissing the complaint against the individual [respondents], the Court a quo found and
declared that [petitioner] failed to adduce a morsel of evidence to prove the personal liability of
the said [respondents] for the claims of [petitioner] and that the latter impleaded the
[respondents], in its complaint and amended complaint, solely to put more pressure on the
Defendant Corporation to pay its obligations to [petitioner].
[Petitioner] x x x interposed an appeal, from the Decision of the Court a quo and posed, for x x x
resolution, the issue of whether or not the individual [respondents], are jointly and severally
liable to [petitioner] for the loan availments of the [respondent] Corporation, inclusive of accrued
interests and penalties.
In the meantime, on motion of [petitioner], the Court set aside its Order, dated February 2, 1995,
suspending the proceedings as against the [respondent] Corporation. [Petitioner] filed a Motion
for Summary Judgment against the [respondent] Corporation. On February 28, 2000, the Court
rendered a Summary Judgment against the [respondent] Corporation, the decretal portion of
which reads as follows:
WHEREFORE, premises considered, this Court hereby resolves to give due course to the
motion for summary judgment filed by herein [petitioner]. Consequently, judgment is hereby
rendered in favor of [Petitioner] SOLIDBANK CORPORATION and against [Respondent]
MINDANAO FERROALLOY CORPORATION, ordering the latter to pay the former the amount
of P7,086,686.70, representing the outstanding balance of the subject loan as of 24 September
1994, plus stipulated interest at the rate of 16% per annum to be computed from the aforesaid
date until fully paid together with an amount equivalent to 12% of the total amount due each
year from 24 September 1994 until fully paid. Lastly, said [respondent] is hereby ordered to pay
[petitioner] the amount of P25,000.00 to [petitioner] as reasonable attorneys fees as well as cost
of litigation.[5]
In its appeal, petitioner argued that (1) it had adduced the requisite evidence to prove the
solidary liability of the individual respondents, and (2) it was not liable for their counterclaims for
damages and attorneys fees.
Ruling of the Court of Appeals
Affirming the RTC, the appellate court ruled that the individual respondents were not solidarily
liable with the Mindanao Ferroalloy Corporation, because they had acted merely as officers of
the corporation, which was the real party in interest. Respondent Guevara was not even a
signatory to the Promissory Note, the Trust Receipt Agreement, the Deed of Assignment or the
Quedan; he was merely authorized to represent Minfaco to negotiate with and secure the loans
from the bank. On the other hand, the CA noted that Respondents Cu and Hong had not signed
the above documents as comakers, but as signatories in their representative capacities as
officers of Minfaco.
Likewise, the CA held that the individual respondents were not liable to petitioner for damages,
simply because (1) they had not received the proceeds of the irrevocable Letter of Credit, which
was the subject of the Deed of Assignment; and (2) the goods subject of the Trust Receipt
Agreement had been found to be nonexistent. The appellate court took judicial notice of the
practice of banks and financing institutions to investigate, examine and assess all properties
offered by borrowers as collaterals, in order to determine the feasibility and advisability of
granting loans. Before agreeing to the consolidation of Minfacos loans, it presumed that
petitioner had done its homework.
As to the award of damages to the individual respondents, the CA upheld the trial courts
findings that it was clearly unfair on petitioners part to have impleaded the wives of Guevara and
Hong, because the women were not privy to any of the transactions between petitioner and
Minfaco. Under Articles 19, 20 and 2229 of the Civil Code, such reckless and wanton act of
pressuring individual respondents to settle the corporations obligations is a ground to award
moral and exemplary damages, as well as attorneys fees.
Hence this Petition.[6]
Issues
In its Memorandum, petitioner raises the following issues:
A. Whether or not there is ample evidence on record to support the joint and solidary liability of
individual respondents with Mindanao Ferroalloy Corporation.
B. In the absence of joint and solidary liability[,] will the provision of Article 1208 in relation to
Article 1207 of the New Civil Code providing for joint liability be applicable to the case at bar.
C. May bank practices be the proper subject of judicial notice under Sec. 1 [of] Rule 129 of the
Rules of Court.
D. Whether or not there is evidence to sustain the claim that respondents were impleaded to
apply pressure upon them to pay the obligations in lieu of MINFACO that is declared insolvent.
E. Whether or not there are sufficient bases for the award of various kinds of and substantial
amounts in damages including payment for attorneys fees.
F. Whether or not respondents committed fraud and misrepresentations and acted in bad faith.
G. Whether or not the inclusion of respondents spouses is proper under certain circumstances
and supported by prevailing jurisprudence.[7]
In sum, there are two main questions: (1) whether the individual respondents are liable, either
jointly or solidarily, with the Mindanao Ferroalloy Corporation; and (2) whether the award of
damages to the individual respondents is valid and legal.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Liability of Individual Respondents
Petitioner argues that the individual respondents were jointly or solidarily liable with Minfaco,
either because their participation in the loan contract and the loan documents made them
comakers; or because they committed fraud and deception, which justifies the piercing of the
corporate veil.
The first contention hinges on certain factual determinations made by the trial and the appellate
courts. These tribunals found that, although he had not signed any document in connection with
the subject transaction, Respondent Guevara was authorized to represent Minfaco in
negotiating for a P30 million loan from petitioner. As to Cu and Hong, it was determined, among
others, that their signatures on the loan documents other than the Deed of Assignment were not
prefaced with the word by, and that there were no other signatures to indicate who had signed
for and on behalf of Minfaco, the principal borrower. In the Promissory Note, they signed above
the printed name of the corporation -- on the space provided for Maker/Borrower, not on that
provided for Co-maker.
Petitioner has not shown any exceptional circumstance that sanctions the disregard of these
findings of fact, which are thus deemed final and conclusive upon this Court and may not be
reviewed on appeal.[8]
No Personal Liability
for Corporate Deeds
Basic is the principle that a corporation is vested by law with a personality separate and distinct
from that of each person composing[9] or representing it.[10] Equally fundamental is the general
rule that corporate officers cannot be held personally liable for the consequences of their acts,
for as long as these are for and on behalf of the corporation, within the scope of their authority
and in good faith.[11] The separate corporate personality is a shield against the personal liability
of corporate officers, whose acts are properly attributed to the corporation.[12]
Tramat Mercantile v. Court of Appeals[13] held thus:
Personal liability of a corporate director, trustee or officer along (although not necessarily) with
the corporation may so validly attach, as a rule, only when
1. He assents (a) to a patently unlawful act of the corporation, or (b) for bad faith or gross
negligence in directing its affairs, or (c) for conflict of interest, resulting in damages to the
corporation, its stockholders or other persons;
2. He consents to the issuance of watered stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto;
3. He agrees to hold himself personally and solidarily liable with the corporation; or
4. He is made, by a specific provision of law, to personally answer for his corporate action.
Consistent with the foregoing principles, we sustain the CAs ruling that Respondent Guevara
was not personally liable for the contracts. First, it is beyond cavil that he was duly authorized to
act on behalf of the corporation; and that in negotiating the loans with petitioner, he did so in his
official capacity. Second, no sufficient and specific evidence was presented to show that he had
acted in bad faith or gross negligence in that negotiation. Third, he did not hold himself
personally and solidarily liable with the corporation. Neither is there any specific provision of law
making him personally answerable for the subject corporate acts.
On the other hand, Respondents Cu and Hong signed the Promissory Note without the word by
preceding their signatures, atop the designation Maker/Borrower and the printed name of the
corporation, as follows:
__(Sgd) Cu/Hong__
(Maker/Borrower)
MINDANAO FERROALLOY
While their signatures appear without qualification, the inference that they signed in their
individual capacities is negated by the following facts: 1) the name and the address of the
corporation appeared on the space provided for Maker/Borrower; 2) Respondents Cu and Hong
had only one set of signatures on the instrument, when there should have been two, if indeed
they had intended to be bound solidarily -- the first as representatives of the corporation, and
the second as themselves in their individual capacities; 3) they did not sign under the spaces
provided for Co-maker, and neither were their addresses reflected there; and 4) at the back of
the Promissory Note, they signed above the words Authorized Representative.
Solidary Liability
Not Lightly Inferred
Moreover, it is axiomatic that solidary liability cannot be lightly inferred.[14] Under Article 1207 of
the Civil Code, there is a solidary liability only when the obligation expressly so states, or when
the law or the nature of the obligation requires solidarity. Since solidary liability is not clearly
expressed in the Promissory Note and is not required by law or the nature of the obligation in
this case, no conclusion of solidary liability can be made.
Furthermore, nothing supports the alleged joint liability of the individual petitioners because, as
correctly pointed out by the two lower courts, the evidence shows that there is only one debtor:
the corporation. In a joint obligation, there must be at least two debtors, each of whom is liable
only for a proportionate part of the debt; and the creditor is entitled only to a proportionate part
of the credit.[15]
Moreover, it is rather late in the day to raise the alleged joint liability, as this matter has not been
pleaded before the trial and the appellate courts. Before the lower courts, petitioner anchored its
claim solely on the alleged joint and several (or solidary) liability of the individual respondents.
Petitioner must be reminded that an issue cannot be raised for the first time on appeal, but
seasonably in the proceedings before the trial court.[16]
So too, the Promissory Note in question is a negotiable instrument. Under Section 19 of the
Negotiable Instruments Law, agents or representatives may sign for the principal. Their
authority may be established, as in other cases of agency. Section 20 of the law provides that a
person signing for and on behalf of a [disclosed] principal or in a representative capacity x x x is
not liable on the instrument if he was duly authorized.
The authority of Respondents Cu and Hong to sign for and on behalf of the corporation has
been amply established by the Resolution of Minfacos Board of Directors, stating that Atty.
Ricardo P. Guevara (President and Chairman), or Ms. Teresita R. Cu (Vice President), acting
together with Mr. Jong Won Hong (Vice President), be as they are hereby authorized for and in
behalf of the Corporation to: 1. Negotiate with and obtain from (petitioner) the extension of an
omnibus line in the aggregate of P30 million x x x; and 2. Execute and deliver all documentation
necessary to implement all of the foregoing.[17]
Further, the agreement involved here is a contract of adhesion, which was prepared entirely by
one party and offered to the other on a take it or leave it basis. Following the general rule, the
contract must be read against petitioner, because it was the party that prepared it,[18] more so
because a bank is held to high standards of care in the conduct of its business.[19]
In the totality of the circumstances, we hold that Respondents Cu and Hong clearly signed the
Note merely as representatives of Minfaco.
No Reason to Pierce
the Corporate Veil
Under certain circumstances, courts may treat a corporation as a mere aggroupment of
persons, to whom liability will directly attach. The distinct and separate corporate personality
may be disregarded, inter alia, when the corporate identity is used to defeat public convenience,
justify a wrong, protect a fraud, or defend a crime. Likewise, the corporate veil may be pierced
when the corporation acts as a mere alter ego or business conduit of a person, or when it is so
organized and controlled and its affairs so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.[20] But to disregard the separate juridical
personality of a corporation, the wrongdoing must be clearly and convincingly established; it
cannot be presumed.[21]
Petitioner contends that the corporation was used to protect the fraud foisted upon it by the
individual respondents. It argues that the CA failed to consider the following badges of fraud and
evident bad faith: 1) the individual respondents misrepresented the corporation as solvent and
financially capable of paying its loan; 2) they knew that prices of ferrosilicon were declining in
the world market when they secured the loan in June 1991; 3) not a single centavo was paid for
the loan; and 4) the corporation suspended its operations shortly after the loan was granted.[22]
Fraud refers to all kinds of deception -- whether through insidious machination, manipulation,
concealment or misrepresentation -- that would lead an ordinarily prudent person into error after
taking the circumstances into account.[23] In contracts, a fraud known as dolo causante or causal
fraud[24] is basically a deception used by one party prior to or simultaneous with the contract, in
order to secure the consent of the other.[25] Needless to say, the deceit employed must be
serious. In contradistinction, only some particular or accident of the obligation is referred to by
incidental fraud or dolo incidente,[26] or that which is not serious in character and without which
the other party would have entered into the contract anyway.[27]
Fraud must be established by clear and convincing evidence; mere preponderance of evidence
is not adequate.[28] Bad faith, on the other hand, imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, not simply bad judgment or negligence.[29] It is
synonymous with fraud, in that it involves a design to mislead or deceive another.[30]
Unfortunately, petitioner was unable to establish clearly and precisely how the alleged fraud was
committed. It failed to establish that it was deceived into granting the loans because of
respondents misrepresentations and/or insidious actions. Quite the contrary, circumstances
indicate the weakness of its submission.
First, petitioner does not deny that the P5 million loan represented the consolidation of two
loans,[31] granted long before the bank required the individual respondents to execute the
Promissory Note, Trust Receipt Agreement, Quedan or Deed of Assignment. Hence, no words,
acts or machinations arising from any of those instruments could have been used by them prior
to or simultaneous with the execution of the contract, or even as some accident or particular of
the obligation.
Second, petitioner bank was in a position to verify for itself the solvency and trustworthiness of
respondent corporation. In fact, ordinary business prudence required it to do so before granting
the multimillion loans. It is of common knowledge that, as a matter of practice, banks conduct
exhaustive investigations of the financial standing of an applicant debtor, as well as appraisals
of collaterals offered as securities for loans to ensure their prompt and satisfactory payment. To
uphold petitioners cry of fraud when it failed to verify the existence of the goods covered by the
Trust Receipt Agreement and the Quedan is to condone its negligence.
Judicial Notice
of Bank Practices
This point brings us to the alleged error of the appellate court in taking judicial notice of the
practice of banks in conducting background checks on borrowers and sureties. While a court is
not mandated to take judicial notice of this practice under Section 1 of Rule 129 of the Rules of
Court, it nevertheless may do so under Section 2 of the same Rule. The latter Rule provides
that a court, in its discretion, may take judicial notice of matters which are of public knowledge,
or ought to be known to judges because of their judicial functions.
Thus, the Court has taken judicial notice of the practices of banks and other financial
institutions. Precisely, it has noted that it is their uniform practice, before approving a loan, to
investigate, examine and assess would-be borrowers credit standing or real estate[32] offered as
security for the loan applied for.
Second Issue:
Award of Damages
The individual respondents were awarded moral and exemplary damages as well as attorneys
fees under Articles 19 to 21 of the Civil Code, on the basic premise that the suit was clearly
malicious and intended merely to harass.
Article 19 of the Civil Code expresses the fundamental principle of law on human conduct that a
person must, in the exercise of his rights and in the performance of his duties, act with justice,
give every one his due, and observe honesty and good faith. Under this basic postulate, the
exercise of a right, though legal by itself, must nonetheless be done in accordance with the
proper norm. When the right is exercised arbitrarily, unjustly or excessively and results in
damage to another, a legal wrong is committed for which the wrongdoer must be held
responsible.[33]
To be liable under the abuse-of-rights principle, three elements must concur: a) a legal right or
duty, b) its exercise in bad faith, and c) the sole intent of prejudicing or injuring
another.[34] Needless to say, absence of good faith[35] must be sufficiently established.
Article 20 makes [e]very person who, contrary to law, willfully or negligently causes damage to
another liable for damages. Upon the other hand, held liable for damages under Article 21 is
one who willfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy.
For damages to be properly awarded under the above provisions, it is necessary to demonstrate
by clear and convincing evidence[36] that the action instituted by petitioner was clearly so
unfounded and untenable as to amount to gross and evident bad faith.[37] To justify an award of
damages for malicious prosecution, one must prove two elements: malice or sinister design to
vex or humiliate and want of probable cause.[38]
Petitioner was proven wrong in impleading Spouses Guevara and Hong. Beyond that fact,
however, respondents have not established that the suit was so patently malicious as to warrant
the award of damages under the Civil Codes Articles 19 to 21, which are grounded on malice or
bad faith.[39] With the presumption of law on the side of good faith, and in the absence of
adequate proof of malice, we find that petitioner impleaded the spouses because it honestly
believed that the conjugal partnerships had benefited from the proceeds of the loan, as stated in
their Complaint and subsequent pleadings. Its act does not amount to evident bad faith or
malice; hence, an award for damages is not proper. The adverse result of an act per se neither
makes the act wrongful nor subjects the actor to the payment of damages, because the law
could not have meant to impose a penalty on the right to litigate.[40]
For the same reason, attorneys fees cannot be granted. Article 2208 of the Civil Code states
that in the absence of a stipulation, attorneys fees cannot be recovered, except in any of the
following circumstances:
(1) When exemplary damages are awarded;
(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons
or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs
plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmens compensation and employers liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorneys fees and
expenses of litigation should be recovered.
In the instant case, none of the enumerated grounds for recovery of attorneys fees are present.
WHEREFORE, this Petition is PARTIALLY GRANTED. The assailed Decision
is AFFIRMED, but the award of moral and exemplary damages as well as attorneys fees
is DELETED. No costs.
SO ORDERED.
[G.R. No. 113907. April 20, 2001]

MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD


(MSMG-UWP),
vs. HON. CRESENCIO J. RAMOS,

RESOLUTION
GONZAGA-REYES, J.:

Before us is petitioners motion for partial reconsideration of our decision dated


February 28, 2000,[1] the dispositive portion of which reads:[2]

WHEREFORE, the petition is GRANTED; the decision of the National Labor


Relations Commission in Case No. NCR-00-09-04199-89 is REVERSED and SET
ASIDE; and the respondent company is hereby ordered to immediately reinstate the
petitioners to their respective positions. Should reinstatement be not feasible,
respondent company shall pay separation pay of one month salary for every year of
service. Since petitioners were terminated without the requisite written notice at least
30 days prior to their termination, following the recent ruling in the case of Ruben
Serrano vs. National Labor Relations Commission and Isetann Department Store, the
respondent company is hereby ordered to pay full backwages to petitioner-employees
while the Federation is also ordered to pay full backwages to petitioner-union officers
who were dismissed upon its instigation. Since the dismissal of petitioners was
without cause, backwages shall be computed from the time the herein petitioner
employees and union officers were dismissed until their actual reinstatement. Should
reinstatement be not feasible, their backwages shall be computed from the time
petitioners were terminated until the finality of this decision. Costs against the
respondent company.

SO ORDERED.

Petitioners allege that this Court committed patent and palpable error in holding
that the respondent company officials cannot be held personally liable for damages on
account of employees dismissal because the employer corporation has a personality
separate and distinct from its officers who merely acted as its agents whereas the records
clearly established that respondent company officers Saul Tawil, Carlos T. Javelosa and
Renato C. Puangco have caused the hasty, arbitrary and unlawful dismissal of
petitioners from work; that as top officials of the respondent company who handed
down the decision dismissing the petitioners, they are responsible for acts of unfair
labor practice; that these respondent corporate officers should not be considered as mere
agents of the company but the wrongdoers. Petitioners further contend that while the
case was pending before the public respondents, the respondent company, in the early
part of February 1990, began removing its machineries and equipment from its plant
located at Merville Park, Paranaque and began diverting jobs intended for the regular
employees to its sub-contractor/satellite branches;[3] that the respondent company
officials are also the officers and incorporators of these satellite companies as shown in
their articles of incorporation and the general information sheet. They added that during
their ocular inspection of the plant site of the respondent company, they found that the
same is being used by other unnamed business entities also engaged in the manufacture
of garments. Petitioners further claim that the respondent company no longer operates
its plant site as M. Greenfield thus it will be very difficult for them to fully enforce and
implement the courts decision. In their subsequent motion filed on the same day,
petitioners also pray for the (A) inclusion of the names of employees listed in Annex D
of the petition which they inadvertently omitted in the caption of the case, to wit: (1)
Amores, Imelda (2) Andres, Josefina (3)Aragon, Felicidad (4) Arias, Genevive (5)
Arroyo, Salvacion (6) Arceo, Elizabeth (7) Anonuevo, Monica (8) Abellada, Josefina
(9) Advincula, Harmelina (10) Ajayo, Rosario (11) Alilay, Marilyn (12) Almario,
Anliza (13) Almario, Angelita (14) Almazan, Marilou (15) Almonte, Rosalina (16)
Alvaran, Marites (17) Alvarez, Edna (18) Ampo, Anacorita (19) Aquino, Leonisa (20)
Bactat, Celia (21) Carpio, Azucena G. (22) Cruz, Amelia (23) Glifonia, Eugenia (24)
Escurel, Evelyn F. (25) Hilario, Bonifacio G. (26) Payuan, Adoracion (27) Perez,
Mercedita (28) Rempis, Zenaida (29) Rosario, Margie deL (30) Salvador, Norma (31)
Sambayanan, Olivia (32) Tiaga, Aida (33) Torbela, Maria (34) Trono, Nenevina (35)
Varona, Asuncion (36) Vasquez, Elisa M. (37) Villanueva, Milagros (38) Villapondo,
Eva C. (39) Villon, Adeliza T.; (B) correction of their own typographical errors of the
names of employees appearing in the caption, which should be as follows: Manuela
Avelin, Belen Barquio, Lita Buquid, Violeta C. Ciervo, Marilou Dejocos, Maximina
Faustino, Primitiva Gomez, Myrna Palaca, Mercedita Perez, Rebecca Poceran,
Amorlita Rotairo, Emma Saludario, Tita Senis, Salvacion Wilson,[4] Anita Ahillon,
Gregoria Arguelles, Tessie Balbis, Betty Borja, Rodrigo Buella, Celsa Doropan, Maria
Enicame, Josephine Lasco, Julita Maniba, Juanita Osuyos, Juana Overencio, Azucena
Postigo, Cristina Rapinan, Roselyn Rivero, Edeltrudes Romero, Rodelia Royandoyon,
Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina Valdez,[5] Susan Abogona, Diana
Adovas, Carmen Rosimo Basco, Macaria Barrion, Maria Fe Berezo, Matilde de Blas,
Rufina Bugnot, Aurora Bravo, Jovita Cera, Precila Carta, Amalia Eugenio, Milagros
Fonseca, Jose Irlanda, Rowena Jarabejo, Regina Lapidario, Josie Marcos, Shirley
Melegrito, Noemi Menguillo, Teresita Nierves, Ricardo Paloga, Florenia Ragos,
Leonila Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar, Evangeline
Tayco;[6] (C) inclusion of other employees similarly situated whose names were not
included in Annex D or in the caption of the case, to wit: (1) Dionisa Aban, (2) Alicia
Aragon, (3) Vicky Francia, (4) Nelita F. Gelongos, (5) Erlinda San Juan, (6) Erlinda
Baby Patungan Manalo, (7) Jenette Patungan,[7] (8) Blandina Simbahan,[8] (9) Asuncion
Varona,[9] (10) Josefina Andres, (11) Teresita Arales, (12) Alice Artikulo, (13) Esther
Cometa, (14) Eliza Cabiting, (15) Erlinda Dalut, (16) Edna Fernandez, (17) Emily
Inocencio, (18) Esperanza Jalocon, (19) Imelda Jarabe, (20) Mercedes Pabadora, (21)
Venerado Pastoral, (22) Cristina Perlas, (23) Margie del Rosario.[10]
In their Comment, the Solicitor General interposes no objection to petitioners
prayer for the inclusion of omitted and similarly situated employees and the correction
of employees names in the caption of the case.
On the other hand, private respondent company officials Carlos Javelosa and
Remedios Caoleng, in their Comment, state that considering that petitioners admitted
having knowledge of the fact that private respondent officers are also holding key
positions in the alleged satellite companies, they should have presented the pertinent
evidence with the public respondents; thus it is too late for petitioners to require this
Court to admit and evaluate evidence not presented during the trial; that the supposed
proof of satellite companies hardly constitute newly discovered evidence. Respondent
officials interpose no objection to the inclusion of employees inadvertently excluded in
the caption of the case but object to the inclusion of employees who were allegedly
similarly situated for the reason that these employees had not been parties to the case,
hence should not be granted any relief from the court. Respondent company failed to
file its comment.[11]
Petitioners contention that respondent company officials should be made personally
liable for damages on account of petitioners dismissal is not impressed with merit. A
corporation is a juridical entity with legal personality separate and distinct from those
acting for and in its behalf and, in general from the people comprising it. [12] The rule is
that obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities.[13] True, solidary liabilities may at times be incurred
but only when exceptional circumstances warrant such as, generally, in the following
cases:[14]
1. When directors and trustees or, in appropriate cases, the officers of a corporation

(a) Vote for or assent to patently unlawful acts of the corporation;

(b) act in bad faith or with gross negligence in directing the corporate affairs;

(c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.[15]

(2) When a director or officer has consented to the issuance of watered stocks or who, having
knowledge thereof, did not forthwith file with the corporate secretary his written objection
thereto.[16]
(3) When a director, trustee or officer has contractually agreed or stipulated to hold himself
personally and solidarily liable with the Corporation.[17]
(4) When a director, trustee or officer is made, by specific provision of law, personally liable for
his corporate action.[18]

In labor cases, particularly, the Court has held corporate directors and officers
solidarily liable with the corporation for the termination of employment of corporate
employees done with malice or in bad faith.[19] Bad faith or negligence is a question of
fact and is evidentiary.[20] It has been held that bad faith does not connote bad judgement
or negligence; it imports a dishonest purpose or some moral obliquity and conscious
doing of wrong; it means breach of a known duty thru some motive or interest or ill
will; it partakes of the nature of fraud.[21]
In the instant case, there is nothing substantial on record to show that respondent
officers acted in patent bad faith or were guilty of gross negligence in terminating the
services of petitioners so as to warrant personal liability. As held in Sunio vs. NLRC,[22]

We now come to the personal liability of petitioner, Sunio, who was made jointly and
severally responsible with petitioner company and CIPI for the payment of the
backwages of private respondents. This is reversible error. The Assistant Regional
Directors Decision failed to disclose the reason why he was made personally
liable. Respondents, however, alleged as grounds thereof, his being the owner of one
half (1/2) interest of said corporation, and his alleged arbitrary dismissal of private
respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager
of petitioner corporation. There appears to be no evidence on record that he acted
maliciously or in bad faith in terminating the services of private respondents. His act,
therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct
from those of the persons composing it as well as from that of any other legal entity to
which it may be related. Mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality.Petitioner Sunio,
therefore, should nor have been made personally answerable for the payment of
private respondents back salaries.

Petitioners claim that the jobs intended for the respondent companys regular
employees were diverted to its satellite companies where the respondent company
officers are holding key positions is not substantiated and was raised for the first time
in this motion for reconsideration. Even assuming that the respondent company officials
are also officers and incorporators of the satellite companies, such circumstance does
not in itself amount to fraud. The documents attached to petitioners motion for
reconsideration show that these satellite companies[23] were established prior to the filing
of petitioners complaint against private respondents with the Department of Labor and
Employment on September 6, 1989 and that these corporations have different sets of
incorporators aside from the respondent officers and are holding their principal offices
at different locations. Substantial identity of incorporators between respondent
company and these satellite companies does not necessarily imply fraud.[24] In such a
case, respondent companys corporate personality remains inviolable.[25]
Although there were earlier decisions of this Court in labor cases where corporate
officers were held to be personally liable for the payment of wages and other money
claims to its employees, we find those rulings inapplicable to this case. In La Campana
Coffee Factory, Inc. vs. Kaisahan ng Manggagawa sa La Campana (KKM), [26] La
Campana Coffee Factory, Inc. and La Campana Gaugau Packing were substantially
owned by the same person. They had one office, one management, and a single payroll
for both businesses. The laborers of the gaugau factory and the coffee factory were also
interchangeable, i.e., the workers in one factory worked also in the other factory.
In Claparols vs. Court of Industrial Relations,[27] the Claparol Steel and Nail Plant
which was ordered to pay its workers backwages, ceased operations on June 30, 1957
and was succeeded on the next day, July 1, 1957 by the Claparols Steel
Corporation. Both corporations were substantially owned and controlled by the same
person and there was no break or cessation in operations. Moreover, all the assets of the
steel and nail plant were transferred to the new corporation.
Notably, in the above-mentioned cases, a new corporation was created, owned by
the same family, engaged in the same business and operating in the same compound, a
situation which is not obtaining in the instant case.
In AC Ransom Labor Union-CCLU vs. NLRC,[28] the Court ruled that under the
Minimum Wage Law, the responsible officer of an employer corporation can be held
personally liable for non-payment of backwages for if the policy of the law were
otherwise, the corporation employer would have devious ways for evading of back
wages. This Court said:

In the instant case, it would appear that RANSOM, in 1969, foreseeing the possibility
or probability of payment of backwages to the 22 strikers, organized ROSARIO to
replace RANSOM, with the latter to be eventually phased out if the 22 strikers win
their case. RANSOM actually ceased operations on May 1, 1973, after the December
19, 1972 Decision of the Court of Industrial Relations was promulgated against
RANSOM.
Clearly, the situation in AC Ransom does not obtain in this case, where the alleged
satellite companies were established even prior to the filing of petitioners complaint
with the Department of Labor.
Petitioners prayer for the inclusion of employees listed in Annex D whose names
were admittedly inadvertently excluded in the caption of the case and for the correction
of typographical errors of the employees names appearing in the caption, is well taken
and is hereby granted. However, petitioners prayer for the inclusion of other employees
allegedly similarly situated but whose names were not included either in Annex D or in
the caption of the case must be denied. A judgment cannot bind persons who are not
parties to the action.[29] It is elementary that strangers to a case are not bound by the
judgment rendered by the court and such judgment is not available as an adjudication
either against or in favor of such other person.[30] Petitioners failed to explain why these
employees allegedly similarly situated were not included in the submitted list filed
before us. Such inclusion would be tantamount to a substantial amendment which
cannot be allowed at this late stage of the proceedings as it will definitely work to the
prejudice and disadvantage of the private respondents.[31]
WHEREFORE, petitioners motion for reconsideration is partially granted so as to
include the names of employees listed in Annex D which petitioners inadvertently
omitted in the caption of this case, to wit: (1) Amores, Imelda (2) Andres, Josefina (3)
Aragon, Felicidad (4) Arias, Genevive (5) Arroyo, Salvacion (6) Arceo, Elizabeth (7)
Anonuevo, Monica (8) Abellada, Josefina (9) Advincula, Harmelina (10) Ajayo,
Rosario (11) Alilay, Marilyn (12) Almario, Anliza (13) Almario, Angelita (14)
Almazan, Marilou (15) Almonte, Rosalina (16) Alvaran, Marites (17) Alvarez, Edna
(18) Ampo, Anacorita (19) Aquino, Leonisa (20) Bactat, Celia (21) Carpio, Azucena
G. (22) Cruz, Amelia (23) Glifonia, Eugenia (24) Escurel, Evelyn F. (25) Hilario,
Bonifacio G. (26) Payuan, Adoracion (27) Perez, Mercedita (28) Rempis, Zenaida (29)
Rosario, Margie del (30) Salvador, Norma (31) Sambayanan, Olivia (32) Tiaga, Aida
(33) Torbela, Maria (34) Trono, Nenevina (35) Varona, Asuncion (36) Vasquez, Elisa
M. (37) Villanueva, Milagros (38) Villapondo, Eva C. (39) Villon, Adeliza T.; and to
correct the typographical errors of the names of employees appearing in the caption, as
follows: Manuela Avelin, Belen Barquio, Lita Buquid, Violeta C. Ciervo, Marilou
Dejocos, Maximina Faustino, Primitiva Gomez, Myrna Palaca, Mercedita Perez,
Rebecca Poceran, Amorlita Rotairo, Emma Saludario, Tita Senis, Salvacion Wilson,
Anita Ahillon, Gregoria Arguelles, Tessie Balbis, Betty Borja, Rodrigo Buella, Celsa
Doropan, Maria Enicame, Josephine Lasco, Julita Maniba, Juanita Osuyos, Juana
Overencio, Azucena Postigo, Cristina Rapinan, Roselyn Rivero, Edeltrudes Romero,
Rodelia Royandoyon, Fausta Segundo, Teodora Sulit, Elena Tebis, Paulina Valdez,
Susan Abogona, Diana Adovas, Carmen Rosimo Basco, Macaria Barrion, Maria Fe
Berezo, Matilde de Blas, Rufina Bugnot, Aurora Bravo, Jovita Cera, Precila Carta,
Amalia Eugenio, Milagros Fonseca, Jose Irlanda, Rowena Jarabejo, Regina Lapidario,
Josie Marcos, Shirley Melegrito, Noemi Menguillo, Teresita Nierves, Ricardo Paloga,
Florenia Ragos, Leonila Rodil, Emma Saludario, Narcisa Songuad, Josie Sumarsar,
Evangeline Tayco.
SO ORDERED.
[G.R. No. 152308. January 26, 2005]

ACESITE CORPORATION, HOLIDAY INN, JOHANN ANGERBAUER and


PHIL KENNEDY, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION (Second Division) and LEO A.
GONZALES, respondents.

[G.R. No. 152321. January 26, 2005]

LEO A. GONZALES, petitioner, vs. ACESITE (PHILIPPINES) HOTEL


CORPORATION, HOLIDAY INN MANILA, JOHANN ANGERBAUER
and PHIL KENNEDY, respondents.

DECISION
CARPIO MORALES, J.:

Before this Court are two consolidated petitions for review on certiorari
challenging the Court of Appeals Decision of October 12, 2001 and Resolution
of February 19, 2002 in CA-G.R. SP No. 65406, Acesite (Philippines) Hotel
Corporation, Holiday Inn Manila, Johann Angerbauer and Phil Kennedy v.
National Labor Relations Commission and Leo A. Gonzales.
The antecedents of the case are as follows:
Leo A. Gonzales (Gonzales) was hired on October 18, 1993 as Chief of
Security of Manila Pavillion Hotel.[1] On January 1, 1995, Acesite Corporation
(Acesite) took over the operations of Manila Pavillion and renamed it Holiday
Inn Manila (the hotel). Acesite retained Gonzales as Chief of Security of the
hotel.
On March 25, 1998, Gonzales took a 4-day sick leave and took emergency
leave on March 30, 1998. On April 16-29, 1998, he again took a 12-day vacation
leave, thereby using up all leaves that he was entitled for the year.
Before the expiration of his 12-day vacation leave or on April 23, 1998,
Gonzales filed an application[2] for emergency leave for 10 days commencing
on April 30 up to May 13, 1998. The application was not, however, approved.
By Acesites claim, he received a telegram[3] informing him of the disapproval
and asking him to report back for work on April 30, 1998.
Gonzales did not report for work on April 30, 1998. On even date, he
received a telegram[4] from Acesite advising him that he was on unauthorized
leave and asking him to provide a written explanation within the next 24 hours
why he was not reporting for work. At the same time, he was required to report
for work the following day or on May 1, 1998.
On May 2, 1998, Gonzales father Anacleto sent a telegram[5] to Acesite
stating that he was still recovering from severe stomach disorder and would
report back for work on May 4, 1998. A medical certificate[6] dated May 3, 1998
issued by a Dr. Laureano C. Gonzales, Jr. stating that Gonzales was under his
care from April 30 May 3, 1998 was presented to prove that he indeed was
treated from such sickness.
On May 4, 1998, around lunchtime, Gonzales reported for work and
presented himself to Johann Angerbauer, then Resident Manager of the hotel.
Angerbauer claims that when Gonzales went to him, he asked him to explain
why he had been absent despite orders for him to report back for work to which
he (Gonzales) replied that it was necessary for him to go home to his province
in Abra.
Gonzales, on the other hand, claims that when he conferred with
Angerbauer, he requested for leave without pay from May 5-9, 1998 which was
provisionally approved on condition that he (Gonzales) would be sending his
explanation through e-mail behind his absences on April 30, 1998 and May 2,
1998 so that Angerbauer could send it to the hotel General Manager Phil
Kennedy who was then out of the country.
Around 5:33 pm of May 4, 1998, Gonzales sent his explanation[7] to
Angerbauer through e-mail, to wit, quoted verbatim:

This has reference with your verbal instruction that I will submit my written
explanation regarding my absences on April 30,1998 and May 2, 1998.

At the outset, my profound apologies for the above-stated absences. As you are fully
aware of, on April 27, 1998, I formally requested your office that my official leave
[which] will expire on April 29, 1998 shall be extended up to May 15, 1998.
Inasmuch that I was in the province (ABRA) at that time, I was not aware that my
request was disapproved until such time that I received your telegram two days later.
Likewise, when I received your telegram, I was sick at that time and this was duly
communicated to your office thru telegram. This was the reason I failed to report for
work also on May 2, 1998.

As exhaustively discussed to you today, there is a great necessity for me to go home


tonight in the province. Once again, I am asking your kind understanding that I shall
be allowed to go on leave effective tomorrow and rest assured that I will report for
work after the election. At any rate, the training of our new guards will start on May
18, 1998.

Thank you for this and for the past favors.

In the evening Gonzales left for Abra.


Also on May 4, 1998 Angerbauer sent the following inter-office memo[8] to
Gonzales, allegedly received at around 7:55 pm by the security staff:

As discussed during our meeting, you are advised to submit an explanation


within 24 hours why you did not report to work 1st May 1998? And why you
came in late today 4th of May 1998, as we had a 10:30 AM scheduled
communication meeting with the incoming Security Agency.

We will be having another meeting tomorrow regarding the turnover of the


outgoing Security Agency. I will be expecting your presence during the said
meeting.

For your compliance.

Gonzales claims that he got hold of a copy of the above-quoted memo only on
May 8, 1998.
Gonzales not having reported for work on May 5, 1998, Angerbauer sent
him on even date the following telegram[9] at his provincial address in Abra:

THIS IS TO REITERATE OUR ADVICE FOR YOU TO REPORT BACK


TO WORK IMMEDIATELY UPON RECEIPT OF THIS NOTICE DUE TO
VERY URGENT MATTERS INVOLVING SECURITY DEPARTMENTS
CONCERNS WHICH IMPERATIVELY REQUIRE YOUR PERSONAL
ATTENTION. PLEASE CONSIDER THIS AS OUR FINAL ADVICE.

Gonzales, who claims to have received the May 5, 1998 telegram only in
the afternoon of May 7, 1998, immediately repaired back to Manila on May 8,
1998 only to be humiliatingly and ignominiously barred by the guard (a
subordinate of [Gonzales]) from entering the premises.
It appears that on May 7, 1998, Angerbauer issued the following Notice of
Termination[10] through an inter-office memo:

As you continuously disregard our several advices for you to report back to work to
attend to very urgent matters involving Security Departments concerns which, as
categorically made clear to you, imperatively required your personal presence and
attention considering that you are its Department Head, thus adversely affecting the
operations of said department, we are left with no recourse but to terminate your
services from the Hotel effective immediately for violations of rule no. 27, Type C, of
the House Code of Discipline Acts of gross disobedience or insubordination and
provisions of the Labor Code, specifically Art. 282. Termination by Employer, par.
(a) x x x willful disobedience by the employee of the lawful orders of his employer or
representative in connection with his work.

Please be guided accordingly. (Emphasis and underscoring supplied)

Gonzales thus filed on May 27, 1998 a complaint[11] against Acesite,


Angerbauer and Kennedy for illegal dismissal with prayer for reinstatement and
payment of full backwages, service incentive leave, 13th month pay, moral and
exemplary damages and attorneys fees. Gonzales, however, failed to appear
in 2 consecutive hearings despite notice, meriting the dismissal by the Labor
Arbiter of his complaint by Order[12] of September 17, 1998.
Gonzales refiled on July 13, 1999 his complaint for illegal
dismissal[13] against Angerbauer and Kennedy, which he amended[14] on
September 20, 1999, by impleading Acesite as respondent.
After the filing of their respective position papers, pleadings and
documentary evidence, the Labor Arbiter, by Decision of February 7, 2000,
dismissed the complaint for lack of merit, it holding that Gonzales was
dismissed for just cause and was not denied of due process.
Gonzales appealed to the National Labor Relations Commission (NLRC),
he faulting the Labor Arbiter as follows:
I

The Labor Arbiter committed grave abuse of discretion in dismissing the


complaint for lack of merit.

II

The Labor Arbiter seriously erred in the finding of facts, which caused grave
or irreparable damage or injury to the complainant/appellant.

III

The Labor Arbiter seriously erred in the finding that there was absence of due
process in the dismissal of the complaint.[15]
By Decision[16] of December 29, 2000, the NLRC reversed that of the Labor
Arbiter, the dispositive portion of which is quoted verbatim:

WHEREFORE, PREMISES CONSIDERED, the decision of Labor Arbiter Geobel A.


Bartolabac dated February 7, 2000 is hereby, REVERSED. Respondents are hereby
ordered:

1) to immediately reinstate complainant to his former position without loss of seniority


rights;
2) to pay complainant backwages beginning for the period May 16, 1998, until he is
actually reinstated, inclusive of all his other fringe benefits or their monetary
equivalent;
3) to pay complainant the sum of P800,000.00 pesos as moral damages and the equal
amount of P800,000.00 as and for exemplary damages;
4) to pay ten (10) per cent attorneys fees. (Underscoring supplied)
Acesite thereupon filed a petition for certiorari before the Court of Appeals
anchored on the following grounds:
I. THE NLRC GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT REVERSED THE FINDING OF THE LABOR ARBITER
THAT THE RESPONDENT WAS LEGALLY DISMISSED FOR JUST CAUSE[.]
II. THE NLRC GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT REVERSED THE FINDING OF THE LABOR ARBITER
THAT THE RESPONDENT WAS AFFORDED PROCEDURAL DUE PROCESS[.]
III. THE NLRC GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT REVERSED THE FINDING OF THE LABOR ARBITER
THAT THE RESPONDENT IS NOT ENTITLED TO HIS MONEY CLAIMS[.]
IV. THE NLRC GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHEN IT INCLUDED PETITIONERS PHIL KENNEDY AND
JOHANN ANGERBAUER LIABLE TO THE RESPONDENT NOTWITHSTANDING
THE FACT THEY ARE MERE EMPLOYEES OF THE HOTEL[.][17]

By Decision[18] of October 12, 2001, the Court of Appeals, finding that


Gonzales was illegally dismissed, affirmed with modification the NLRC
decision:

After a careful study of the evidence on record and of the allegations of both parties,
this Court is convinced that private respondent Gonzales was illegally dismissed.

The parties hereto contest the receipt by private respondent Gonzales of the first
telegram sent by petitioner Angerbauer. Since the evidence of petitioners is merely a
piece of paper supposedly containing the contents of the telegram sent to the
former, We cannot accept the same as proof that indeed a telegram was sent and was
thereafter received by private respondent Gonzales. The burden of proof is upon
petitioners to show that indeed the latter received the same.

Insofar as private respondent Gonzales failure to report for work on May 1, 1998,
we give credence to the medical certificate he submitted to prove that he was indeed
indisposed during the period in controversy especially in the light of the fact that the
same was issued by his rival in the political arena, Dr. Laureano C. Gonzales, Jr., We
do not think Dr. Gonzales who likewise ran for the same elective position as herein
private respondent Gonzales would help him cover up his absences if he really did not
treat the latter and had him under his care. Thus, his failure to report for work on May
1, 1998 was justified.

As to the third telegram, the final notice by petitioners to private respondent Gonzales,
which directed him to report for work immediately upon receipt thereof, was
complied with by the latter when he reported to the hotel on May 8, 1998 but was
refused entry. Petitioners insist that he did not report to work. Private respondent
Gonzales however submitted an official receipt of his diesoline purchase to evidence
the fact that he went to Manila on said date.

And even granting arguendo that private respondent Gonzales did not heed the
same, his immediate termination was still unwarranted despite the provision on
petitioners House Code of Discipline.

Article 277 of the Labor Code, as amended, provides:

ART. 277. Miscellaneous provisions. (a) x x x.

(b) Subject to the constitutional right of workers to security of tenure and


their right to be protected against dismissal except for just and authorized
cause and without prejudice to the requirement of notice under Article 283
of this Code, the employer shall furnish the worker whose employment is
sought to be terminated a written notice containing a statement of the
causes for terminationand shall afford the latter ample opportunity to be
heard and defend himself with the assistance of his representative if he so
desires in accordance with company rules and regulations promulgated
pursuant to guidelines set by the Department of Labor and Employment.
Any decision taken by the employer shall be without prejudice to the right
of the worker to contest the validity or legality of his dismissal by filing a
complaint with the regional branch of the National Labor Relations
Commission. The burden of proving that the termination was for a valid or
authorized cause shall rest on the employer. The Secretary of the
Department of Labor and Employment may certify the dispute in the event
of a prima facie finding by the appropriate official of the Department of
Labor and Employment before whom such dispute pending that the
termination may cause a serious labor dispute or is in implementation of a
mass lay-off.

xxx

In the present case, the records do not show compliance by petitioners with the two
(2)-notice rule prescribed in the above provision of law. Although several telegrams
were sent to private respondent Gonzales, there is not one (1) telegram which contains
a statement of the cause for his termination. The telegram and the meeting held on
May 4, 1998 requiring him to submit a written explanation as to his absences did not
apprise him that he was being considered for termination. Moreover, he was not
informed that an investigation was being conducted vis--vis his continued absences
and his non-disclosure of the fact that he was running for public office.

In other words, no notice was sent by petitioners to apprise private respondent


Gonzales of the charges against him nor was he given ample opportunity to contest
said charges with the assistance of counsel, if he so desired. What petitioners did was
to send him a notice of termination on the premise that his immediate dismissal is
authorized under their House Code of Discipline. While it is recognized that company
policies and regulations, unless they are oppressive or contrary to law, are generally
valid and binding on the parties and must be complied with, the same cannot be
exercised for the purpose of defeating the rights of the employees under the law.

Unfortunately for petitioners, their employees are still entitled to the procedural
requirements of notice and hearing despite provisions in their code of discipline
purportedly giving them the right to immediately terminate their services. Employees
cannot bargain away this right notwithstanding their acquiescence to the employers
rules.

As to petitioners claim that private respondent willfully disobeyed their orders, the
Supreme Court in the case of Lagatic vs. NLRC held:

In order that an employer may dismiss an employee on the ground of willful


disobedience, there must be concurrence of at least two (2) requisites: the
employees assailed conduct must have been willful or intentional, the willingness
being characterized by a wrongful and perverse attitude; and that the order
violated must have been reasonable, lawful, made known to the employee and
must pertain to the duties which he had been engaged to discharge.
The present case does not show the presence of the first requisite. As private
respondent Gonzales failure to comply with petitioners orders were not characterized
by a perverse attitude. At most he can only be suspended from service for assuming
that his leaves of absence would be approved by management. The penalty of
dismissal is too harsh considering that private respondent Gonzales has been with the
company for almost five (5) years and has rendered unblemished service until the
period in controversy. For his unauthorized absences, We hereby rule that a
suspension of one (1) week is commensurate to his violation of Type C, House Code
of Discipline rule on unauthorized absences.

Anent the alleged willful non-disclosure by private respondent Gonzales of his


candidacy for public office, We find the same to be unsupported by evidence. The
tenor of private respondent Gonzales internal email to petitioner Angerbauer reveals
that the latter was aware that the reason for the formers prolonged absences was his
ongoing campaign as Board Member of the Province of Abra. Considering the
same, We are inclined to believe private respondent Gonzales version of the story.

Going now to the propriety of the monetary awards to private respondent Gonzales,
We find the amount P800,000.00 each as moral and exemplary damages
unwarranted. The collective amount of P100,000.00 as moral and exemplary damages
is just under the circumstances. Public respondent NLRCs award of ten (10) per cent
attorneys fees is affirmed.

WHEREFORE, premises considered, the Decision dated December 29, 2000 of public
respondent National Labor Relations Commission is hereby MODIFIED as follows:

Petitioners are hereby ordered:

1. to reinstate private respondent Leo A. Gonzales to his former position without loss
of seniority rights or privileges. If reinstatement is no longer feasible, then payment of
separation pay equivalent to month pay for every year of service is hereby ordered;

2. to pay private respondent Leo A. Gonzales his full back wages commencing on 14
May 1998 in view of his one (1) week suspension until he is actually reinstated;

3. to pay P100,000.00 as moral and exemplary damages; and

4. to pay 10% of the total monetary award as and for attorneys fees.

With costs against the petitioners.[19] (Emphasis and underscoring supplied)


Hence, the two separate petitions of Acesite and Gonzales.
In its petition, Acesite contends that:
I

THE COURT OF APPEALS GRAVELY ERRED WHEN IT DID NOT


AFFIRM THE FINDING OF THE LABOR ARBITER THAT THE
RESPONDENT WAS LEGALLY DISMISSED FOR JUST CAUSE.
II

THE COURT OF APPEALS GRAVELY ERRED WHEN IT REVERSED THE


FINDING OF THE LABOR ARBITER THAT RESPONDENT WAS
AFFORDED PROCEDURAL DUE PROCESS.
III

THE COURT OF APPEALS GRAVELY ERRED WHEN IT REVERSED THE


FINDING OF THE LABOR ARBITER THAT THE RESPONDENT IS NOT
ENTITLED TO HIS MONEY CLAIMS.[20]
Gonzales, on the other hand, posits in his petition that:
I

[THE COURT OF APPEALS] GRAVELY ERRED IN DELETING THE


AWARDS OF FRINGE BENEFITS OR THEIR MONETARY EQUIVALENTS
WHICH THE NLRC ORDERED TO BE GIVEN TO THE PETITIONER
FROM THE TIME HE WAS ILLEGALLY DISMISSED UP TO HIS ACTUAL
REINSTATEMENT.
II

[THE COURT OF APPEALS] SERIOUSLY ERRED IN BESTOWING TO


THE PRIVATE RESPONDENTS THE OPTION WHETHER TO
REINSTATE THE PETITIONER OR NOT.
III

[THE COURT OF APPEALS] ERRED IN SUBSTANTIALLY REDUCING


THE AMOUNT OF AWARDS OF MORAL AND EXEMPLARY DAMAGES
WHICH THE NLRC DESERVINGLY ADJUDGED TO BE ACCORDED TO
THE PETITIONER.[21]
Acesite argues that there was just cause for Gonzales termination under
Article 282 of the Labor Code, the pertinent provision of which reads:

ART. 282 TERMINATION BY EMPLOYER. An employer may terminate an


employment for any of the following causes:
(a) Serious Misconduct of willful Disobedience by the employee of the lawful orders
of his employer or representative in connection with his work;

(b) Gross and habitual Neglect by the employee of his duties;

xxx

For, so Acesite claims, Gonzales showed no respect for x x x [the] lawful orders
for him to report back to work and repeatedly ignored all telegrams sent to
him,[22] and it merely exercised its legal right to dismiss him under the House
Code of Discipline which imposes dismissal as penalty for a violation of Rule
27 thereof.
Acesite further claims that Gonzales cannot feign ignorance of said rule
because it is part of his job to implement it;[23] and the medical certificate
accomplished by a Dr. Gonzales who could very well be a relative, was issued
in Quezon City on May 3, 1998 whereas it stated that Gonzales was under the
physicians care in Abra from April 30 to May 3, 1998.
Acesite furthermore claims that, as correctly ruled by the Labor Arbiter, the
facts by any standard suffice to cause it to lose its trust and confidence in
Gonzales especially his concealment that he was seeking an elective post in
Abra during the 1998 elections which would explain why he did not report for
work as directed;[24] and that Gonzales was afforded procedural due process as
the twin requirements of notice and hearing were complied with through the
numerous telegrams sent to both Gonzales city and provincial addresses
asking him to report for work and explain his unauthorized absences.[25]
This Court finds no reason to depart from the findings of the Court of
Appeals. Indeed, there appears to have been no just cause to dismiss Gonzales
from employment. As correctly ruled by the Court of Appeals, Gonzales cannot
be considered to have willfully disobeyed his employer. Willful disobedience
entails the concurrence of at least two (2) requisites: the employees assailed
conduct has been willful or intentional, the willfulness being characterized by a
wrongful and perverse attitude; and the order violated must have been
reasonable, lawful, made known to the employee and must pertain to the duties
which he had been engaged to discharge.[26]
In Gonzales case, his assailed conduct has not been shown to have been
characterized by a perverse attitude, hence, the first requisite is wanting. His
receipt of the telegram disapproving his application for emergency leave
starting April 30, 1998 has not been shown. And it cannot be said that he
disobeyed the May 5, 1998 telegram since he received it only on May 7, 1998.
On the contrary, that he immediately hied back to Manila upon receipt thereof
negates a perverse attitude.
As to Gonzales alleged concealment of his candidacy (for provincial board
member) as a ground for Acesites loss of trust and confidence in him, the same
is not impressed with merit. It should be noted that Acesites ground for
terminating the services of Gonzales as stated in the Notice of Termination is
his alleged acts of insubordination/disobedience. The concealment of
candidacy angle harped upon by Acesite can only thus be considered as mere
afterthought to further justify his illegal dismissal.
With regards to Gonzales perceived feigning of illness, the same is purely
speculatory.
If there is anything that Gonzales can be faulted for, it is his being too
presumptuous that his application for leave would be approved. For his
unauthorized absences, this Court finds that Gonzales violated paragraph 26,
Rule 11 of Type B offenses of the Companys House Code of Discipline
unauthorized absence from work for three consecutive days[27] which is
punishable by a suspension of 3 days on the first offense when he did not report
for work from May 5-7, 1998.
As for Gonzales petition before this Court, he argues that the Court of
Appeals, absent any reason, modified the decision of the NLRC by deleting or
eliminating the other fringe benefits or their monetary equivalent;[28] that the said
court should not have given Acesite the option to reinstate him or not since the
case at bar does not fall under circumstances for which reinstatement is no
longer possible; that even assuming that his reinstatement is not in the interest
of labor, the severance pay of month pay ordered by the appellate court is not
in accordance with law and jurisprudence; and that the reduction of the moral
and exemplary damages awarded him by the NLRC was erroneous.
In illegal dismissal cases, reinstatement to an illegally dismissed employees
former position may be excused on the ground of strained relations. This may
be invoked against employees whose positions demand trust and confidence,
or whose differences with their employer are of such nature or degree as to
preclude reinstatement.[29] In the case at bar, Gonzales was Chief of Security,
whose duty was to manage the operation of the security areas of the hotel to
provide and ensure the safety and security of the hotel guests, visitors,
management, staff and their properties according to company policies and local
laws.[30] It cannot be gainsaid that Gonzales position is one of trust and
confidence, he being in charge of the over-all security of said hotel. Thus,
reinstatement is no longer possible. In lieu thereof, Acesite is liable to pay
separation pay of 1 month for every year of service.
As to the award of moral and exemplary damages, this Court finds it
unwarranted. Moral damages are recoverable only where the dismissal of the
employees was attended by bad faith or fraud or constituted an act oppressive
to labor or was done in a manner contrary to morals, good customs or public
policy. Exemplary damages on the other hand may be awarded only if the
dismissal was effected in a wanton, oppressive or malevolent
manner.[31] Though these grounds have been alleged by Gonzales, they were
not sufficiently proven.
The appellate court affirmed the NLRC ruling that Angerbauer and Kennedy
are solidarily liable with Acesite. In the case of Bogo-Medellin Sugarcane
Planters Association, Inc. v. NLRC,[32] this Court ruled:

Unless they have exceeded their authority, corporate officers are, as a general rule, not
personally liable for their official acts, because a corporation, by legal fiction, has a
personality separate and distinct from its officers, stockholders and members.
However, this fictional veil may be pierced whenever the corporate personality is used
as a means of perpetuating fraud or an illegal act, evading an existing obligation, or
confusing a legitimate issue. In cases of illegal dismissal, corporate directors and
officers are solidarily liable with the corporation, where terminations of employment
are done with malice or in bad faith. (Underscoring supplied, citations omitted)

In holding Angerbauer and Kennedy solidarily liable, the NLRC intended to


deter other foreign employer[s] from repeating the inhuman treatment of their
Filipino employees who should be treated with equal respect especially in their
own land and prevent further violation of their human rights as employees.
The records of the case do not, however, show any inhuman treatment of
Gonzales. His superiors just happen to be foreigners. Moreover, as previously
discussed, bad faith or malice was not proven. Angerbauer, acting on behalf of
Acesite, was, like Gonzales, perhaps also too presumptuous in thinking that the
telegrams ordering the latter to report for work were all received on time,
drawing him to hastily conclude that Gonzales intentionally disobeyed the
orders contained therein.
As to the deletion of the fringe benefits or their monetary equivalent, this
Court agrees with Gonzales that it is not in accord with law and jurisprudence.
Article 279 of the Labor Code provides:

ART. 279 SECURITY OF TENURE. In cases of regular employment, the employer


shall not terminate the services of an employee except for just cause or when
authorized by this Title. An employee who is unjustly dismissed from work shall be
entitled to reinstatement without loss of seniority rights and other privileges and to his
full backwages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to
the time of his actual reinstatement. (Emphasis and underscoring supplied)

As for the award of attorneys fees, the same is in order, Gonzales having
been forced to litigate and incur expenses to protect his rights and
interest.[33] This Court, however, reduces the award to P10,000.00.
In fine, this Court affirms the assailed decision with modification in light of
the foregoing discussions.
WHEREFORE, as modified, the decision reads as follows:
1) Acesite Corporation is hereby ordered to pay Leo A. Gonzales:

a) his full backwages, inclusive of allowances, and his other benefits or their
monetary equivalent, to be computed from the time he was illegally
dismissed until the finality of this Decision less 3 days in view of his
suspension;

b) separation pay equivalent to his 1 month salary for every year of service
computed from the time Gonzales was first employed by Acesite until the
finality of this Decision;

c) P10,000.00 as attorneys fees; and

2) The complaint against Johann Angerbauer and Phil Kennedy is hereby


DISMISSED.

No pronouncement as to costs.
SO ORDERED.
WOODCHILD HOLDINGS, INC., G.R. No. 140667
Petitioner,
Present:
PUNO, J., Chairman,
AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

ROXAS ELECTRIC AND Promulgated:


CONSTRUCTION COMPANY, INC.,
Respondent. August 12, 2004
x--------------------------------------------------x
DECISION

CALLEJO, SR., J.:

This is a petition for review on certiorari of the Decision[1] of the Court of Appeals
in CA-G.R. CV No. 56125 reversing the Decision[2] of the Regional Trial Court of
Makati, Branch 57, which ruled in favor of the petitioner.

The Antecedents

The respondent Roxas Electric and Construction Company, Inc. (RECCI), formerly
the Roxas Electric and Construction Company, was the
owner of two parcels of land, identified as Lot No. 491-A-3-B-1 covered by Transfer
Certificate of Title (TCT) No. 78085 and Lot No. 491-A-3-B-2 covered by TCT No.
78086.A portion of Lot No. 491-A-3-B-1 which abutted Lot No. 491-A-3-B-2 was
a dirt road accessing to the Sumulong Highway, Antipolo, Rizal.

At a special meeting on May 17, 1991, the respondents Board of Directors


approved a resolution authorizing the corporation, through its president, Roberto B.
Roxas, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086, with an area of
7,213 square meters, at a price and under such terms and conditions which he
deemed most reasonable and advantageous to the corporation; and to execute, sign
and deliver the pertinent sales documents and receive the proceeds of the sale for
and on behalf of the company.[3]

Petitioner Woodchild Holdings, Inc. (WHI) wanted to buy Lot No. 491-A-3-
B-2 covered by TCT No. 78086 on which it planned to construct its warehouse
building, and a portion of the adjoining lot, Lot No. 491-A-3-B-1, so that its 45-foot
container van would be able to readily enter or leave the property. In a Letter to
Roxas dated June 21, 1991, WHI President Jonathan Y. Dy offered to buy Lot No.
491-A-3-B-2 under stated terms and conditions for P1,000 per square meter or at the
price of P7,213,000.[4] One of the terms incorporated in Dys offer was the following
provision:

5. This Offer to Purchase is made on the representation and warranty of the


OWNER/SELLER, that he holds a good and registrable title to the property,
which shall be conveyed CLEAR and FREE of all liens and encumbrances,
and that the area of 7,213 square meters of the subject property already includes
the area on which the right of way traverses from the main lot (area) towards
the exit to the Sumulong Highway as shown in the location plan furnished by
the Owner/Seller to the buyer. Furthermore, in the event that the right of way
is insufficient for the buyers purposes (example: entry of a 45-foot container),
the seller agrees to sell additional square meter from his current adjacent
property to allow the buyer to full access and full use of the property.[5]

Roxas indicated his acceptance of the offer on page 2 of the deed. Less than a month
later or on July 1, 1991, Roxas, as President of RECCI, as vendor, and Dy, as
President of WHI, as vendee, executed a contract to sell in which RECCI bound and
obliged itself to sell to Dy Lot No. 491-A-3-B-2 covered by TCT No. 78086
for P7,213,000.[6] On September 5, 1991, a Deed of Absolute Sale[7] in favor of WHI
was issued, under which Lot No. 491-A-3-B-2 covered by TCT No. 78086 was sold
for P5,000,000, receipt of which was acknowledged by Roxas under the following
terms and conditions:
The Vendor agree (sic), as it hereby agrees and binds itself to give Vendee the
beneficial use of and a right of way from Sumulong Highway to the property herein
conveyed consists of 25 square meters wide to be used as the latters egress from
and ingress to and an additional 25 square meters in the corner of Lot No. 491-A-
3-B-1, as turning and/or maneuvering area for Vendees vehicles.

The Vendor agrees that in the event that the right of way is insufficient for the
Vendees use (ex entry of a 45-foot container) the Vendor agrees to sell additional
square meters from its current adjacent property to allow the Vendee full access
and full use of the property.

The Vendor hereby undertakes and agrees, at its account, to defend the title of the
Vendee to the parcel of land and improvements herein conveyed, against all claims
of any and all persons or entities, and that the Vendor hereby warrants the right of
the Vendee to possess and own the said parcel of land and improvements thereon
and will defend the Vendee against all present and future claims and/or action in
relation thereto, judicial and/or administrative. In particular, the Vendor shall eject
all existing squatters and occupants of the premises within two (2) weeks from the
signing hereof. In case of failure on the part of the Vendor to eject all occupants
and squatters within the two-week period or breach of any of the stipulations,
covenants and terms and conditions herein provided and that of contract to sell
dated 1 July 1991, the Vendee shall have the right to cancel the sale and demand
reimbursement for all payments made to the Vendor with interest thereon at 36%
per annum.[8]

On September 10, 1991, the Wimbeco Builders, Inc. (WBI) submitted its quotation
for P8,649,000 to WHI for the construction of the warehouse building on a portion
of the property with an area of 5,088 square meters.[9] WBI proposed to start the
project on October 1, 1991 and to turn over the building to WHI on February 29,
1992.[10]

In a Letter dated September 16, 1991, Ponderosa Leather Goods Company,


Inc. confirmed its lease agreement with WHI of a 5,000-square-meter portion of the
warehouse yet to be constructed at the rental rate of P65 per square meter. Ponderosa
emphasized the need for the warehouse to be ready for occupancy before April 1,
1992.[11] WHI accepted the offer. However, WBI failed to commence the
construction of the warehouse in October 1, 1991 as planned because of the presence
of squatters in the property and suggested a renegotiation of the contract after the
squatters shall have been evicted.[12] Subsequently, the squatters were evicted from
the property.

On March 31, 1992, WHI and WBI executed a Letter-Contract for the
construction of the warehouse building for P11,804,160.[13] The contractor started
construction in April 1992 even before the building officials of Antipolo City issued
a building permit on May 28, 1992. After the warehouse was finished, WHI issued
on March 21, 1993 a certificate of occupancy by the building official. Earlier, or on
March 18, 1993, WHI, as lessor, and Ponderosa, as lessee, executed a contract of
lease over a portion of the property for a monthly rental of P300,000 for a period of
three years from March 1, 1993 up to February 28, 1996.[14]

In the meantime, WHI complained to Roberto Roxas that the vehicles of


RECCI were parked on a portion of the property over which WHI had been granted
a right of way.Roxas promised to look into the matter. Dy and Roxas discussed the
need of the WHI to buy a 500-square-meter portion of Lot No. 491-A-3-B-1 covered
by TCT No. 78085 as provided for in the deed of absolute sale. However, Roxas
died soon thereafter. On April 15, 1992, the WHI wrote the RECCI, reiterating its
verbal requests to purchase a portion of the said lot as provided for in the deed of
absolute sale, and complained about the latters failure to eject the squatters within
the three-month period agreed upon in the said deed.

The WHI demanded that the RECCI sell a portion of Lot No. 491-A-3-B-1
covered by TCT No. 78085 for its beneficial use within 72 hours from notice thereof,
otherwise the appropriate action would be filed against it. RECCI rejected the
demand of WHI. WHI reiterated its demand in a Letter dated May 29, 1992. There
was no response from RECCI.

On June 17, 1992, the WHI filed a complaint against the RECCI with the
Regional Trial Court of Makati, for specific performance and damages, and
alleged, inter alia, the following in its complaint:
5. The current adjacent property referred to in the aforequoted paragraph of the
Deed of Absolute Sale pertains to the property covered by Transfer Certificate of
Title No. N-78085 of the Registry of Deeds of Antipolo, Rizal, registered in the
name of herein defendant Roxas Electric.

6. Defendant Roxas Electric in patent violation of the express and valid terms of
the Deed of Absolute Sale unjustifiably refused to deliver to Woodchild Holdings
the stipulated beneficial use and right of way consisting of 25 square meters and 55
square meters to the prejudice of the plaintiff.

7. Similarly, in as much as the 25 square meters and 55 square meters alloted to


Woodchild Holdings for its beneficial use is inadequate as turning and/or
maneuvering area of its 45-foot container van, Woodchild Holdings manifested its
intention pursuant to para. 5 of the Deed of Sale to purchase additional square
meters from Roxas Electric to allow it full access and use of the purchased property,
however, Roxas Electric refused and failed to merit Woodchild Holdings request
contrary to defendant Roxas Electrics obligation under the Deed of Absolute Sale
(Annex A).

8. Moreover, defendant, likewise, failed to eject all existing squatters and occupants
of the premises within the stipulated time frame and as a consequence thereof,
plaintiffs planned construction has been considerably delayed for seven (7) months
due to the squatters who continue to trespass and obstruct the subject property,
thereby Woodchild Holdings incurred substantial losses amounting
to P3,560,000.00 occasioned by the increased cost of construction materials and
labor.

9. Owing further to Roxas Electrics deliberate refusal to comply with its obligation
under Annex A, Woodchild Holdings suffered unrealized income of P300,000.00 a
month or P2,100,000.00 supposed income from rentals of the subject property for
seven (7) months.

10. On April 15, 1992, Woodchild Holdings made a final demand to Roxas Electric
to comply with its obligations and warranties under the Deed of Absolute Sale but
notwithstanding such demand, defendant Roxas Electric refused and failed and
continue to refuse and fail to heed plaintiffs demand for compliance.

Copy of the demand letter dated April 15, 1992 is hereto attached as Annex B and
made an integral part hereof.

11. Finally, on 29 May 1991, Woodchild Holdings made a letter request addressed
to Roxas Electric to particularly annotate on Transfer Certificate of Title No. N-
78085 the agreement under Annex A with respect to the beneficial use and right of
way, however, Roxas Electric unjustifiably ignored and disregarded the same.
Copy of the letter request dated 29 May 1992 is hereto attached as Annex C and
made an integral part hereof.

12. By reason of Roxas Electrics continuous refusal and failure to comply with
Woodchild Holdings valid demand for compliance under Annex A, the latter was
constrained to litigate, thereby incurring damages as and by way of attorneys fees
in the amount of P100,000.00 plus costs of suit and expenses of litigation.[15]

The WHI prayed that, after due proceedings, judgment be rendered in its
favor, thus:

WHEREFORE, it is respectfully prayed that judgment be rendered in favor of


Woodchild Holdings and ordering Roxas Electric the following:

a) to deliver to Woodchild Holdings the beneficial use of the


stipulated 25 square meters and 55 square meters;

b) to sell to Woodchild Holdings additional 25 and 100 square


meters to allow it full access and use of the purchased property
pursuant to para. 5 of the Deed of Absolute Sale;

c) to cause annotation on Transfer Certificate of Title No. N-78085


the beneficial use and right of way granted to Woodchild
Holdings under the Deed of Absolute Sale;

d) to pay Woodchild Holdings the amount of P5,660,000.00,


representing actual damages and unrealized income;

e) to pay attorneys fees in the amount of P100,000.00; and

f) to pay the costs of suit.

Other reliefs just and equitable are prayed for.[16]

In its answer to the complaint, the RECCI alleged that it never authorized its
former president, Roberto Roxas, to grant the beneficial use of any portion of Lot
No. 491-A-3-B-1, nor agreed to sell any portion thereof or create a lien or burden
thereon. It alleged that, under the Resolution approved on May 17, 1991, it merely
authorized Roxas to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086. As such,
the grant of a right of way and the agreement to sell a portion of Lot No. 491-A-3-
B-1 covered by TCT No. 78085 in the said deed are ultra vires. The RECCI further
alleged that the provision therein that it would sell a portion of Lot No. 491-A-3-B-
1 to the WHI lacked the essential elements of a binding contract.[17]

In its amended answer to the complaint, the RECCI alleged that the delay in
the construction of its warehouse building was due to the failure of the WHIs
contractor to secure a building permit thereon.[18]

During the trial, Dy testified that he told Roxas that the petitioner was buying
a portion of Lot No. 491-A-3-B-1 consisting of an area of 500 square meters, for the
price of P1,000 per square meter.

On November 11, 1996, the trial court rendered judgment in favor of the WHI,
the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered directing defendant:

(1) To allow plaintiff the beneficial use of the existing right of way plus the
stipulated 25 sq. m. and 55 sq. m.;

(2) To sell to plaintiff an additional area of 500 sq. m. priced at P1,000 per sq. m.
to allow said plaintiff full access and use of the purchased property pursuant to Par.
5 of their Deed of Absolute Sale;

(3) To cause annotation on TCT No. N-78085 the beneficial use and right of way
granted by their Deed of Absolute Sale;

(4) To pay plaintiff the amount of P5,568,000 representing actual damages and
plaintiffs unrealized income;

(5) To pay plaintiff P100,000 representing attorneys fees; and

To pay the costs of suit.

SO ORDERED.[19]

The trial court ruled that the RECCI was estopped from disowning the
apparent authority of Roxas under the May 17, 1991 Resolution of its Board of
Directors. The court reasoned that to do so would prejudice the WHI which
transacted with Roxas in good faith, believing that he had the authority to bind the
WHI relating to the easement of right of way, as well as the right to purchase a
portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085.

The RECCI appealed the decision to the CA, which rendered a decision on
November 9, 1999 reversing that of the trial court, and ordering the dismissal of the
complaint.The CA ruled that, under the resolution of the Board of Directors of the
RECCI, Roxas was merely authorized to sell Lot No. 491-A-3-B-2 covered by TCT
No. 78086, but not to grant right of way in favor of the WHI over a portion of Lot
No. 491-A-3-B-1, or to grant an option to the petitioner to buy a portion thereof. The
appellate court also ruled that the grant of a right of way and an option to the
respondent were so lopsided in favor of the respondent because the latter was
authorized to fix the location as well as the price of the portion of its property to be
sold to the respondent. Hence, such provisions contained in the deed of absolute sale
were not binding on the RECCI. The appellate court ruled that the delay in the
construction of WHIs warehouse was due to its fault.

The Present Petition

The petitioner now comes to this Court asserting that:

I.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF
ABSOLUTE SALE (EXH. C) IS ULTRA VIRES.

II.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE
RULING OF THE COURT A QUO ALLOWING THE PLAINTIFF-APPELLEE
THE BENEFICIAL USE OF THE EXISTING RIGHT OF WAY PLUS THE
STIPULATED 25 SQUARE METERS AND 55 SQUARE METERS BECAUSE
THESE ARE VALID STIPULATIONS AGREED BY BOTH PARTIES TO THE
DEED OF ABSOLUTE SALE (EXH. C).

III.
THERE IS NO FACTUAL PROOF OR EVIDENCE FOR THE COURT OF
APPEALS TO RULE THAT THE STIPULATIONS OF THE DEED OF
ABSOLUTE SALE (EXH. C) WERE DISADVANTAGEOUS TO THE
APPELLEE, NOR WAS APPELLEE DEPRIVED OF ITS PROPERTY
WITHOUT DUE PROCESS.

IV.
IN FACT, IT WAS WOODCHILD WHO WAS DEPRIVED OF PROPERTY
WITHOUT DUE PROCESS BY THE ASSAILED DECISION.

V.
THE DELAY IN THE CONSTRUCTION WAS DUE TO THE FAILURE OF
THE APPELLANT TO EVICT THE SQUATTERS ON THE LAND AS
AGREED IN THE DEED OF ABSOLUTE SALE (EXH. C).

VI.
THE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE
RULING OF THE COURT A QUO DIRECTING THE DEFENDANT TO PAY
THE PLAINTIFF THE AMOUNT OF P5,568,000.00 REPRESENTING
ACTUAL DAMAGES AND PLAINTIFFS UNREALIZED INCOME AS WELL
AS ATTORNEYS FEES.[20]

The threshold issues for resolution are the following: (a) whether the respondent is
bound by the provisions in the deed of absolute sale granting to the petitioner
beneficial use and a right of way over a portion of Lot
No. 491-A-3-B-1 accessing to the Sumulong Highway and granting the option to the
petitioner to buy a portion thereof, and, if so, whether such agreement is enforceable
against the respondent; (b) whether the respondent failed to eject the squatters on its
property within two weeks from the execution of the deed of absolute sale; and, (c)
whether the respondent is liable to the petitioner for damages.

On the first issue, the petitioner avers that, under its Resolution of May 17, 1991, the
respondent authorized Roxas, then its president, to grant a right of way over a portion
of Lot No. 491-A-3-B-1 in favor of the petitioner, and an option for the respondent
to buy a portion of the said property. The petitioner contends that when the
respondent sold Lot No. 491-A-3-B-2 covered by TCT No. 78086, it (respondent)
was well aware of its obligation to provide the petitioner with a means of ingress to
or egress from the property to the Sumulong Highway, since the latter had no
adequate outlet to the public highway. The petitioner asserts that it agreed to buy the
property covered by TCT No. 78085 because of the grant by the respondent of a
right of way and an option in its favor to buy a portion of the property covered by
TCT No. 78085. It contends that the respondent never objected to Roxas acceptance
of its offer to purchase the property and the terms and conditions therein; the
respondent even allowed Roxas to execute the deed of absolute sale in its behalf. The
petitioner asserts that the respondent even received the purchase price of the property
without any objection to the terms and conditions of the said deed of sale. The
petitioner claims that it acted in good faith, and contends that after having been
benefited by the said sale, the respondent is estopped from assailing its terms and
conditions. The petitioner notes that the respondents Board of Directors never
approved any resolution rejecting the deed of absolute sale executed by Roxas for
and in its behalf. As such, the respondent is obliged to sell a portion of Lot No. 491-
A-3-B-1 covered by TCT No. 78085 with an area of 500 square meters at the price
of P1,000 per square meter, based on its evidence and Articles 649 and 651 of the
New Civil Code.

For its part, the respondent posits that Roxas was not so authorized under the May
17, 1991 Resolution of its Board of Directors to impose a burden or to grant a right
of way in favor of the petitioner on Lot No. 491-A-3-B-1, much less convey a portion
thereof to the petitioner. Hence, the respondent was not bound by such provisions
contained in the deed of absolute sale. Besides, the respondent contends, the
petitioner cannot enforce its right to buy a portion of the said property since there
was no agreement in the deed of absolute sale on the price thereof as well as the
specific portion and area to be purchased by the petitioner.

We agree with the respondent.

In San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,[21] we held
that:

A corporation is a juridical person separate and distinct from its stockholders or


members. Accordingly, the property of the corporation is not the property of its
stockholders or members and may not be sold by the stockholders or members
without express authorization from the corporations board of directors. Section 23
of BP 68, otherwise known as the Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted
and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of
the corporation, who shall hold office for one (1) year and until their
successors are elected and qualified.

Indubitably, a corporation may act only through its board of directors or,
when authorized either by its by-laws or by its board resolution, through its officers
or agents in the normal course of business. The general principles of agency govern
the relation between the corporation and its officers or agents, subject to the articles
of incorporation, by-laws, or relevant provisions of law. [22]

Generally, the acts of the corporate officers within the scope of their authority are
binding on the corporation. However, under Article 1910 of the New Civil Code,
acts done by such officers beyond the scope of their authority cannot bind the
corporation unless it has ratified such acts expressly or tacitly, or is estopped from
denying them:

Art. 1910. The principal must comply with all the obligations which the agent may
have contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is
not bound except when he ratifies it expressly or tacitly.

Thus, contracts entered into by corporate officers beyond the scope of


authority are unenforceable against the corporation unless ratified by the
corporation.[23]

In BA Finance Corporation v. Court of Appeals,[24] we also ruled that persons


dealing with an assumed agency, whether the assumed agency be a general or special
one, are bound at their peril, if they would hold the principal liable, to ascertain not
only the fact of agency but also the nature and extent of authority, and in case either
is controverted, the burden of proof is upon them to establish it.
In this case, the respondent denied authorizing its then president Roberto B. Roxas
to sell a portion of Lot No. 491-A-3-B-1 covered by TCT No. 78085, and to create
a lien or burden thereon. The petitioner was thus burdened to prove that the
respondent so authorized Roxas to sell the same and to create a lien thereon.

Central to the issue at hand is the May 17, 1991 Resolution of the Board of Directors
of the respondent, which is worded as follows:

RESOLVED, as it is hereby resolved, that the corporation, thru the President, sell
to any interested buyer, its 7,213-sq.-meter property at the Sumulong Highway,
Antipolo, Rizal, covered by Transfer Certificate of Title No. N-78086, at a price
and on terms and conditions which he deems most reasonable and advantageous to
the corporation;

FURTHER RESOLVED, that Mr. ROBERTO B. ROXAS, President of the


corporation, be, as he is hereby authorized to execute, sign and deliver the pertinent
sales documents and receive the proceeds of sale for and on behalf of the
company.[25]

Evidently, Roxas was not specifically authorized under the said resolution to grant
a right of way in favor of the petitioner on a portion of Lot No. 491-A-3-B-1 or to
agree to sell to the petitioner a portion thereof. The authority of Roxas, under the
resolution, to sell Lot No. 491-A-3-B-2 covered by TCT No. 78086 did not include
the authority to sell a portion of the adjacent lot, Lot No. 491-A-3-B-1, or to create
or convey real rights thereon. Neither may such authority be implied from the
authority granted to Roxas to sell Lot No. 491-A-3-B-2 to the petitioner on such
terms and conditions which he deems most reasonable and advantageous. Under
paragraph 12, Article 1878 of the New Civil Code, a special power of attorney is
required to convey real rights over immovable property.[26] Article 1358 of the New
Civil Code requires that contracts which have for their object the creation of real
rights over immovable property must appear in a public document.[27] The petitioner
cannot feign ignorance of the need for Roxas to have been specifically authorized in
writing by the Board of Directors to be able to validly grant a right of way and agree
to sell a portion of Lot No. 491-A-3-B-1. The rule is that if the act of the agent is
one which requires authority in writing, those dealing with him are charged with
notice of that fact.[28]
Powers of attorney are generally construed strictly and courts will not infer or
presume broad powers from deeds which do not sufficiently include property or
subject under which the agent is to deal.[29] The general rule is
that the power of attorney must be pursued within legal strictures, and the agent can
neither go beyond it; nor beside it. The act done must be legally identical with that
authorized to be done.[30] In sum, then, the consent of the respondent to the assailed
provisions in the deed of absolute sale was not obtained; hence, the assailed
provisions are not binding on it.

We reject the petitioners submission that, in allowing Roxas to execute the


contract to sell and the deed of absolute sale and failing to reject or disapprove the
same, the respondent thereby gave him apparent authority to grant a right of way
over Lot No. 491-A-3-B-1 and to grant an option for the respondent to sell a portion
thereof to the petitioner. Absent estoppel or ratification, apparent authority cannot
remedy the lack of the written power required under the statement of frauds.[31] In
addition, the petitioners fallacy is its wrong assumption of the unproved premise that
the respondent had full knowledge of all the terms and conditions contained in the
deed of absolute sale when Roxas executed it.

It bears stressing that apparent authority is based on estoppel and can arise
from two instances: first, the principal may knowingly permit the agent to so hold
himself out as having such authority, and in this way, the principal becomes estopped
to claim that the agent does not have such authority; second, the principal may so
clothe the agent with the indicia of authority as to lead a reasonably prudent person
to believe that he actually has such authority.[32] There can be no apparent authority
of an agent without acts or conduct on the part of the principal and such acts or
conduct of the principal must have been known and relied upon in good faith and as
a result of the exercise of reasonable prudence by a third person as claimant and such
must have produced a change of position to its detriment. The apparent power of an
agent is to be determined by the acts of the principal and not by the acts of the
agent.[33]
For the principle of apparent authority to apply, the petitioner was burdened
to prove the following: (a) the acts of the respondent justifying belief in the agency
by the petitioner; (b) knowledge thereof by the respondent which is sought to be
held; and, (c) reliance thereon by the petitioner consistent with ordinary care and
prudence.[34] In this case, there is no evidence on record of specific acts made by the
respondent[35] showing or indicating that it had full knowledge of any representations
made by Roxas to the petitioner that the respondent had authorized him to grant to
the respondent an option to buy a portion of Lot No. 491-A-3-B-1 covered by TCT
No. 78085, or to create a burden or lien thereon, or that the respondent allowed him
to do so.

The petitioners contention that by receiving and retaining the P5,000,000


purchase price of Lot No. 491-A-3-B-2, the respondent effectively and impliedly
ratified the grant of a right of way on the adjacent lot, Lot No. 491-A-3-B-1, and to
grant to the petitioner an option to sell a portion thereof, is barren of merit. It bears
stressing that the respondent sold Lot No. 491-A-3-B-2 to the petitioner, and the
latter had taken possession of the property. As such, the respondent had the right to
retain the P5,000,000, the purchase price of the property it had sold to the
petitioner. For an act of the principal to be considered as an implied ratification of
an unauthorized act of an agent, such act must be inconsistent with any other
hypothesis than that he approved and intended to adopt what had been done in his
name.[36] Ratification is based on waiver the intentional relinquishment of a known
right. Ratification cannot be inferred from acts that a principal has a right to do
independently of the unauthorized act of the agent. Moreover, if a writing is required
to grant an authority to do a particular act, ratification of that act must also be in
writing.[37] Since the respondent had not ratified the unauthorized acts of Roxas, the
same are unenforceable.[38] Hence, by the respondents retention of the amount, it
cannot thereby be implied that it had ratified the unauthorized acts of its agent,
Roberto Roxas.

On the last issue, the petitioner contends that the CA erred in dismissing its
complaint for damages against the respondent on its finding that the delay in the
construction of its warehouse was due to its (petitioners) fault. The petitioner asserts
that the CA should have affirmed the ruling of the trial court that the respondent
failed to cause the eviction of the squatters from the property on or before September
29, 1991; hence, was liable for P5,660,000. The respondent, for its part, asserts that
the delay in the construction of the petitioners warehouse was due to its late filing of
an application for a building permit, only on May 28, 1992.

The petitioners contention is meritorious. The respondent does not deny that
it failed to cause the eviction of the squatters on or before September 29,
1991. Indeed, the respondent does not deny the fact that when the petitioner wrote
the respondent demanding that the latter cause the eviction of the squatters on April
15, 1992, the latter were still in the premises. It was only after receiving the said
letter in April 1992 that the respondent caused the eviction of the squatters, which
thus cleared the way for the petitioners contractor to commence the construction of
its warehouse and secure the appropriate building permit therefor.

The petitioner could not be expected to file its application for a building
permit before April 1992 because the squatters were still occupying the
property. Because of the respondents failure to cause their eviction as agreed upon,
the petitioners contractor failed to commence the construction of the warehouse in
October 1991 for the agreed price of P8,649,000. In the meantime, costs of
construction materials spiraled. Under the construction contract entered into
between the petitioner and the contractor, the petitioner was obliged to
pay P11,804,160,[39] including the additional work costing P1,441,500, or a net
increase of P1,712,980.[40] The respondent is liable for the difference between the
original cost of construction and the increase thereon, conformably to Article 1170
of the New Civil Code, which reads:

Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay and those who in any manner contravene the tenor
thereof, are liable for damages.
The petitioner, likewise, lost the amount of P3,900,000 by way of unearned
income from the lease of the property to the Ponderosa Leather Goods
Company. The respondent is, thus, liable to the petitioner for the said amount, under
Articles 2200 and 2201 of the New Civil Code:

Art. 2200. Indemnification for damages shall comprehend not only the
value of the loss suffered, but also that of the profits which the obligee failed to
obtain.

Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the natural and
probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was
constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed to the non-
performance of the obligation.

In sum, we affirm the trial courts award of damages and attorneys fees to the
petitioner.

IN LIGHT OF ALL THE FOREGOING, judgment is hereby


rendered AFFIRMING the assailed Decision of the Court of Appeals WITH
MODIFICATION. The respondent is ordered to pay to the petitioner the amount
of P5,612,980 by way of actual damages and P100,000 by way of attorneys fees. No
costs.

SO ORDERED.
[G.R. No. 154183. August 7, 2003]

SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID
BANK CORPORATION, FIRST BUSINESS PAPER
CORPORATION, KENNETH NG LI and MA. VICTORIA NG
LI, respondents.

DECISION
BELLOSILLO, J.:

RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an


omnibus line credit facility worth P10 million in favor of respondent First
Business Paper Corporation (FBPC).The terms and conditions of the
agreement as well as the checklist of documents necessary to open the credit
line were stipulated in a letter-advise of the Bank dated 16 May 1993 addressed
to FBPC and to its President, respondent Kenneth Ng Li. The letter- [1]

advise was effective upon compliance with the documentary requirements.


[2] [3]

The documents essential for the credit facility and submitted for this purpose
were the (a) Board Resolution or excerpts of the Board of Directors Meeting,
duly ratified by a Notary Public, authorizing the loan and security arrangement
as well as designating the officers to negotiate and sign for FBPC specifically
stating authority to mortgage, pledge and/or assign the properties of the
corporation; (b) agreement to purchase Domestic Bills; and, (c) Continuing
Guaranty for any and all amounts signed by petitioner-spouses Luis Toh and
Vicky Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng Li. The [4]

spouses Luis Toh and Vicky Tan Toh were then Chairman of the Board and
Vice-President, respectively, of FBPC, while respondent-spouses Kenneth Ng
Li and Ma. Victoria Ng Li were President and General Manager, respectively,
of the same corporation. [5]

It is not disputed that the credit facility as well as its terms and conditions
was not cancelled or terminated, and that there was no prior notice of such fact
as required in the letter-advise, if any was done.
On 10 May 1993, more than thirty (30) days from date of the letter-advise,
petitioner-spouses Luis Toh and Vicky Tan Toh and respondent-spouses
Kenneth Ng Li and Ma. Victoria Ng Li signed the required Continuing Guaranty,
which was embodied in a public document prepared solely by respondent
Bank. The terms of the instrument defined the contract arising therefrom as a
[6]

surety agreement and provided for the solidary liability of the signatories thereto
for and in consideration of loans or advances and credit in any other manner to,
or at the request or for the account of FBPC.
The Continuing Guaranty set forth no maximum limit on the indebtedness
that respondent FBPC may incur and for which the sureties may be liable,
stating that the credit facility covers any and all existing indebtedness of, and
such other loans and credit facilities which may hereafter be granted to FIRST
BUSINESS PAPER CORPORATION. The surety also contained a de
facto acceleration clause if default be made in the payment of any of the
instruments, indebtedness, or other obligation guaranteed by petitioners and
respondents. So as to strengthen this security, the Continuing Guaranty waived
rights of the sureties against delay or absence of notice or demand on the part
of respondent Bank, and gave future consent to the Banks action to extend or
change the time payment, and/or the manner, place or terms of payment,
including renewal, of the credit facility or any part thereof in such manner and
upon such terms as the Bank may deem proper without notice to or further
assent from the sureties.
The effectivity of the Continuing Guaranty was not contingent upon any
event or cause other than the written revocation thereof with notice to the Bank
that may be executed by the sureties.
On 16 June 1993 respondent FBPC started to avail of the credit facility and
procure letters of credit. On 17 November 1993 FBPC opened thirteen (13)
[7]

letters of credit and obtained loans totaling P15,227,510.00. As the letters of


[8]

credit were secured, FBPC through its officers Kenneth Ng Li, Ma. Victoria Ng
Li and Redentor Padilla as signatories executed a series of trust receipts over
the goods allegedly purchased from the proceeds of the loans. [9]

On 13 January 1994 respondent Bank received information that


respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had fraudulently
departed from their conjugal home. On 14 January 1994 the Bank served a
[10]

demand letter upon FBPC and petitioner Luis Toh invoking the acceleration
clause in the trust receipts of FBPC and claimed payment for P10,539,758.68
[11]

as unpaid overdue accounts on the letters of credit plus interests and penalties
within twenty-four (24) hours from receipt thereof. The Bank also invoked the
[12]

Continuing Guaranty executed by petitioner-spouses Luis Toh and Vicky Tan


Toh who were the only parties known to be within national jurisdiction to answer
as sureties for the credit facility of FBPC.
[13]

On 17 January 1994 respondent Bank filed a complaint for sum of money


with ex parte application for a writ of preliminary attachment against FBPC,
spouses Kenneth Ng Li and Ma. Victoria Ng Li, and spouses Luis Toh and Vicky
Tan Toh, docketed as Civil Case No. 64047 of RTC-Br. 161, Pasig City. Alias
[14]
summonses were served upon FBPC and spouses Luis Toh and Vicky Tan Toh
but not upon Kenneth Ng Li and Ma. Victoria Ng Li who had apparently
absconded. [15]

Meanwhile, with the implementation of the writ of preliminary attachment


resulting in the impounding of purported properties of FBPC, the trial court was
deluged with third-party claims contesting the propriety of the attachment. In [16]

the end, the Bank relinquished possession of all the attached properties to the
third-party claimants except for two (2) insignificant items as it allegedly could
barely cope with the yearly premiums on the attachment bonds. [17]

Petitioner-spouses Luis Toh and Vicky Tan Toh filed a joint answer to the
complaint where they admitted being part of FBPC from its incorporation on 29
August 1991, which was then known as MNL Paper, Inc., until its corporate
name was changed to First Business Paper Corporation. They also [18]

acknowledged that on 6 March 1992 Luis Toh was designated as one of the
authorized corporate signatories for transactions in relation to FBPCs checking
account with respondent Bank. Meanwhile, for failing to file an answer,
[19]

respondent FBPC was declared in default. [20]

Petitioner-spouses however could not be certain whether to deny or admit


the due execution and authenticity of the Continuing Guaranty. They could[21]

only allege that they were made to sign papers in blank and the Continuing
Guaranty could have been one of them.
Still, as petitioners asserted, it was impossible and absurd for them to have
freely and consciously executed the surety on 10 May 1993, the date appearing
on its face since beginning March of that year they had already divested their
[22]

shares in FBPC and assigned them in favor of respondent Kenneth Ng Li


although the deeds of assignment were notarized only on 14 June
1993. Petitioners also contended that through FBPC Board Resolution dated
[23]

12 May 1993 petitioner Luis Toh was removed as an authorized signatory for
FBPC and replaced by respondent-spouses Kenneth Ng Li and Ma. Victoria Ng
Li and Redentor Padilla for all the transactions of FBPC with respondent
Bank. They even resigned from their respective positions in FBPC as reflected
[24]

in the 12 June 1993 Secretarys Certificate submitted to the Securities and


Exchange Commission as petitioner Luis Toh was succeeded as Chairman by
[25]

respondent Ma. Victoria Ng Li, while one Mylene C. Padilla took the place of
petitioner Vicky Tan Toh as Vice-President. [26]

Finally, petitioners averred that sometime in June 1993 they obtained from
respondent Kenneth Ng Li their exclusion from the several surety agreements
they had entered into with different banks, i.e., Hongkong and Shanghai Bank,
China Banking Corporation, Far East Bank and Trust Company, and herein
respondent Bank. As a matter of record, these other banks executed written
[27]

surety agreements that showed respondent Kenneth Ng Li as the only surety


of FBPCs indebtedness. [28]

On 16 May 1996 the trial court promulgated its Decision in Civil Case No.
64047 finding respondent FBPC liable to pay respondent Solid Bank
Corporation the principal of P10,539,758.68 plus twelve percent (12%)
interest per annum from finality of the Decision until fully paid, but absolving
petitioner-spouses Luis Toh and Vicky Tan Toh of any liability to respondent
Bank. The court a quo found that petitioners voluntarily affixed their
[29]

signature[s] on the Continuing Guaranty and were thus at some given point in
time willing to be liable under those forms, although it held that petitioners
[30]

were not bound by the surety contract since the letters of credit it was supposed
to secure were opened long after petitioners had ceased to be part of FBPC. [31]

The trial court described the Continuing Guaranty as effective only while
petitioner-spouses were stockholders and officers of FBPC since respondent
Bank compelled petitioners to underwrite FBPCs indebtedness as sureties
without the requisite investigation of their personal solvency and capability to
undertake such risk. The lower court also believed that the Bank knew of
[32]

petitioners divestment of their shares in FBPC and their subsequent resignation


as officers thereof as these facts were obvious from the numerous public
documents that detailed the changes and substitutions in the list of authorized
signatories for transactions between FBPC and the Bank, including the many
trust receipts being signed by persons other than petitioners, as well as the [33]

designation of new FBPC officers which came to the notice of the Banks Vice-
President Jose Chan Jr. and other officers. [34]

On 26 September 1996 the RTC-Br. 161 of Pasig City denied


reconsideration of its Decision. [35]

On 9 October 1996 respondent Bank appealed the Decision to the Court of


Appeals, docketed as CA-G.R. CV No. 55957. Petitioner-spouses did not [36]

move for reconsideration nor appeal the finding of the trial court that they
voluntarily executed the Continuing Guaranty.
The appellate court modified the Decision of the trial court and held that by
signing the Continuing Guaranty, petitioner-spouses became solidarily liable
with FBPC to pay respondent Bank the amount of P10,539,758.68 as principal
with twelve percent (12%) interest per annum from finality of the judgment until
completely paid. The Court of Appeals ratiocinated that the provisions of the
[37]

surety agreement did not indicate that Spouses Luis and Vicky Toh x x x signed
the instrument in their capacities as Chairman of the Board and Vice-President,
respectively, of FBPC only. Hence, the court a quo deduced, [a]bsent any
[38]
such indication, it was error for the trial court to have presumed that the
appellees indeed signed the same not in their personal capacities. The [39]

appellate court also ruled that as petitioners failed to execute any written
revocation of the Continuing Guaranty with notice to respondent Bank, the
instrument remained in full force and effect when the letters of credit were
availed of by respondent FBPC. [40]

Finally, the Court of Appeals rejected petitioners argument that there were
material alterations in the provisions of the letter-advise, i.e., that only domestic
letters of credit were opened when the credit facility was for importation of
papers and other materials, and that marginal deposits were not paid, contrary
to the requirements stated in the letter-advise. The simple response of the
[41]

appellate court to this challenge was, first, the letter-advise itself authorized the
issuance of domestic letters of credit, and second, the several waivers extended
by petitioners in the Continuing Guaranty, which included changing the time and
manner of payment of the indebtedness, justified the action of respondent Bank
not to charge marginal deposits. [42]

Petitioner-spouses moved for reconsideration of the Decision, and after


respondent Banks comment, filed a lengthy Reply with Motion for Oral
Argument. On 2 July 2002 reconsideration of the Decision was denied on the
[43]

ground that no new matter was raised to warrant the reversal or modification
thereof. Hence, this Petition for Review.
[44]

Petitioner-spouses Luis Toh and Vicky Tan Toh argue that the Court of
Appeals denied them due process when it did not grant their motion for
reconsideration and without bother[ing] to consider [their] Reply with Motion for
Oral Argument. They maintain that the Continuing Guaranty is not legally valid
and binding against them for having been executed long after they had
withdrawn from FBPC. Lastly, they claim that the surety agreement has been
extinguished by the material alterations thereof and of the letter-advise which
were allegedly brought about by (a) the provision of an acceleration clause in
the trust receipts; (b) the flight of their co-sureties, respondent-spouses Kenneth
Ng Li and Ma. Victoria Ng Li; (c) the grant of credit facility despite the non-
payment of marginal deposits in an amount beyond the credit limit of P10 million
pesos; (d) the inordinate delay of the Bank in demanding the payment of the
indebtedness; (e) the presence of ghost deliveries and fictitious purchases
using the Banks letters of credit and trust receipts; (f) the extension of the due
dates of the letters of credit without the required 25% partial payment per
extension; (g) the approval of another letter of credit, L/C 93-0042, even after
respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had defaulted on
their previous obligations; and, (h) the unmistakable pattern of fraud.
Respondent Solid Bank maintains on the other hand that the appellate court
is presumed to have passed upon all points raised by
petitioners Reply with Motion for Oral Argument as this pleading formed part of
the records of the appellate court. It also debunks the claim of petitioners that
they were inexperienced and ignorant parties who were taken advantage of in
the Continuing Guaranty since petitioners are astute businessmen who are very
familiar with the ins and outs of banking practice. The Bank further argues that
the notarization of the Continuing Guaranty discredits the uncorroborated
assertions against the authenticity and due execution thereof, and that
the Decision of the trial court in the civil case finding the surety agreement to
be valid and binding is now res judicata for failure of petitioners to appeal
therefrom. As a final point, the Bank refers to the various waivers made by
petitioner-spouses in the Continuing Guaranty to justify the extension of the due
dates of the letters of credit.
To begin with, we find no merit in petitioners claim that the Court of Appeals
deprived them of their right to due process when the court a quo did not address
specifically and explicitly their Reply with Motion for Oral Argument. While
the Resolution of the appellate court of 2 July 2002 made no mention thereof in
disposing of their arguments on reconsideration, it is presumed that all matters
within an issue raised in a case were laid before the court and passed upon
it. In the absence of evidence to the contrary, we must rule that the court a
[45]

quo discharged its task properly. Moreover, a reading of the


assailed Resolution clearly makes reference to a careful review of the records,
which undeniably includes the Reply with Motion for Oral Argument, hence
there is no reason for petitioners to asseverate otherwise.
This Court holds that the Continuing Guaranty is a valid and binding contract
of petitioner-spouses as it is a public document that enjoys the presumption of
authenticity and due execution. Although petitioners as appellees may raise
issues that have not been assigned as errors by respondent Bank as party-
appellant, i.e., unenforceability of the surety contract, we are bound by the
consistent finding of the courts a quo that petitioner-spouses Luis Toh and
Vicky Tan Toh voluntarily affixed their signature[s] on the surety agreement and
were thus at some given point in time willing to be liable under those forms. In [46]

the absence of clear, convincing and more than preponderant evidence to the
contrary, our ruling cannot be otherwise.
Similarly, there is no basis for petitioners to limit their responsibility thereon
so long as they were corporate officers and stockholders of FBPC. Nothing in
the Continuing Guaranty restricts their contractual undertaking to such
condition or eventuality. In fact the obligations assumed by them therein subsist
upon the undersigned, the heirs, executors, administrators, successors and
assigns of the undersigned, and shall inure to the benefit of, and be enforceable
by you, your successors, transferees and assigns, and that their commitment
shall remain in full force and effect until written notice shall have been received
by [the Bank] that it has been revoked by the undersigned. Verily, if petitioners
intended not to be charged as sureties after their withdrawal from FBPC, they
could have simply terminated the agreement by serving the required notice of
revocation upon the Bank as expressly allowed therein. In Garcia v. Court of
[47]

Appeals we ruled
[48]

Regarding the petitioners claim that he is liable only as a corporate officer of WMC,
the surety agreement shows that he signed the same not in representation of WMC or
as its president but in his personal capacity. He is therefore personally bound. There is
no law that prohibits a corporate officer from binding himself personally to answer for
a corporate debt. While the limited liability doctrine is intended to protect the
stockholder by immunizing him from personal liability for the corporate debts, he
may nevertheless divest himself of this protection by voluntarily binding himself to
the payment of the corporate debts. The petitioner cannot therefore take refuge in this
doctrine that he has by his own acts effectively waived.

But as we bind the spouses Luis Toh and Vicky Tan Toh to the surety
agreement they signed so must we also hold respondent Bank to its
representations in the letter-advise of 16 May 1993. Particularly, as to the
extension of the due dates of the letters of credit, we cannot exclude from the
Continuing Guaranty the preconditions of the Bank that were plainly stipulated
in the letter-advise. Fairness and justice dictate our doing so, for the Bank itself
liberally applies the provisions of cognate agreements whenever convenient to
enforce its contractual rights, such as, when it harnessed a provision in the trust
receipts executed by respondent FBPC to declare its entire indebtedness as
due and demandable and thereafter to exact payment thereof from petitioners
as sureties. In the same manner, we cannot disregard the provisions of the
[49]

letter-advise in sizing up the panoply of commercial obligations between the


parties herein.
Insofar as petitioners stipulate in the Continuing Guaranty that respondent
Bank may at any time, or from time to time, in [its] discretion x x x extend or
change the time payment, this provision even if understood as a waiver is
confined per se to the grant of an extension and does not surrender the
prerequisites therefor as mandated in the letter-advise. In other words, the
authority of the Bank to defer collection contemplates
only authorized extensions, that is, those that meet the terms of the letter-
advise.
Certainly, while the Bank may extend the due date at its discretion pursuant
to the Continuing Guaranty, it should nonetheless comply with the requirements
that domestic letters of credit be supported by fifteen percent (15%) marginal
deposit extendible three (3) times for a period of thirty (30) days for each
extension, subject to twenty-five percent (25%) partial payment per
extension. This reading of the Continuing Guaranty is consistent with Philippine
National Bank v. Court of Appeals that any doubt on the terms and conditions
[50]

of the surety agreement should be resolved in favor of the surety.


Furthermore, the assurance of the sureties in the Continuing Guaranty that
[n]o act or omission of any kind on [the Banks] part in the premises shall in any
event affect or impair this guaranty must also be read strictissimi juris for the
[51]

reason that petitioners are only accommodation sureties, i.e., they received
nothing out of the security contract they signed. Thus said, the acts or
[52]

omissions of the Bank conceded by petitioners as not affecting nor impairing


the surety contract refer only to those occurring in the premises, or those that
have been the subject of the waiver in the Continuing Guaranty, and stretch to
no other. Stated otherwise, an extension of the period for enforcing the
indebtedness does not by itself bring about the discharge of the sureties unless
the extra time is not permitted within the terms of the waiver, i.e., where there
is no payment or there is deficient settlement of the marginal deposit and the
twenty-five percent (25%) consideration, in which case the illicit extension
releases the sureties. Under Art. 2055 of the Civil Code, the liability of a surety
is measured by the terms of his contract, and while he is liable to the full extent
thereof, his accountability is strictly limited to that assumed by its terms.
It is admitted in the Complaint of respondent Bank before the trial court that
several letters of credit were irrevocably extended for ninety (90) days with
alarmingly flawed and inadequate consideration - the indispensable marginal
deposit of fifteen percent (15%) and the twenty-five percent (25%) prerequisite
for each extension of thirty (30) days. It bears stressing that the requisite
marginal deposit and security for every thirty (30) - day extension specified in
the letter-advise were not set aside or abrogated nor was there any prior notice
of such fact, if any was done.
Moreover, these irregular extensions were candidly admitted by Victor
Ruben L. Tuazon, an account officer and manager of respondent Bank and its
lone witness in the civil case
Q: You extended it even if there was no marginal deposit?
A: Yes.
Q: And even if partial payment is less than 25%?
A: Yes x x x x
Q: You have repeatedly extended despite the insufficiency partial payment requirement?
A: I would say yes.[53]

The foregoing extensions of the letters of credit made by respondent Bank


without observing the rigid restrictions for exercising the privilege are not
covered by the waiver stipulated in the Continuing Guaranty. Evidently, they
constitute illicit extensions prohibited under Art. 2079 of the Civil Code, [a]n
extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty. This act of the Bank is not mere failure or
delay on its part to demand payment after the debt has become due, as was
the case in unpaid five (5) letters of credit which the Bank did not extend, defer
or put off, but comprises conscious, separate and binding agreements to
[54]

extend the due date, as was admitted by the Bank itself


Q: How much was supposed to be paid on 14 September 1993, the original LC
of P1,655,675.13?
A: Under LC 93-0017 first matured on 14 September 1993. We rolled it over, extended
it to December 13, 1993 but they made partial payment that is why we extended it.
Q: The question to you now is how much was paid? How much is supposed to be paid
on September 14, 1993 on the basis of the original amount of P1,655,675.13?
A: Whenever this obligation becomes due and demandable except when you roll it over
so there is novation there on the original obligations[55] (underscoring supplied).

As a result of these illicit extensions, petitioner-spouses Luis Toh and Vicky


Tan Toh are relieved of their obligations as sureties of respondent FBPC under
Art. 2079 of the Civil Code.
Further, we note several suspicious circumstances that militate against the
enforcement of the Continuing Guaranty against the accommodation
sureties. Firstly, the guaranty was executed more than thirty (30) days from the
original acceptance period as required in the letter-advise. Thereafter, barely
two (2) days after the Continuing Guaranty was signed, corporate agents of
FBPC were replaced on 12 May 1993 and other adjustments in the corporate
structure of FBPC ensued in the month of June 1993, which the Bank did not
investigate although such were made known to it.
By the same token, there is no explanation on record for the utter
worthlessness of the trust receipts in favor of the Bank when these documents
ought to have added more security to the indebtedness of FBPC. The Bank has
in fact no information whether the trust receipts were indeed used for the
purpose for which they were obtained. To be sure, the goods subject of the
[56]

trust receipts were not entirely lost since the security officer of respondent Bank
who conducted surveillance of FBPC even had the chance to intercept the
surreptitious transfer of the items under trust: We saw two (2) delivery vans with
Plates Nos. TGH 257 and PAZ 928 coming out of the compound x x x [which
were] taking out the last supplies stored in the compound. In addition, the
[57]

attached properties of FBPC, except for two (2) of them, were perfunctorily
abandoned by respondent Bank although the bonds therefor were considerably
reduced by the trial court. [58]

The consequence of these omissions is to discharge the surety, petitioners


herein, under Art. 2080 of the Civil Code, or at the very least, mitigate the
[59]

liability of the surety up to the value of the property or lien released

If the creditor x x x has acquired a lien upon the property of a principal, the creditor at
once becomes charged with the duty of retaining such security, or maintaining such
lien in the interest of the surety, and any release or impairment of this security as a
primary resource for the payment of a debt, will discharge the surety to the extent of
the value of the property or lien released x x x x [for] there immediately arises a trust
relation between the parties, and the creditor as trustee is bound to account to the
surety for the value of the security in his hands.[60]

For the same reason, the grace period granted by respondent Bank
represents unceremonious abandonment and forfeiture of the fifteen percent
(15%) marginal deposit and the twenty-five percent (25%) partial payment as
fixed in the letter-advise. These payments are unmistakably additional
securities intended to protect both respondent Bank and the sureties in the
event that the principal debtor FBPC becomes insolvent during the extension
period. Compliance with these requisites was not waived by petitioners in the
Continuing Guaranty. For this unwarranted exercise of discretion, respondent
Bank bears the loss; due to its unauthorized extensions to pay granted to FBPC,
petitioner-spouses Luis Toh and Vicky Tan Toh are discharged as sureties
under the Continuing Guaranty.
Finally, the foregoing omission or negligence of respondent Bank in failing
to safe-keep the security provided by the marginal deposit and the twenty-five
percent (25%) requirement results in the material alteration of the principal
contract, i.e., the letter-advise, and consequently releases the surety. This [61]

inference was admitted by the Bank through the testimony of its lone witness
that [w]henever this obligation becomes due and demandable, except when you
roll it over, (so) there is novation there on the original obligations. As has been
said, if the suretyship contract was made upon the condition that the principal
shall furnish the creditor additional security, and the security being furnished
under these conditions is afterwards released by the creditor, the surety is
wholly discharged, without regard to the value of the securities released, for
such a transaction amounts to an alteration of the main contract. [62]
WHEREFORE, the instant Petition for Review is GRANTED. The Decision
of the Court of Appeals dated 12 December 2001 in CA-G.R. CV No. 55957,
Solid Bank Corporation v. First Business Paper Corporation, Kenneth Ng Li,
Ma. Victoria Ng Li, Luis Toh and Vicky Tan Toh, holding petitioner-spouses Luis
Toh and Vicky Tan Toh solidarily liable with First Business Paper Corporation
to pay Solid Bank Corporation the amount of P10,539,758.68 as principal with
twelve percent (12%) interest per annum until fully paid, and its Resolution of 2
July 2002 denying reconsideration thereof are REVERSED and SET ASIDE.
The Decision dated 16 May 1996 of RTC-Br. 161 of Pasig City in Civil Case
No. 64047, Solid Bank Corporation v. First Business Paper Corporation,
Kenneth Ng Li, Ma. Victoria Ng Li, Luis Toh and Vicky Tan Toh, finding First
Business Paper Corporation liable to pay respondent Solid Bank Corporation
the principal of P10,539,758.68 plus twelve percent (12%) interest per annum
until fully paid, but absolving petitioner-spouses Luis Toh and Vicky Tan Toh of
any liability to respondent Solid Bank Corporation is REINSTATED and
AFFIRMED. No costs.
SO ORDERED.
[G.R. No. 126850. April 28, 2004]

THE INSULAR LIFE ASSURANCE COMPANY, LTD., petitioner,


vs. COURT OF APPEALS and SUN BROTHERS &
COMPANY, respondents.

DECISION
AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court which seeks the reversal of the Decision, dated May 20, 1996,
[1]

of the Court of Appeals (CA for brevity) in CA-G.R. CV No. 46987 affirming the
Decision, dated April 25, 1994, rendered by the Regional Trial Court (Branch
[2]

150), Makati City (RTC for brevity) in Civil Case No. 92-27754 extending the
lease contract subject of the petition for declaratory relief and ordering petitioner
to pay attorneys fees and costs.
The factual antecedents are as follows:
On September 24, 1992, Sun Brothers & Company (Sun Brothers for
brevity) filed a petition for declaratory relief with the RTC seeking judicial
interpretation of the option to renew clause under a Contract of Lease
dated September 20, 1988. [3]

Under the contract, Sun Brothers leased for a period of five years
from December 1, 1987 until November 30, 1992, a parcel of land, with an
approximate area of 4,215 square meters, and the building constructed thereon,
located in Makati (then a Municipality). The contract stipulated that the lease
was renewable at the option of the tenant, Sun Brothers, for an additional five
years, provided the exercise of the option to renew the lease shall be made by
the tenant in writing to The Insular Life Assurance Company, Ltd. (Insular for
brevity) at least ninety days before the expiration of the period. The contract
further provided for monthly rental of P50,000.00 for the first year and an
increase of 10% per annum for the succeeding years, exclusive of real estate
taxes and insurance premiums which are for the account of Sun Brothers. [4]

Sun Brothers alleged that since the lease contract does not contain any
provision as to the rental or any provision for any new or additional terms or
conditions in case of renewal, the terms and conditions of the renewal of lease
should be the same and the monthly rental should remain at P73,205.00. It
prayed that judgment be rendered: (a) declaring that renewal under the contract
of lease be for an additional period of five years under the same terms and
conditions and the monthly rental should be P73,205.00; and, (b) ordering
Insular to pay Sun Brothers P20,000.00 as attorneys fees and to pay the costs
of suit.
[5]

On November 6, 1992, Insular filed its Answer claiming that while the lease
[6]

contract grants Sun Brothers the option to renew the lease by giving notice
thereof to Insular at least ninety days before the expiration of the period, it has
always been the agreement of the parties that Sun Brothers does not have the
right to impose, on its sole will, a renewal of the lease as to the period or the
rentals; that despite the presence of the renewal clause in the previous
[7]

contracts of lease, the parties still negotiated, as a matter of course, for the
renewal of the lease in 1977 and 1987; that negotiation was the usual norm
between the parties, clearing up as it did vague portions of the previous
contracts.
After trial on the merits, the RTC rendered its decision, dated April 25, 1994,
ruling as follows:

The wording of the xxx provisions of the contract is clear, unambiguous and need no
further interpretation. The tenant, herein petitioner, is vested solely with the option to
renew the said contract of lease on the only condition that the same be made known to
respondent in writing at least 90 days before its expiration.

Petitioner, in its letter to respondent dated May 22, 1993 (Exh. D), expressed its desire
to exercise the option granted in the contract, since there is no mention of any change
or increase in the amount of monthly rental, petitioner understood it to mean that the
renewal will be under the same terms and conditions.

Respondents claim that the lease contract (Exh. C) does not contain the true intent of
the parties deserves scant consideration. It must be noted, as correctly pointed out by
the petitioner, that all the contracts of lease between the parties and the repeated
renewals thereof were entirely drafted, finalized and notarized by respondent and is,
thus, a contract of adhesion. Being a contract of adhesion, petitioners only role was
for its general manager, Amancio L. Sun to sign the same. The respondent could have
easily deleted this questioned renewal clause in the contract if, indeed, such was not
the intention of the parties. It could have provided therein that any renewal of the
lease would be by mutual agreement of the parties or had specifically limited the
period of the lease.[8]

The dispositive portion of the assailed decision reads:

WHEREFORE, considering all the foregoing, judgment is hereby rendered as follows:


a) declaring that the contract of lease dated 30 September 1988 be renewed for
another 5 years starting from 30 November 1992 and up to 1 December 1997;

b) declaring that the monthly rental on the leased premises be P100,000.00 exclusive
of real estate taxes and insurance premiums, less any amounts that petitioner may
have paid respondent in the meantime;

c) ordering the respondent to pay herein petitioner the amount of P20,000.00 as


attorneys fees; and

d) to pay the cost.

SO ORDERED. [9]

On June 1, 1994, Insular filed a motion for reconsideration which the RTC
[10]

denied in its Order dated July 18, 1994. [11]

Dissatisfied, Insular appealed to the CA. In a Decision dated May 20,


[12]

1996, the CA affirmed the decision of the trial court. It reasoned that since the
[13]

renewal clause in the latest contract of Insular and Sun Brothers is silent as to
the terms and conditions of the subsequent contract, such subsequent contract
should follow the terms and conditions of the original contract, applying the
doctrine laid down in the cases of Ledesma vs. Javellana, Millare vs. [14]

Hernando, and Fernandez vs. Court of Appeals.


[15] [16]

As regards the monthly rental, the CA held that there was no merit to
Insulars allegation that the trial court acted arbitrarily in fixing the amount of the
rent at P100,000.00 a month since it considered the testimony of Insulars
witness that improvements introduced by Sun Brothers still have an appraised
value, which value is considered by the CA in favor of Sun Brothers in the
determination of the terms of the extended lease. The CA added that the trial
court arrived at the amount of P100,000.00 after considering that Sun Brothers
had shouldered the maintenance expenses on the building and paid real estate
taxes as well as insurance premiums thereon. [17]

Insular filed a motion for reconsideration which was denied by the CA in


[18]

its Resolution dated October 10, 1996. [19]

Hence, the present petition for review anchored on the following grounds:
A. THE EXERCISE OF JUDICIAL POWER ENTAILS THE DUTY TO SETTLE ACTUAL
CONTROVERSIES OF LEGALLY DEMANDABLE RIGHTS AND TO DECIDE UPON
ISSUES SUBMITTED BY THE PARTIES.
B. WHERE A PARTY PUTS IN ISSUE IN HIS PLEADING THAT THE CONTRACT
FAILS TO EXPRESS THE TRUE INTENT OF THE PARTIES, THE LOWER COURT
IS MANDATED TO CONSIDER THE EXTRINSIC EVIDENCE PRESENTED AND
THEN DECIDE WHAT THE TRUE INTENT IS; BY THE VERY NATURE OF THIS
CHALLENGE, IT IS A JUDICIAL ABDICATION OF DUTY TO SIMPLY AND MERELY
RULE THAT THE CONTRACT IS CLEAR AND MUST BE INTERPRETED AS SUCH.
C. THE AMOUNT OF REASONABLE RENT IS DETERMINED ON THE BASIS OF
EVIDENCE PRESENTED.
D. PETITIONER IS ENTITLED TO AN AWARD OF MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES.[20]
Succinctly, the issue herein is the real nature of the option to renew the
lease under the contractual agreement of the parties. Insular insists that the
option to renew is a bilateral agreement subject to the terms and conditions the
parties may agree upon. Sun Brothers, on the other hand, posits that the option
to renew is its unilateral right effectively exercised by mere notice to Insular of
the intention to extend the lease, at least ninety days before the expiration of
the period, without qualification as to monthly rental or term of the lease.
It is a settled rule that in the exercise of the Supreme Courts power of
review, the Court is not a trier of facts and does not normally undertake the re-
examination of the evidence presented by the contending parties during the trial
of the case considering that the findings of facts of the CA are conclusive and
binding on the Court. However, the Court had recognized several exceptions
[21]

to this rule, to wit: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings the Court of Appeals went
beyond the issues of the case, or its findings are contrary to the admissions of
both the appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioners main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record; and (11)
when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a
different conclusion. Exceptions (4), (10) and (11) are present in this case.
[22]

It is a cardinal rule in contract interpretation that the ascertainment of the


intention of the contracting parties is to be discharged by looking to the words
they used to project that intention in their contract, that is, all the words, not just
a particular word or two, and words in context, not words standing
alone. Furthermore, Article 1374 of the Civil Code requires that the various
[23]
stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly. Conformably,
to ascertain the true meaning or import of the disputed option to renew clause
in the contract of lease, the entirety of the contract must be considered; not
merely the clause relating to the option to renew.
After a careful examination of the records of the case, the Court finds it
significant that the disputed contract of lease is not the first contract between
the parties but, in fact, the third contract or the second renewal contract. The
parties lessor-lessee relationship all started on January 29, 1958, with the
original contract of lease, portions of which provide:
[24]

INSULAR does hereby lease the abovementioned land and building unto the
TENANT and the TENANT does hereby accept in lease from INSULAR the said land
and building, for a period of TEN (10) YEARS from the date provided for in Clause
IX hereof, renewable at the option of the TENANT for an additional period of TEN
(10) YEARS; PROVIDED, HOWEVER, that the exercise of the options to renew the
lease as herein stated shall be made by the TENANT in writing to INSULAR at least
NINETY (90) DAYS before the expiration of the periods herein mentioned. All
renewals shall be under the same terms and conditions hereinstated.

.........
III

INSULAR expressly covenants that if on or before the expiration of the period of


TWENTY (20) YEARS (covered by the original TEN (10) years period of the
lease and the renewal period of TEN (10) years hereinabove stipulated)
TENANT still desires to occupy the building, INSULAR shall give the TENANT
first priority to lease the building at the monthly rental and under such other
terms and conditions as may be agreed upon by the parties at that time. (Emphasis
[25]

supplied)

The first renewal of the lease contract was made on January 20, 1978 for a
period of another 10 years, from December 1, 1977 until November 30, 1987,
which by that time had added up to twenty years of lease. The parties agreed
that the lease was renewable at the option of the Sun Brothers for an additional
period of five years with the proviso that the exercise of the option to renew the
lease shall be made by the tenant in writing to Insular at least ninety days before
the expiration of the period provided. The contract further provided that:
[26]

2) For the use and occupancy of the leased premises TENANT shall, during the first (5)
years of the above 10-year period, pay in advance at the office of INSULAR, within
the first five (5) days of every month a monthly rental of P24,325.00 exclusive of real
estate taxes and insurance premiums. (All real estate taxes, other assessments and
insurance premiums of the leased properties shall be for the account of the TENANT).
Thereafter, the rental shall be adjusted beginning on the sixth year of this lease with
an effective increase equivalent to 6.5% per annum of the imputed value increment
on the land compounded at 5% annually for a period of five (5) years using the current
value of the leased property as base, which current value is hereby agreed upon by
the parties as follows:

Land ---------------------------- P 3,793,500.00

Improvements ---------------- 697,100.00

Total Current Value ---------- P 4,490,600.00

On the basis of the above current value, the monthly rental for the 2nd Five (5) years
of the said 10-year period is estimated to be P30,002.00 exclusive of real estate
taxes, other assessments and insurance premiums for the leased properties.
3) Except for the foregoing modification/amendment, all the other terms and
conditions of the Contract of Lease dated 29 January 1958 remain in full force
and effect.[27] (Emphasis supplied)

Thereafter, prior to the expiration of the foregoing contract in November


1987, an exchange of letters ensued between the contracting parties, as
follows:

1. SUN BROTHERS, in a letter dated July 15, 1987, expressed its intention to renew
the lease for a period of five years. [28]

2. On July 31, 1987, INSULAR informed SUN BROTHERS that it was agreeable to
the renewal of the lease subject to the following terms: (a) lease period from 01
December 1987 to 30 November 1992; (b) basic monthly rental of P60,000.00; (c)
annual escalation rate of 10%; and, (d) insurance premiums, realty taxes, other
government assessments if any, shall be for the account of SUN BROTHERS. [29]

3. SUN BROTHERS acceded to the terms of INSULAR but subsequently found the
[30]

said terms to be quite heavy, hence in a letter dated October 5, 1987, it offered the
following compromise term: (a) basic monthly rental increase of 50% over the present
monthly rental of P30,000.00, thereby making the new monthly rental to P45,000.00;
and, (b) annual escalation rate of 5% which is a new condition not in the old contract,
in addition to the insurance premiums, realty taxes, other government assessments if
any, which shall be for the account of SUN BROTHERS. [31]
4. On November 20, 1987 INSULAR informed SUN BROTHERS that it was not
amenable to the foregoing compromise terms. It reasoned that the new basic rental
rate of P60,000.00 is fair and reasonable considering the present market value rates of
other properties in the immediate vicinity. [32]

5. On November 27, 1987, SUN BROTHERS requested reconsideration and accept its
new offer of P50,000.00 monthly rental and yearly increase of 5%. [33]

6. On December 10, 1987, INSULAR informed SUN BROTHERS that it was


agreeable to renewal of the lease subject to the following terms: (a) lease period from
01 December 1987 to 30 November 1992; (b) basic monthly rental of P50,000.00; (c)
annual escalation rate of 10%; and, (d) insurance premiums, realty taxes, other
government assessments if any, shall be for the account of SUN BROTHERS. [34]

The foregoing exchange of communications ultimately led to the Contract of


Lease dated September 20, 1988, which is the second renewed Contract of
Lease or third contract of lease between the parties. The contract again
stipulated that the lease was renewable at the option of the tenant for an
additional five years provided the exercise of the option to renew the lease shall
be made by the tenant in writing to Insular at least ninety days before the
expiration of the period. The lease was for a period of five years,
from December 1, 1987 until November 30, 1992, with a monthly rental
of P50,000.00 for the first year, and an increase of 10% per annum for the
succeeding years, exclusive of real estate taxes and insurance premiums which
are for the account of Sun Brothers. Again, the contract provided that except
[35]

for the foregoing modification/amendment, all the other terms and


conditions of the Contract of Lease dated 29 January 1958 remain in full
force and effect. [36]

Prior to the expiration of the second renewal Contract of Lease in 1992, an


exchange of letters once more transpired between the parties, thus:
1. On May 22, 1992, SUN BROTHERS communicated to INSULAR its intention to renew
the lease contract, quoting P100,000.00 as monthly rental.[37]
2. In response thereto in a letter dated June 10, 1992, INSULAR offered a lease period
of one year at a monthly rental of P500,000.00.[38]
3. More than a month later, SUN BROTHERS, in a letter dated August 5, 1992,
expressed that, under the provisions of the contract of lease, SUN BROTHERS has
the right to renew the lease for another period of five (5) years without any condition
for the exercise of the option, except the giving of written notice at least ninety (90)
days before November 30, 1992 and that the rental due INSULAR is the current
rental. Thus, SUN BROTHERS insisted that INSULARs consent is not necessary to
the renewal of the lease and the monthly rental due is the current rental paid by it.[39]
4. On September 1, 1992, INSULAR replied to the foregoing letter, explaining that the
contract of lease granted SUN BROTHERS only the option to renew the lease
contract and not the right to dictate the terms and conditions of the renewed contract,
especially on the amount of rentals to be paid.[40]
5. On September 5, 1992, SUN BROTHERS reiterated its position that it has the validly
exercised the option to renew the lease contract under the same terms and conditions
by giving notice to INSULAR as provided in the lease contract.[41]

which apparently brought about an impasse by reason of which Sun Brothers


filed the petition for declaratory relief with the RTC.
Clearly, in this case, the original contract of lease dictates the interpretation
of the renewal clause. Under the original contract of lease, the option to renew
clause means simply that after the 20-year period of lease, or after the second
contract of lease which was to expire November 30, 1987, the lessee, Sun
Brothers, is given first priority to lease the building at the monthly rental
and under such other terms and conditions as may be agreed upon by the
parties at that time. The renewal contracts of 1978 and 1987 each contained
the stipulation that except for the modification or amendment relating to the
monthly rental and term of the lease, all the other terms and conditions of
the Contract of Lease dated 29 January 1958 remain in full force and
effect, and, therefore, in pursuance thereof, the monthly rentals and other
[42]

terms and conditions of the proposed renewal contract were agreed upon by
the parties in said 1978 and 1987 renewed contracts of lease.
Consequently, Sun Brothers interpretation based solely on the renewal
clause under scrutiny completely ignoring the original contract of lease, is not
plausible. The contracting parties intent as can be gleaned from the original
contract of lease and confirmed by their subsequent acts in the 1977 and 1987
renewal contracts, was to constitute the renewal of the lease subject to terms
and conditions to be agreed upon by the parties at the time of each renewal.
Furthermore, the subsequent acts of the parties, evidenced by the
exchange of letters between the two contenders, clearly show that their
understanding and interpretation of the option to renew clause is that which is
explicitly provided in the original contract of lease. Thus, after Sun Brothers
signified its intention to renew the lease in 1977 and in 1987, a series of offers
and counter-offers on the monthly rental and the term of lease followed until the
parties reached an agreement thereon. Sun Brothers complied with the terms
of the original contract of lease on the option to renew until 1992 when, midway
through the negotiations, in the face of a P500,000.00 monthly rental pegged
by Insular, Sun Brothers did a volte face and suddenly insisted that it had a
unilateral right to renew.
The cases of Ledesma vs. Javellana, Millare vs. Hernando and Fernandez
vs. Court of Appeals, relied upon by the lower courts, find no application in the
present case since the 1977 and 1987 renewal contracts explicitly adopted all
the other provisions of the original contract of lease dated January 29, 1958,
including the provision on contract renewals, except those that relate to the
monthly rental and the term of the lease.
When the language of the contract is explicit leaving no doubt as to the
intention of the drafters thereof, the courts may not read into it any other
intention that would contradict its plain import. The Court would be rewriting
[43]

the contract of lease between Insular and Sun Brothers under the guise of
construction were we to interpret the option to renew clause as Sun Brothers
propounds it, despite the express provision in the original contract of lease and
the contracting parties subsequent acts. As the Court has held in Riviera
Filipina, Inc. vs. Court of Appeals, a court, even the Supreme Court, has no
[44]

right to make new contracts for the parties or ignore those already made
by them, simply to avoid seeming hardships. Neither abstract justice nor
the rule of liberal construction justifies the creation of a contract for the
parties which they did not make themselves or the imposition upon one
party to a contract of an obligation not assumed. [45]

The Court will now discuss the merit of Insulars claim for monthly rental and
damages.
Insular pleads that the Court should fix the monthly rental at P500,000.00.
Sun Brothers alleges that the said amount is unreasonable, if not,
unconscionable. However, no evidence, other than its self-serving assertion,
was offered by Sun Brothers to substantiate its contention. On the other hand,
Insular submitted in evidence the Appraisal Report which estimated the fair
rental value of the subject leased property at P700,000.00 as of October 30,
1991. The testimony of the appraiser, Executive Vice President, Engr. Oliver
[46]

Morales, of the Cuervo Appraisers, Inc. was not proven by Sun Brothers to be
[47]

biased and partial on their estimation of the fair rental value of the subject
leased property.
In addition, Insular presented the Contract of Lease it entered into with
Winsome Development Corporation dated March 30, 1993 involving an 8,200
square meter property which is almost twice the size of the subject leased
property and likewise located in Makati, where the monthly rental for the first
year, starting December 1992, was fixed at P600,000.00. Sun Brothers failed
[48]

to demonstrate that this contract has been assailed in court or that the agreed
monthly rental was found to be unconscionable. Suffice it to state that courts
may take judicial notice of the general increase in rentals of lease contract
renewals much more with business establishments, especially in this case
[49]

where the subject leased property covers a 4,215 square meter prime property
centrally located in a well-developed commercial district of the City of
Makati. Based thereon, the Court finds the amount of P500,000.00 as
[50]

reasonable monthly rental.


However, the Court cannot validly impose said amount on Sun Brothers as
monthly rental since it was not agreed upon by the parties. It is not the province
of the Court to make a contract for the parties or bind parties to one when no
consensual agreement was entered into. But the amount of P500,000.00 a
[51]

month since 1992 or P6 Million a year, can be considered actual or


compensatory damages representing reasonable rental value or unrealized
monthly income for Sun Brothers continued occupation and enjoyment of the
leased property. This is in consonance with Producers Bank of the Philippines
vs. Court of Appeals wherein the Court had enunciated the kinds of actual
[52]

damages, thus:

. . . There are two kinds of actual or compensatory damages: one is the loss of what a
person already possesses, and the other is the failure to receive as a benefit that which
would have pertained to him x x x.In the latter instance, the familiar rule is that
damages consisting of unrealized profits, frequently referred as ganacias
frustradas or lucrum cessans, are not to be granted on the basis of mere
speculation, conjecture, or surmise, but rather by reference to some reasonably
definite standard such as market value, established experience, or direct
inference from known circumstances. [53]

In addition, records disclose that in an Order dated April 30, 1993 the trial
court authorized Sun Brothers to make a consignation of its monthly rentals
of P69,544.75 staring the month of December 1992 while the case pends in the
trial court. The amount of monthly rentals consigned should be deducted
[54] [55]

from the total amount of actual or compensatory damages herein granted to


Insular. Furthermore, such actual or compensatory damages due shall earn
interest at the legal rate of 12% per annum computed from the date of finality of
this decision until full payment would have actually been made, in accordance
with the ruling of this Court in Eastern Shipping Lines, Inc. vs. Court of
Appeals, to wit:
[56]

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,


delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on Damages of the Civil Code govern in
determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
as follows:

1. When the obligation is breached, and it consists in the payment of a sum of


money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing.Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached,


an interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum.No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be
so reasonably established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit. (Emphasis supplied) [57]

Moreover, the Court takes exception from the CAs opinion that the
improvements introduced by Sun Brothers should be considered in the latters
favor in considering the terms of the rent. The fact that Sun Brothers had
shouldered maintenance expenses on the building and paid real estate taxes
as well as insurance premiums is inconsequential and immaterial in fixing the
rent. The improvements introduced and the payment of expenses, taxes and
premiums have always been excluded in the determination of the monthly rental
in the contracts of lease between the parties. The Court cannot disregard this
fact simply because it later becomes disadvantageous to one party, especially
when Sun Brothers voluntarily assumed the obligation in the original contract.
As to moral damages, Insulars prayer that moral damages not less than P5
Million be awarded because its name and reputation has been defamed by Sun
Brothers, is not tenable. The rule is that moral damages can not be granted in
favor of a corporation. Being an artificial person and having existence only in
legal contemplation, a corporation has no feelings, no emotions, no senses; it
cannot, therefore, experience physical suffering, mental anguish, fright, serious
anxiety, wounded feelings or moral shock or social humiliation, which can be
suffered only by one having a nervous system. [58]

As to Insulars plea for exemplary damages, the Court finds the same
meritorious. In contracts and quasi-contracts, the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive,
or malevolent manner. Sun Brothers was in evident bad faith when in the
[59]

course of negotiations for the third renewal of the lease contract in 1992, it
wantonly and oppressively insisted that it had a unilateral right to renew to lease
thereby resulting in an impasse between the parties and which Sun Brothers
took advantage of and used as a basis for instituting the proceedings for
declaratory relief, although its prior actions since January 29, 1958 when the
original contract of lease was executed, spanning more than three decades,
indicated that it was well-aware of the contractual stipulation that after a twenty-
year period of lease, the right to renew the lease was subject to such terms and
conditions that the parties may mutually agree upon at the time, as expressly
provided for in the original contract of lease. Consequently, an award of
exemplary damages in the amount of P500,000.00 is in order by way of
example and correction for the public good and also to serve as a deterrent to
the commission of similar misdeeds by others.
Under Article 2208 of the Civil Code, attorneys fees may be awarded not
only when exemplary damages is awarded but also when a party is compelled
to litigate or to incur expenses to protect its interest by reason of an unjustified
act of the other party. In the present case, Insular was constrained to engage
[60]

the services of counsel and to incur expenses of litigation in order to protect its
interest to the subject property against Sun Brothers utterly unfounded
insistence on an alleged unilateral right to renew the lease. The award
of P250,000.00 is reasonable in view of the time it has taken this case to be
resolved.[61]

WHEREFORE, the assailed Decision, dated May 20, 1996, of the Court of
Appeals in CA-G.R. CV No. 46987 is REVERSED and SET ASIDE. In lieu
thereof, judgment is rendered ordering respondent Sun Brothers and Company
to pay petitioner Insular Life Assurance Company, Ltd. actual damages in the
amount of Five Hundred Thousand Pesos (P500,000.00) monthly, representing
the unrealized monthly income of petitioner or P6 Million a year from December
1, 1992 until respondent vacates the leased premises. The amount of monthly
rentals consigned with the trial court shall be deducted from the total amount of
actual or compensatory damages due. Furthermore, such actual or
compensatory damages due shall earn interestat the legal rate of 12% per
annum computed from the date of finality of this decision until full payment
thereof. In addition, private respondent Sun Brothers and Company is ordered
to pay petitioner exemplary damages in the amount of Five Hundred Thousand
Pesos (P500,000.00); and attorneys fees in the sum of Two Hundred Fifty
Thousand Pesos (P250,000.00).
Double costs against private respondent.
SO ORDERED.
[G.R. No. 150763. July 2, 2004]

RURAL BANK OF MAKATI, INC., ESTEBAN S. SILVA and MAGDALENA


V. LANDICHO, petitioners, vs. MUNICIPALITY OF MAKATI and
ATTY. VICTOR A. L. VALERO, respondents.

DECISION
QUISUMBING, J.:

In its decision dated July 17, 2001, in CA-G.R. CV No. 58214, the Court of
[1]

Appeals affirmed the decision dated October


[2]
22, 1996 of
the Regional Trial Court of Makati City, Branch 134, in Civil Case No. 91-2866
dismissing petitioners complaint for recovery of a sum of money and damages.
Petitioners now assail said CA decision as well as the
Resolution dated November 9, 2001, which denied their Motion for
[3]

Reconsideration.
The facts are as follows:
Sometime in August 1990, Atty. Victor A.L. Valero, then the municipal
attorney of the Municipality of Makati, upon request of the municipal treasurer,
went to the Rural Bank of Makati to inquire about the banks payments of taxes
and fees to the municipality. He was informed, however, by petitioner
Magdalena V. Landicho, corporate secretary of the bank, that the bank was
exempt from paying taxes under Republic Act No. 720, as amended. [4]

On November 19, 1990, the municipality lodged a complaint with the


Prosecutors Office, charging petitioners Esteban S. Silva, president and
general manager of the bank and Magdalena V. Landicho for violation of
Section 21(a), Chapter II, Article 3 in relation to Sections 105 and 169 of the
Metropolitan Tax Code.
On April 5, 1991, an Information docketed as Criminal Case No. 140208, for
violation of Municipal Ordinance Nos. 122 and 39 for non-payment of the
mayors permit fee, was filed with the Metropolitan Trial Court (MeTC)
of Makati against petitioners. Another Information, docketed as Criminal Case
No. 140209, for non-payment of annual business tax, in violation of Metro
Manila Commission Ordinance No. 82-03, Section 21(a), Chapter II, Article 3,
was likewise filed with the MeTC.
While said cases were pending with the municipal court, respondent
municipality ordered the closure of the bank. This prompted petitioners to pay,
under protest, the mayors permit fee and the annual fixed tax in the amount
of P82,408.66.
On October 18, 1991, petitioners filed with the RTC of Makati a Complaint
for Sum of Money and Damages, docketed as Civil Case No. 91-2866.
Petitioners alleged that they were constrained to pay the amount of P82,408.66
because of the closure order, issued despite the pendency of Criminal Cases
Nos. 140208-09 and the lack of any notice or assessment of the fees to be
paid. They averred that the collection of the taxes/fees was oppressive,
arbitrary, unjust and illegal. Additionally, they alleged that respondent Atty.
Valero had no power to enforce laws and ordinances, thus his action in
enforcing the collection of the permit fees and business taxes was ultra
vires. Petitioners claimed that the bank lost expected earnings in the amount
of P19,778. Petitioners then assailed the municipal ordinances of Makati as
invalid for want of the requisite publication.
In its Answer, respondent municipality asserted that petitioners payment
of P82,408.66 was for a legal obligation because the payment of the mayors
permit fee as well as the municipal business license was required of all business
concerns. According to respondent, said requirement was in furtherance of the
police power of the municipality to regulate businesses.
For his part, Atty. Valero filed an Answer claiming that there was no coercion
committed by the municipality, that payment was a legal obligation of the bank,
and that its claim of exemption had no legal basis. He further alleged that
petitioners action was clearly intended to harass and humiliate him and as
counterclaim, he asked for moral and other damages.
On October 22, 1996, the RTC decided Civil Case No. 91-2866 as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing


the complaint.

On the counterclaim, the plaintiffs are hereby ordered jointly and severally to pay to
defendant Victor Valero the sum of P200,000.00 as moral damages and the amount
of P50,000.00 as attorneys fees.

The counterclaim of defendant Municipality is dismissed.

Cost against the plaintiffs.

SO ORDERED. [5]
In finding for respondents, the RTC ruled that the bank was engaged in
business as a rural bank. Hence, it should secure the necessary permit and
business license, as well as pay the corresponding charges and fees. It found
that the municipality had authority to impose licenses and permit fees on
persons engaging in business, under its police power embodied under the
general welfare clause. Also, the RTC declared unmeritorious petitioners claim
for exemption under Rep. Act No. 720 since said exemption had been
withdrawn by Executive Order No. 93 and the Rural Bank Act of 1992. These
[6] [7]

statutes no longer exempted rural banks from paying corporate income taxes
and local taxes, fees and charges. It also found petitioners claim of lack of
publication of MMC Ordinance Nos. 82-03 and Municipal Ordinance No. 122 to
be mere allegations unsupported by clear and convincing evidence.
In awarding damages to Atty. Valero, the RTC found that he had been
maliciously impleaded as defendant. It noted that Atty. Valero, as a municipal
legal officer, was tasked to enforce municipal ordinances. In short, he was
merely an agent of the local chief executive and should not be faulted for
performing his assigned task.
Petitioners seasonably moved for reconsideration, but this was denied by
the RTC in its Order dated January 10, 1997. [8]

Petitioners appealed to the Court of Appeals in CA-G.R. CV No. 58214. The


appellate court sustained the lower court in this wise:

WHEREFORE, premises considered, the appealed decision is hereby AFFIRMED in


toto.

SO ORDERED. [9]

The Court of Appeals found the order of closure of the bank valid and
justified since the bank was operating without any permit and without having
paid the requisite permit fee. Thus, declared the Court of Appeals, it is not
merely a matter of enforcement and collection of fees, as the appellants would
have it, but a violation of the municipalitys authority to regulate the businesses
operating within its territory.
[10]

The appellate court also brushed aside petitioners claim that the general
welfare clause is limited only to legislative action. It declared that the exercise
of police power by the municipality was mandated by the general welfare
clause, which authorizes the local government units to enact ordinances, not
only to carry into effect and discharge such duties as are conferred upon them
by law, but also those for the good of the municipality and its inhabitants. This
mandate includes the regulation of useful occupations and enterprises.
Petitioner moved for reconsideration, but the appellate court in its
Resolution of November 9, 2001 denied the same.
[11]

Hence, this instant petition alleging that the Honorable Court of Appeals
seriously erred in:

1) .HOLDING THAT THE CLOSURE BY THE APPELLEE, VICTOR


VALERO, OF THE APPELLANT BANK WAS A LEGITIMATE
EXERCISE OF POLICE POWER BY THE MUNICIPALITY OF MAKATI;

2) .NOT CONSIDERING THE FACT THAT MAKATI ORDINANCE 122


REQUIRING MAYORS PERMIT FOR OPERATION OF AN
ESTABLISHMENT AND MMC ORDINANCE NO. 82-03 WERE
ADMITTED AS NOT PUBLISHED AS REQUIRED IN TAADA, ET AL.,
vs. TUVERA, NO. L-63915, DECEMBER 29, 1986 AND THAT NO TAX
ASSESSMENT WAS PRESENTED TO THE BANK;

3) .AWARDING MORAL DAMAGES TO APPELLEE VICTOR VALERO IN


THE AMOUNT OF P200,000.00 AND ATTORNEYS FEES IN THE SUM
OF P50,000.00;

4) .NOT AWARDING TO THE APPELLANT BANK, THE AMOUNT OF


P57,854.00 REPRESENTING THE AMOUNT UNJUSTLY AND
ILLEGALLY COLLECTED FROM THE APPELLANT BANK;

5) .NOT AWARDING THE AMOUNT OF P10,413.75 YEARLY


REPRESENTING THE UNREALIZED PROFIT WHICH THE
APPELLANT BANK IS BEING DEPRIVED OF IN THE USE OF THE
AFORESAID AMOUNT PLUS LEGAL INTEREST ALLOWED IN
JUDGMENT FROM THE TIME OF THE EXTRAJUDICIAL DEMAND.
(DEMAND LETTER, DATED OCTOBER 4, 1991, EXHIBIT O FOR THE
APPELLANTS);

6) .NOT GRANTING TO APPELLANTS ESTEBAN S. SILVA


AND MAGDALENA LANDICHO MORAL DAMAGES IN THE
AMOUNT OF P15,000.00;

7) .NOT AWARDING TO APPELLANTS, P1,000,000.00 EXEMPLARY


DAMAGES; 25% OF THE APPELLANTS CLAIM AS AND FOR
ATTORNEYS FEE AND COSTS OF SUIT. [12]

Essentially, the following are the relevant issues for our resolution:
1. Whether or not petitioner bank is liable to pay the business taxes and
mayors permit fees imposed by respondent;
2. Whether or not the closure of petitioner bank is valid;
3. Whether or not petitioners are entitled to an award of unrealized profit
and damages;
4. Whether or not respondent Atty. Victor Valero is entitled to damages.
On the first issue, petitioner bank claims that of the P82,408.66 it paid under
protest, it is actually liable only for the amount of P24,154, representing taxes,
fees and charges due beginning 1987, or after the issuance of E.O. No.
93. Prior to said year, it was exempt from paying any taxes, fees, and charges
by virtue of Rep. Act No. 720.
We find the banks claim for refund untenable now.
Section 14 of Rep. Act No. 720, as amended by Republic Act No.
4106, approved on July 19, 1964, had exempted rural banks with net assets
[13]

not exceeding one million pesos (P1,000,000) from the payment of all taxes,
charges and fees. The records show that as of December 29, 1986, petitioner
banks net assets amounted only to P745,432.29 or below the one million
[14]

ceiling provided for in Section 14 of the old Rural Banking Act. Hence, under
Rep. Act No. 720, petitioner bank could claim to be exempt from payment of all
taxes, charges and fees under the aforementioned provision.
However, on December 17, 1986, Executive Order No. 93 was issued by
then President Corazon Aquino, withdrawing all tax and duty incentives with
certain exceptions. Notably, not included among the exceptions were those
granted to rural banks under Rep. Act No. 720. With the passage of said law,
petitioner could no longer claim any exemption from payment of business taxes
and permit fees.
Now, as to the refund of P57,854 claimed by petitioners allegedly because
of overpayment of taxes and fees, we note that petitioners have not adequately
substantiated their claim. As found by the Court of Appeals:

As to the computation of the payable fees, the plaintiffs-appellants claim an


overpayment and pray for a refund. It is not clearly shown from their argument that
such overpayment exists. And from their initial complaint, they even asked for the
refund of the whole P82,408.66 paid, which complaint was instituted in 1991. They
claim having paid the fees and charges due since 1991, which is irrelevant, since
the P82,408.66 was paid for the period before 1991, and thus no deduction can be
made for payments after that period. It is not clear where their computation
of P57,854.00 owed them came from, and lacking solid support, their prayer for a
partial refund must fail. Plaintiffs-appellants have failed to show that the payment of
fees and charges even covered the period before their exemption was withdrawn. [15]

Factual findings of the Court of Appeals, which are supported on record, are
binding and conclusive upon this Court. As repeatedly held, such findings will
not be disturbed unless they are palpably unsupported by the evidence on
record or unless the judgment itself is based on misapprehension of
facts. Moreover, in a petition for review, only questions of law are properly
[16]

raised. On this score, the refund sought by petitioners could not be entertained
much less granted.
Anent the second issue, petitioner bank claims that the closure of
respondent bank was an improper exercise of police power because a
municipal corporation has no inherent but only delegated police power, which
must be exercised not by the municipal mayor but by the municipal council
through the enactment of ordinances. It also assailed the Court of Appeals for
invoking the General Welfare Clause embodied in Section 16 of the Local [17]

Government Code of 1991, which took effect in 1992, when the closure of the
[18]

bank was actually done on July 31, 1991.


Indeed the Local Government Code of 1991 was not yet in effect when the
municipality ordered petitioner banks closure on July 31, 1991. However, the
general welfare clause invoked by the Court of Appeals is not found on the
provisions of said law alone. Even under the old Local Government Code
(Batas Pambansa Blg. 337) which was then in effect, a general welfare clause
[19]

was provided for in Section 7 thereof. Municipal corporations are agencies of


the State for the promotion and maintenance of local self-government and as
such are endowed with police powers in order to effectively accomplish and
carry out the declared objects of their creation. The authority of a local
[20]

government unit to exercise police power under a general welfare clause is not
a recent development. This was already provided for as early as the
Administrative Code of 1917. Since then it has been reenacted and
[21]

implemented by new statutes on the matter. Thus, the closure of the bank was
a valid exercise of police power pursuant to the general welfare clause
contained in and restated by B.P. Blg. 337, which was then the law governing
local government units. No reversible error arises in this instance insofar as the
validity of respondent municipalitys exercise of police power for the general
welfare is concerned.
The general welfare clause has two branches. The first, known as
the general legislative power, authorizes the municipal council to enact
ordinances and make regulations not repugnant to law, as may be necessary
to carry into effect and discharge the powers and duties conferred upon the
municipal council by law. The second, known as the police power proper,
authorizes the municipality to enact ordinances as may be necessary and
proper for the health and safety, prosperity, morals, peace, good order, comfort,
and convenience of the municipality and its inhabitants, and for the protection
of their property.[22]

In the present case, the ordinances imposing licenses and requiring permits
for any business establishment, for purposes of regulation enacted by the
municipal council of Makati, fall within the purview of the first branch of the
general welfare clause. Moreover, the ordinance of the municipality imposing
the annual business tax is part of the power of taxation vested upon local
governments as provided for under Section 8 of B.P. Blg. 337, to wit:[23]

Sec. 8. Authority to Create Sources of Revenue. (1) Each local government unit shall
have the power to create its own sources of revenue and to levy taxes, subject to such
limitations as may be provided by law.

...

Implementation of these ordinances is vested in the municipal mayor, who


is the chief executive of the municipality as provided for under the Local
Government Code, to wit:

Sec. 141. Powers and Duties.

(1) The mayor shall be the chief executive of the municipal government and shall
exercise such powers, duties and functions as provided in this Code and other laws.

(2) He shall:

...

(k) Grant licenses and permits in accordance with existing laws or municipal
ordinances and revoke them for violation of the conditions upon which they have
been granted;

...

(o) Enforce laws, municipal ordinances and resolutions and issue necessary orders for
their faithful and proper enforcement and execution;

(p) Ensure that all taxes and other revenues of the municipality are collected, and
that municipal funds are spent in accordance with law, ordinances and regulations;
...

(t) Cause to be instituted judicial proceedings in connection with the violation of


ordinances, for the collection of taxes, fees and charges, and for the recovery of
property and funds of the municipality, and otherwise to protect the interest of the
municipality; (Emphasis supplied)
[24]

...

Consequently, the municipal mayor, as chief executive, was clothed with


authority to create a Special Task Force headed by respondent Atty. Victor A.L.
Valero to enforce and implement said ordinances and resolutions and to file
appropriate charges and prosecute violators. Respondent Valero could hardly
[25]

be faulted for performing his official duties under the cited circumstances.
Petitioners contend that MMC Ordinance No. 82-03 and Municipal
Ordinance No. 122 are void for lack of publication. This again raises a factual
issue, which this Court may not look into. As repeatedly held, this Court is not
a trier of facts. Besides, both the Court of Appeals and the trial court found
[26]

lack of sufficient evidence on this point to support petitioners claim, thus:

And finally the matter of the lack of publication is once again alleged by the
plaintiffs-appellants, claiming that the matter was skirted by the trial court. This
argument must fail, in the light of the trial courts squarely finding lack of evidence to
support the allegation of the plaintiffs-appellants. We quote from the trial courts
decision:

The contention that MMC Ordinance No. 82-03 and Municipal Ordinance No. 122
of Makati are void as they were not publishced (sic) is untenable. The mere allegation
of the plaintiff is not sufficient to declare said ordinances void. The plaintiffs failed to
adduce clear, convincing and competent evidence to prove said Ordinances
void. Moreover, in this jurisdiction, an ordinance is presumed to be valid unless
declared otherwise by a Court in an appropriate proceeding where the validity of the
ordinance is directly put in issue.[27]

On the issue of the closure of the bank, we find that the bank was not
engaged in any illegal or immoral activities to warrant its outright closure. The
appropriate remedies to enforce payment of delinquent taxes or fees are
provided for in Section 62 of the Local Tax Code, to wit:

SEC. 62. Civil Remedies. The civil remedies available to enforce payment of
delinquent taxes shall be by distraint of personal property, and by legal action. Either
of these remedies or both simultaneously may be pursued at the discretion of the
proper authority.

The payment of other revenues accruing to local governments shall be enforced by


legal action.
[28]

Said Section 62 did not provide for closure. Moreover, the order of closure
violated petitioners right to due process, considering that the records show that
the bank exercised good faith and presented what it thought was a valid and
legal justification for not paying the required taxes and fees. The violation of a
municipal ordinance does not empower a municipal mayor to avail of
extrajudicial remedies. It should have observed due process before ordering
[29]

the banks closure.


Finally, on the issue of damages, we agree with both the trial and the
appellate courts that the bank is not entitled to any damages. The award of
moral damages cannot be granted to a corporation, it being an artificial person
that exists only in legal contemplation and cannot, therefore, experience
physical suffering and mental anguish, which can be experienced only by one
having a nervous system. There is also no sufficient basis for the award of
[30]

exemplary damages. There being no moral damages, exemplary damages


could not be awarded also. As to attorneys fees, aside from lack of adequate
support and proof on the matter, these fees are not recoverable as a matter of
right but depend on the sound discretion of the courts. [31]

Under the circumstances of this case, the award of damages to Atty. Valero
is also baseless. We cannot ascribe any illegal motive or malice to the bank for
impleading Atty. Valero as an officer of respondent municipality. The bank filed
the case against respondent municipality in the honest belief that it is exempt
from paying taxes and fees. Since Atty. Valero was the official charged with the
implementation of the ordinances of respondent municipality, he was rightly
impleaded as a necessary party in the case.
WHEREFORE, the assailed Decision dated July 17, 2001, of the Court of
Appeals in CA-G.R. CV No. 58214 is AFFIRMED with MODIFICATIONS, so
that (1) the order denying any claim for refunds and fees allegedly overpaid by
the bank, as well as the denial of any award for damages and unrealized profits,
is hereby SUSTAINED; (2) the order decreeing the closure of petitioner bank is
SET ASIDE; and (3) the award of moral damages and attorneys fees to Atty.
Victor A.L. Valero is DELETED. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 124715. January 24, 2000]

RUFINA LUY LIM petitioner, vs. COURT OF APPEALS, AUTO TRUCK TBA
CORPORATION, SPEED DISTRIBUTING, INC., ACTIVE DISTRIBUTORS,
ALLIANCE MARKETING CORPORATION, ACTION COMPANY,
INC. respondents.

DECISION

BUENA, J.:

May a corporation, in its universality, be the proper subject of and be included in the
inventory of the estate of a deceased person?

Petitioner disputes before us through the instant petition for review on certiorari, the
decision of the Court of Appeals promulgated on 18 April 1996, in CA-GR SP No.
[1]

38617, which nullified and set aside the orders dated 04 July 1995 , 12 September
[2]

1995 and 15 September 1995 of the Regional Trial Court of Quezon City, Branch
[3] [4]

93, sitting as a probate court.

Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim whose
estate is the subject of probate proceedings in Special Proceedings Q-95-23334,
entitled, "In Re: Intestate Estate of Pastor Y. Lim Rufina Luy Lim, represented by
George Luy, Petitioner".

Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed


Distributing, Inc., Active Distributing, Inc. and Action Company are corporations
formed, organized and existing under Philippine laws and which owned real
properties covered under the Torrens system.

On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse
and duly represented by her nephew George Luy, filed on 17 March 1995, a joint
petition for the administration of the estate of Pastor Y. Lim before the Regional
[5]

Trial Court of Quezon City.

Private respondent corporations, whose properties were included in the inventory of


the estate of Pastor Y. Lim, then filed a motion for the lifting of lis pendens and
[6]

motion for exclusion of certain properties from the estate of the decedent.
[7]

In an order dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93,
[8]

sitting as a probate court, granted the private respondents twin motions, in this wise:
"Wherefore, the Register of Deeds of Quezon City is hereby ordered to
lift, expunge or delete the annotation of lis pendens on Transfer
Certificates of Title Nos. 116716, 116717, 116718, 116719 and 5182 and
it is hereby further ordered that the properties covered by the same titles
as well as those properties by (sic) Transfer Certificate of Title Nos.
613494, 363123, 236236 and 263236 are excluded from these
proceedings.

SO ORDERED."

Subsequently, Rufina Luy Lim filed a verified amended petition which contained the
[9]

following averments:

"3. The late Pastor Y. Lim personally owned during his lifetime the
following business entities, to wit:

Business Entity Address:

XXXX

Alliance Marketing ,Inc. Block 3, Lot 6, Dacca

BF Homes,

Paraaque,

Metro Manila.

XXXX

Speed Distributing Inc. 910 Barrio Niog,

Aguinaldo Highway,

Bacoor, Cavite.

XXXX

Auto Truck TBA Corp. 2251 Roosevelt Avenue,

Quezon City.

XXXX
Active Distributors, Inc. Block 3, Lot 6, Dacca BF

Homes, Paraaque,

Metro Manila.

XXXX

Action Company 100 20th Avenue

Murphy, Quezon City

or

92-D Mc-Arthur Highway

Valenzuela Bulacan.

"3.1 Although the above business entities dealt and engaged in business
with the public as corporations, all their capital, assets and equity were
however, personally owned by the late Pastor Y Lim. Hence the alleged
stockholders and officers appearing in the respective articles of
incorporation of the above business entities were mere dummies of
Pastor Y. Lim, and they were listed therein only for purposes of
registration with the Securities and Exchange Commission.

"4. Pastor Lim, likewise, had Time, Savings and Current Deposits with
the following banks: (a) Metrobank, Grace Park, Caloocan City and
Quezon Avenue, Quezon City Branches and (b) First Intestate Bank
(formerly Producers Bank), Rizal Commercial Banking Corporation and
in other banks whose identities are yet to be determined.

"5. That the following real properties, although registered in the name of
the above entities, were actually acquired by Pastor Y. Lim during his
marriage with petitioner, to wit:

Corporation Title Location

XXXX

k. Auto Truck TCT No. 617726 Sto. Domingo

TBA Corporation Cainta, Rizal


q. Alliance Marketing TCT No. 27896 Prance,

Metro Manila

Copies of the above-mentioned Transfer Certificate of Title and/or Tax


Declarations are hereto attached as Annexes "C" to "W".

XXXX

"7. The aforementioned properties and/or real interests left by the late
Pastor Y. Lim, are all conjugal in nature, having been acquired by him
during the existence of his marriage with petitioner.

"8. There are other real and personal properties owned by Pastor Y. Lim
which petitioner could not as yet identify. Petitioner, however will
submit to this Honorable Court the identities thereof and the necessary
documents covering the same as soon as possible."

On 04 July 1995, the Regional Trial Court acting on petitioners motion issued an
order , thus:
[10]

"Wherefore, the order dated 08 June 1995 is hereby set aside and the
Registry of Deeds of Quezon City is hereby directed to reinstate the
annotation of lis pendens in case said annotation had already been
deleted and/or cancelled said TCT Nos. 116716, 116717, 116718,
116719 and 51282.

Further more (sic), said properties covered by TCT Nos. 613494,


365123, 236256 and 236237 by virtue of the petitioner are included in
the instant petition.

SO ORDERED."

On 04 September 1995, the probate court appointed Rufina Lim as special


administrator and Miguel Lim and Lawyer Donald Lee, as co-special administrators
[11]

of the estate of Pastor Y. Lim, after which letters of administration were accordingly
issued.

In an order dated 12 September 1995, the probate court denied anew private
[12]

respondents motion for exclusion, in this wise:


"The issue precisely raised by the petitioner in her petition is whether the
corporations are the mere alter egos or instrumentalities of Pastor Lim,
Otherwise (sic) stated, the issue involves the piercing of the corporate
veil, a matter that is clearly within the jurisdiction of this Honorable
Court and not the Securities and Exchange Commission. Thus, in the
case of Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue
decided by the regular court was whether the corporation involved
therein was the mere extension of the decedent. After finding in the
affirmative, the Court ruled that the assets of the corporation are also
assets of the estate.

A reading of P.D. 902, the law relied upon by oppositors, shows that the
SECs exclusive (sic) applies only to intra-corporate controversy. It is
simply a suit to settle the intestate estate of a deceased person who,
during his lifetime, acquired several properties and put up corporations
as his instrumentalities.

SO ORDERED."

On 15 September 1995, the probate court acting on an ex parte motion filed by


petitioner, issued an order the dispositive portion of which reads:
[13]

"Wherefore, the parties and the following banks concerned herein under
enumerated are hereby ordered to comply strictly with this order and to
produce and submit to the special administrators , through this
Honorable Court within (5) five days from receipt of this order their
respective records of the savings/current accounts/time deposits and
other deposits in the names of Pastor Lim and/or corporations above-
mentioned, showing all the transactions made or done concerning
savings /current accounts from January 1994 up to their receipt of this
court order.

XXX XXX XXX

SO ORDERED."

Private respondent filed a special civil action for certiorari , with an urgent prayer for
[14]

a restraining order or writ of preliminary injunction, before the Court of Appeals


questioning the orders of the Regional Trial Court, sitting as a probate court.

On 18 April 1996, the Court of Appeals, finding in favor of herein private


respondents, rendered the assailed decision , the decretal portion of which declares:
[15]
"Wherefore, premises considered, the instant special civil action for
certiorari is hereby granted, The impugned orders issued by respondent
court on July 4,1995 and September 12, 1995 are hereby nullified and set
aside. The impugned order issued by respondent on September 15, 1995
is nullified insofar as petitioner corporations" bank accounts and records
are concerned.

SO ORDERED."

Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina
Luy Lim now comes before us with a lone assignment of error : [16]

"The respondent Court of Appeals erred in reversing the orders of the


lower court which merely allowed the preliminary or provisional
inclusion of the private respondents as part of the estate of the late
deceased (sic) Pastor Y. Lim with the respondent Court of Appeals
arrogating unto itself the power to repeal, to disobey or to ignore the
clear and explicit provisions of Rules 81,83,84 and 87 of the Rules of
Court and thereby preventing the petitioner, from performing her duty as
special administrator of the estate as expressly provided in the said
Rules."

Petitioners contentions tread on perilous grounds.

In the instant petition for review, petitioner prays that we affirm the orders issued by
the probate court which were subsequently set aside by the Court of Appeals.

Yet, before we delve into the merits of the case, a review of the rules on jurisdiction
over probate proceedings is indeed in order.

The provisions of Republic Act 7691 , which introduced amendments to Batas


[17]

Pambansa Blg. 129, are pertinent:

"Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as


the "Judiciary Reorganization Act of 1980", is hereby amended to read
as follows:

Section 19. Jurisdiction in civil cases. Regional Trial Courts shall


exercise exclusive jurisdiction:

xxx xxx xxx


(4) In all matters of probate, both testate and intestate, where the gross
value of the estate exceeds One Hundred Thousand Pesos (P100,000) or,
in probate matters in Metro Manila, where such gross value exceeds Two
Hundred Thousand Pesos (P200,000);

xxx xxx xxx

Section 3. Section 33 of the same law is hereby amended to read as


follows:

Section 33. Jurisdiction of Metropolitan Trial Courts,


Municipal Trial Courts and Municipal Circuit Trial Courts
in Civil Cases.-Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts shall exercise:

1. Exclusive original jurisdiction over civil actions and


probate proceedings, testate and intestate, including the
grant of provisional remedies in proper cases, where the
value of the personal property, estate or amount of the
demand does not exceed One Hundred Thousand
Pesos(P100,000) or, in Metro Manila where such personal
property, estate or amount of the demand does not exceed
Two Hundred Thousand Pesos (P200,000), exclusive of
interest, damages of whatever kind, attorneys fees,
litigation expenses and costs, the amount of which must be
specifically alleged, Provided, that interest, damages of
whatever kind, attorneys, litigation expenses and costs shall
be included in the determination of the filing fees, Provided
further, that where there are several claims or causes of
actions between the same or different parties, embodied in
the same complaint, the amount of the demand shall be the
totality of the claims in all the causes of action, irrespective
of whether the causes of action arose out of the same or
different transactions;

xxx xxx xxx"

Simply put, the determination of which court exercises jurisdiction over matters of
probate depends upon the gross value of the estate of the decedent.

As to the power and authority of the probate court, petitioner relies heavily on the
principle that a probate court may pass upon title to certain
properties, albeit provisionally, for the purpose of determining whether a certain
property should or should not be included in the inventory.

In a litany of cases, We defined the parameters by which the court may extend its
probing arms in the determination of the question of title in probate proceedings.

This Court, in PASTOR, JR. vs. COURT OF APPEALS, held: [18]

"X X X As a rule, the question of ownership is an extraneous matter


which the probate court cannot resolve with finality. Thus, for the
purpose of determining whether a certain property should or should not
be included in the inventory of estate properties, the Probate Court may
pass upon the title thereto, but such determination is provisional, not
conclusive, and is subject to the final decision in a separate action to
resolve title."

We reiterated the rule in PEREIRA vs. COURT OF APPEALS : [19]

"X X X The function of resolving whether or not a certain property


should be included in the inventory or list of properties to be
administered by the administrator is one clearly within the competence
of the probate court. However, the courts determination is only
provisional in character, not conclusive, and is subject to the final
decision in a separate action which may be instituted by the parties."

Further, in MORALES vs. CFI OF CAVITE citing CUIZON vs. RAMOLETE ,


[20] [21]

We made an exposition on the probate courts limited jurisdiction:

"It is a well-settled rule that a probate court or one in charge of


proceedings whether testate or intestate cannot adjudicate or determine
title to properties claimed to be a part of the estate and which are equally
claimed to belong to outside parties. All that the said court could do as
regards said properties is to determine whether they should or should not
be included in the inventory or list of properties to be administered by
the administrator. If there is no dispute, well and good; but if there is,
then the parties, the administrator and the opposing parties have to resort
to an ordinary action for a final determination of the conflicting claims
of title because the probate court cannot do so."

Again, in VALERA vs. INSERTO , We had occasion to elucidate, through Mr.


[22]

Justice Andres Narvasa :


[23]
"Settled is the rule that a Court of First Instance (now Regional Trial
Court), acting as a probate court, exercises but limited jurisdiction, and
thus has no power to take cognizance of and determine the issue of title
to property claimed by a third person adversely to the decedent, unless
the claimant and all other parties having legal interest in the property
consent, expressly or impliedly, to the submission of the question to the
probate court for adjudgment, or the interests of third persons are not
thereby prejudiced, the reason for the exception being that the question
of whether or not a particular matter should be resolved by the court in
the exercise of its general jurisdiction or of its limited jurisdiction as a
special court (e.g. probate, land registration, etc.), is in reality not a
jurisdictional but in essence of procedural one, involving a mode of
practice which may be waived. x x x

x x x. These considerations assume greater cogency where, as here,


the Torrens title is not in the decedents name but in others, a
situation on which this Court has already had occasion to rule x x
x."(emphasis Ours)

Petitioner, in the present case, argues that the parcels of land covered under the
Torrens system and registered in the name of private respondent corporations should
be included in the inventory of the estate of the decedent Pastor Y. Lim, alleging that
after all the determination by the probate court of whether these properties should be
included or not is merely provisional in nature, thus, not conclusive and subject to a
final determination in a separate action brought for the purpose of adjudging once and
for all the issue of title.

Yet, under the peculiar circumstances, where the parcels of land are registered in the
name of private respondent corporations, the jurisprudence pronounced in BOLISAY
vs., ALCID is of great essence and finds applicability, thus:
[24]

"It does not matter that respondent-administratrix has evidence


purporting to support her claim of ownership, for, on the other hand,
petitioners have a Torrens title in their favor, which under the law is
endowed with incontestability until after it has been set aside in the
manner indicated in the law itself, which, of course, does not include,
bringing up the matter as a mere incident in special proceedings for the
settlement of the estate of deceased persons. x x x"

"x x x. In regard to such incident of inclusion or exclusion, We hold that


if a property covered by Torrens title is involved, the presumptive
conclusiveness of such title should be given due weight, and in the
absence of strong compelling evidence to the contrary, the holder thereof
should be considered as the owner of the property in controversy until
his title is nullified or modified in an appropriate ordinary action,
particularly, when as in the case at bar, possession of the property itself
is in the persons named in the title. x x x"

A perusal of the records would reveal that no strong compelling evidence was ever
presented by petitioner to bolster her bare assertions as to the title of the deceased
Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwise known as, " The
Property Registration Decree", proscribes collateral attack on Torrens Title, hence:

"xxx xxx xxx

Section 48. Certificate not subject to collateral attack.

- A certificate of title shall not be subject to collateral attack. It cannot be


altered, modified or cancelled except in a direct proceeding in
accordance with law."

In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property
subject of the controversy was duly registered under the Torrens system, We
categorically stated:

"x x x Having been apprised of the fact that the property in question was
in the possession of third parties and more important, covered by a
transfer certificate of title issued in the name of such third parties, the
respondent court should have denied the motion of the respondent
administrator and excluded the property in question from the inventory
of the property of the estate. It had no authority to deprive such third
persons of their possession and ownership of the property. x x x"

Inasmuch as the real properties included in the inventory of the estate of the late
Pastor Y. Lim are in the possession of and are registered in the name of private
respondent corporations, which under the law possess a personality separate and
distinct from their stockholders, and in the absence of any cogency to shred the veil of
corporate fiction, the presumption of conclusiveness of said titles in favor of private
respondents should stand undisturbed.

Accordingly, the probate court was remiss in denying private respondents motion for
exclusion. While it may be true that the Regional Trial Court, acting in a restricted
capacity and exercising limited jurisdiction as a probate court, is competent to issue
orders involving inclusion or exclusion of certain properties in the inventory of the
estate of the decedent, and to adjudge, albeit, provisionally the question of title over
properties, it is no less true that such authority conferred upon by law and reinforced
by jurisprudence, should be exercised judiciously, with due regard and caution to the
peculiar circumstances of each individual case.

Notwithstanding that the real properties were duly registered under the Torrens
system in the name of private respondents, and as such were to be afforded the
presumptive conclusiveness of title, the probate court obviously opted to shut its eyes
to this gleamy fact and still proceeded to issue the impugned orders.

By its denial of the motion for exclusion, the probate court in effect acted in utter
disregard of the presumption of conclusiveness of title in favor of private respondents.
Certainly, the probate court through such brazen act transgressed the clear provisions
of law and infringed settled jurisprudence on this matter.

Moreover, petitioner urges that not only the properties of private respondent
corporations are properly part of the decedents estate but also the private respondent
corporations themselves. To rivet such flimsy contention, petitioner cited that the late
Pastor Y. Lim during his lifetime, organized and wholly-owned the five corporations,
which are the private respondents in the instant case. Petitioner thus attached as
[25]

Annexes "F" and "G" of the petition for review affidavits executed by Teresa Lim
[26] [27]

and Lani Wenceslao which among others, contained averments that the incorporators
of Uniwide Distributing, Inc. included on the list had no actual participation in the
organization and incorporation of the said corporation. The affiants added that the
persons whose names appeared on the articles of incorporation of Uniwide
Distributing, Inc., as incorporators thereof, are mere dummies since they have not
actually contributed any amount to the capital stock of the corporation and have been
merely asked by the late Pastor Y. Lim to affix their respective signatures thereon.

It is settled that a corporation is clothed with personality separate and distinct from
that of the persons composing it. It may not generally be held liable for that of the
persons composing it. It may not be held liable for the personal indebtedness of its
stockholders or those of the entities connected with it. [28]

Rudimentary is the rule that a corporation is invested by law with a personality


distinct and separate from its stockholders or members. In the same vein, a
corporation by legal fiction and convenience is an entity shielded by a protective
mantle and imbued by law with a character alien to the persons comprising it.

Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE
INTERNATIONAL BANK vs. COURT OF APPEALS , We enunciated: [29]
"x x x 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. x x x"

Piercing the veil of corporate entity requires the court to see through the protective
shroud which exempts its stockholders from liabilities that ordinarily, they could be
subject to, or distinguishes one corporation from a seemingly separate one, were it not
for the existing corporate fiction. [30]

The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation. Where
badges of fraud exist, where public convenience is defeated; where a wrong is sought
to be justified thereby, the corporate fiction or the notion of legal entity should come
to naught.[31]

Further, the test in determining the applicability of the doctrine of piercing the veil of
corporate fiction is as follows: 1) Control, not mere majority or complete stock
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 right; and (3) The aforesaid control and breach of
duty must proximately cause the injury or unjust loss complained of. The absence of
any of these elements prevent "piercing the corporate veil". [32]

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 a sufficient reason for disregarding
the fiction of separate corporate personalities. [33]

Moreover, to disregard the separate juridical personality of a corporation, the wrong-


doing must be clearly and convincingly established. It cannot be presumed. [34]

Granting arguendo that the Regional Trial Court in this case was not merely acting in
a limited capacity as a probate court, petitioner nonetheless failed to adduce
competent evidence that would have justified the court to impale the veil of corporate
fiction. Truly, the reliance reposed by petitioner on the affidavits executed by Teresa
Lim and Lani Wenceslao is unavailing considering that the aforementioned
documents possess no weighty probative value pursuant to the hearsay rule. Besides it
is imperative for us to stress that such affidavits are inadmissible in evidence
inasmuch as the affiants were not at all presented during the course of the proceedings
in the lower court. To put it differently, for this Court to uphold the admissibility of
said documents would be to relegate from Our duty to apply such basic rule of
evidence in a manner consistent with the law and jurisprudence.

Our pronouncement in PEOPLE BANK AND TRUST COMPANY vs.


LEONIDAS finds pertinence:
[35]

"Affidavits are classified as hearsay evidence since they are not


generally prepared by the affiant but by another who uses his own
language in writing the affiants statements, which may thus be either
omitted or misunderstood by the one writing them. Moreover, the
adverse party is deprived of the opportunity to cross-examine the
affiants. For this reason, affidavits are generally rejected for being
hearsay, unless the affiant themselves are placed on the witness stand to
testify thereon."

As to the order of the lower court, dated 15 September 1995, the Court of Appeals
[36]

correctly observed that the Regional Trial Court, Branch 93 acted without jurisdiction
in issuing said order; The probate court had no authority to demand the production of
bank accounts in the name of the private respondent corporations.

WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby


DISMISSED for lack of merit and the decision of the Court of Appeals which
nullified and set aside the orders issued by the Regional Trial Court, Branch 93, acting
as a probate court, dated 04 July 1995 and 12 September 1995 is AFFIRMED.

SO ORDERED.
[G.R. No. 143312. August 12, 2005]

RICARDO S. SILVERIO, JR., ESSES DEVELOPMENT CORPORATION,


and TRI-STAR FARMS, INC., petitioners, vs. FILIPINO BUSINESS
CONSULTANTS, INC., respondent.

DECISION
CARPIO, J.:

The Case

Before us is a petition for review of the Order of the Regional Trial Court,
Fourth Judicial Region, Branch XI, Balayan, Batangas (RTC Balayan) dated 26
May 2000.[1] The order suspended the enforcement of the writ of possession
that the RTC Balayan had previously issued in favor of petitioners Ricardo S.
Silverio, Jr. (Silverio, Jr.), Esses Development Corporation (Esses) and Tri-Star
Farms, Inc. (Tri-Star). Filipino Business Consultants, Inc. (FBCI), now Filipino
Vastland Company, Inc. sought to suspend the writ of possession on the ground
of a supervening event. FBCI claimed that it had just acquired all the stocks of
Esses and Tri-Star. As the new owner of Esses and Tri-Star, FBCI asserted its
right of possession to the disputed property. Petitioners Silverio, Jr., Esses and
Tri-Star question the RTC Balayans suspension of the writ of possession and
its jurisdiction to hold hearings on the supervening event.

The Antecedent Facts

The parties are wrangling over possession of a 62 hectare-land in


Calatagan, Batangas (Calatagan Property). Silverio, Jr. is the President of
Esses and Tri-Star. Esses and Tri-Star were in possession of the Calatagan
Property, covered by TCT No. T-55200 and registered in the names of Esses
and Tri-Star.
On 22 September 1995, Esses and Tri-Star executed a Deed of Sale with
Assumption of Mortgage in favor of FBCI. Esses and Tri-Star failed to redeem
the Calatagan Property.
On 27 May 1997, FBCI filed a Petition for Consolidation of Title of the
Calatagan Property with the RTC Balayan.[2]
FBCI obtained a judgment by default. Subsequently, TCT No. T-55200 in
the names of Esses and Tri-Star was cancelled and TCT No. T-77656 was
issued in FBCIs name. On 20 April 1998, the RTC Balayan issued a writ of
possession in FBCIs favor. FBCI then entered the Calatagan Property.
When Silverio, Jr., Esses and Tri-Star learned of the judgment by default
and writ of possession, they filed a petition for relief from judgment and the
recall of the writ of possession. Silverio, Jr., Esses and Tri-Star alleged that the
judgment by default is void because the RTC Balayan did not acquire
jurisdiction over them. FBCI allegedly forged the service of summons on them.
On 28 December 1998, the RTC Balayan nullified and set aside the
judgment by default and the writ of possession. The RTC Balayan found that
the summons and the complaint were not served on Silverio, Jr., Esses and Tri-
Star. The RTC Balayan directed the service of summons anew on Silverio, Jr.,
Esses and Tri-Star.
The RTC Balayan denied FBCIs motion for reconsideration of the order.
FBCI then filed a petition for certiorari with the Court of Appeals questioning the
RTC Balayans 28 December 1998 Order.[3] On 28 April 2000, the Court of
Appeals denied FBCIs petition. The Court of Appeals also denied FBCIs motion
for reconsideration. On 13 August 2001, the Supreme Court denied FBCIs
petition.
On 14 April 1999, the RTC Balayan modified its 28 December 1998 Order
by upholding FBCIs possession of the Calatagan Property. The RTC Balayan
ruled that FBCI could not be deprived of possession of the Calatagan Property
because FBCI made substantial improvements on it. Possession could revert
to Silverio, Jr., Esses and Tri-Star only if they reimburse FBCI. The RTC
Balayan gave Silverio, Jr., Esses and Tri-Star 15 days to file their responsive
pleadings.
Silverio, Jr., Esses and Tri-Star moved for the partial reconsideration of the
14 April 1999 Order. Silverio, Jr., Esses and Tri-Star argued that since the
judgment by default was nullified, they should be restored to their possession
of the Calatagan Property. FBCI did not file any opposition to the motion.
On 9 November 1999, the RTC Balayan reversed its 14 April 1999 Order by
holding that Silverio, Jr., Esses and Tri-Star had no duty to reimburse FBCI.
The RTC Balayan pointed out that FBCI offered no evidence to substantiate its
claim for expenses. The 9 November 1999 Order also restored possession of
the Calatagan Property to Silverio, Jr., Esses and Tri-Star pursuant to Rule 39,
Section 5 of the 1997 Rules of Civil Procedure. This provision provides for
restitution in case of reversal of an executed judgment. On 7 January 2000, the
RTC Balayan denied FBCIs motion for reconsideration.
On 8 May 2000, the RTC Balayan issued the writ of possession to Silverio,
Jr., Esses and Tri-Star.
On 12 May 2000, FBCI filed with the RTC Balayan a Manifestation and
Motion to Recall Writ of Possession on the ground that the decision of the Court
of Appeals in CA-G.R. SP No. 56924 was not yet final and FBCIs motion for
reconsideration was still pending. The RTC Balayan set the hearing on 26 May
2000.
On 23 May 2000, FBCI filed with the RTC Balayan an Urgent Ex-Parte
Motion to Suspend Enforcement of Writ of Possession. FBCI pointed out that it
is now the new owner of Esses and Tri-Star having purchased the substantial
and controlling shares of stocks[4] of the two corporations.
On the 26 May 2000 hearing, FBCI reiterated its claim of a supervening
event, its ownership of Esses and Tri-Star. FBCI informed the RTC Balayan that
a new board of directors for Esses and Tri-Star had been convened following
the resignation of the members of the board of directors. The previous actions
of the former board of directors have been abandoned and the services of Atty.
Vicente B. Chuidian, the counsel of petitioners Silverio, Jr., Esses and Tri-Star,
have been terminated.
On the same day, the RTC Balayan issued the order suspending the writ of
possession it had earlier issued to Silverio, Jr., Esses and Tri-Star. The RTC
Balayan reasoned that it would violate the law on forum shopping if it executed
the writ while FBCIs motion for reconsideration of the Court of Appeals decision
and urgent motion to suspend the issuance of the writ of possession remained
pending with the Court of Appeals. The RTC Balayan noted that because of
FBCIs strong resistance, Silverio, Jr., Esses and Tri-Star have still to take
possession of the Calatagan Property. More than ten days had already passed
from the time that the RTC Balayan had issued the writ of possession. FBCI
had barricaded the Calatagan Property, threatening bloodshed if possession
will be taken away from it. The RTC Balayan believed that if it would not restrain
Silverio, Jr., Esses and Tri-Star from taking possession of the Calatagan
Property, a violent confrontation between the parties might erupt as reported in
the Tempo newspaper in its 26 May 2000 issue. Without issuing a restraining
order, the RTC Balayan suspended the writ by requesting the counsel of
Silverio, Jr., Esses and Tri-Star to allow the court to study the voluminous
records of the case, which are to be presented at the hearing on 16 June 2000.
The hearing would determine the existence of a supervening event.
On 15 June 2000, the RTC Balayan issued an Order cancelling the 16 June
2000 hearing so that the Court of Appeals could resolve the issue regarding the
existence of a supervening event. However, the RTC Balayan declared that the
suspension of the writ of possession would be lifted on 17 June 2000.
On 8 August 2000, Silverio, Jr., Esses and Tri-Star filed a complaint for
annulment of contracts with damages with the Regional Trial Court of Las Pias
City, Branch 275 (RTC Las Pias).[5]

Issues

Silverio, Jr., Esses and Tri-Star argue that:


I

An ex parte motion cannot legally constitute an initiatory basis for the RTC Balayan
to conduct additional hearings in order to validate certain new allegations. Neither can
said ex parte motion be the basis for the suspension of a writ of possession being
implemented.

II

When the RTC Balayan suspended the writ of possession, it was barred from hearing
intra-corporate disputes. And though Congress has now amended our law on the
matter, the RTC still cannot proceed because of due process and res judicata reasons.

III

A final and executory judgment cannot be enjoined except by an appropriate petition


for relief, a direct attack in another action or a collateral act in another action.

IV

Respondent FBCI is asking for a suspension of the writ of possession while at the
same time threatening violence if the writ of possession were to be implemented. The
RTC Balayan had no lawful basis to suspend the writ under these admitted
circumstances.

Respondent has not directly answered petitioners legal theory. The petition is founded
on admitted facts upon which relief is sought under Rule 45. Respondent has altered
these facts presenting its so called counterstatements of facts and issues which involve
questions of fact that are still litis pendentia at the RTC Balayan. And which even
involve an attempt to vary res judicata.

VI

Contrary to respondents claims, that the RTC order of 15 June 2000 has rendered this
case moot and academic quite on the contrary said order calls upon the Supreme Court
to decide whether or not, the RTC Balayan may continue to conduct its hearings on
suspending the writ of possession.

VII

Respondents theory that an order suspending a writ of possession is interlocutory in


nature, and therefore inappealable, is not supported by jurisprudence.

VIII

Respondents views on when suspending a writ of execution is appropriate would


make the exception as rule. And respondents reliance on Flores vs. CA, et al. is totally
misplaced. In the Flores case, the party being dispossessed was a judgment creditor,
who was admitted by the adverse party to be the owner.

IX

The question of jus possessionis on the Calatagan Property is already res


judicata while the question of jus possidendi is still under litis pendentia. For that
reason, respondent has lost all his legal options in retaining the property procured
under a faked service of summons.

Respondents arguments in his 11-06-01 Memo on (a) forum shopping, (b) petitioners
lack of capacity to sue, (c) service of summons already served (d) no intra-corporate
dispute and (e) the relief herein preempted by events are ratiocinations of miniscule
weight, meriting only the slightest comment.[6]

FBCI raises the following issues:

1. Whether the present case has been rendered moot and academic by the Order of
the RTC Balayan dated 15 June 2000 and the filing of an action with the
Regional Trial Court of Las Pias City;
2. Whether the present appeal should be dismissed on the ground of forum
shopping;

3. Whether the RTC Balayan had the authority to suspend enforcement of the writ
of possession and to conduct hearings on a new set of facts;

4. Whether the present case involves an intra-corporate controversy;

5. Whether appeal by certiorari under Rule 45 is the proper remedy under the
given facts of the case.[7]

The Ruling of the Court

The petition has merit.

Procedural Issues

Before resolving the threshold issue, which is the existence of a


supervening event, we first address the following procedural issues: (1) whether
appeal is the proper remedy against an order suspending the execution of a
writ of possession; (2) whether the issue of possession was mooted by the 15
June 2000 Order of the RTC Balayan; and (3) whether the filing of a civil case
with the RTC Las Pias constitutes forum shopping.
First, interlocutory orders are those that determine incidental matters that
do not touch on the merits of the case or put an end to the proceedings. [8] The
proper remedy to question an improvident interlocutory order is a petition
for certiorari under Rule 65, not Rule 45.[9] A petition for review under Rule 45
is the proper mode of redress to question final judgments.[10]
An order staying the execution of the writ of possession is an interlocutory
order.[11] Clearly, this order cannot be appealed. A petition for certiorari was
therefore the correct remedy. Moreover, Silverio, Jr., Esses and Tri-Star pointed
out that the RTC Balayan acted on an ex-parte motion to suspend the writ of
possession, which is a litigious matter, without complying with the rules on
notice and hearing. Silverio, Jr., Esses and Tri-Star also assail the RTC
Balayans impending move to accept FBCIs evidence on its subsequent
ownership of Esses and Tri-Star. In effect, Silverio, Jr., Esses and Tri-Star
accuse the RTC Balayan of acting without or in excess of jurisdiction or with
grave abuse of discretion, which is within the ambit of certiorari.
However, in the exercise of our judicial discretion, we will treat the appeal
as a petition under Rule 65.[12] Technical rules must be suspended whenever
the purposes of justice warrant it, such as in this case where substantial and
important issues await resolution.
Second, the RTC Balayans 15 June 2000 Order lifting the suspension of
the writ of possession was issued to correct its action on FBCIs ex-
parte motion, which did not have the required notice and hearing. This issue
has thus become a fait accompli. However, while the 15 June 2000 Order is
supposed to have mooted the suspension of the execution of the writ of
possession by lifting the suspension on 17 June 2000, Silverio, Jr., Esses and
Tri-Star claim that the writ has not been executed in their favor. Thus, the issues
in this petition are far from being moot. Also, the existence of a supervening
event is another issue that must be resolved since the RTC Balayan had instead
submitted to the higher courts the resolution of this issue.
Third, Silverio, Jr., Esses and Tri-Star are not guilty of forum shopping for
filing another action against FBCI with the RTC Las Pias during the pendency
of this case with the RTC Balayan. Forum shopping consists of filing multiple
suits involving the same parties for the same cause of action, either
simultaneously or successively, to obtain a favorable judgment.[13]
The parties and cause of action in the present case before the RTC Balayan
and in the case before the RTC Las Pias are different. The present case was
filed by FBCI against Silverio, Jr., Esses and Tri-Star for the consolidation of
title over the Calatagan Property. On the other hand, the case before the RTC
Las Pias was filed by Silverio, Jr., Esses and Tri-Star against FBCI and other
defendants for the annulment of contract with damages, tort and culpa
aquiliana (civil fraud).
In its complaint before the RTC Las Pias, Silverio, Jr., Esses and Tri-Star
informed the court that there is a pending case with the RTC Balayan over the
Calatagan Property.[14] Silverio, Jr., Esses and Tri-Star made it clear in the
complaint that the case before the RTC Las Pias will focus on the Makati
Tuscany property and any reference to the Calatagan Property is meant to
serve only as proof or evidence of the plan, system, scheme, habit, etc., lurking
behind defendants interlocking acts constituting interlocking tort and
interlocking fraud.[15] Clearly, FBCIs claim of forum shopping against Silverio,
Jr., Esses and Tri-Star has no basis.

No Supervening Event in this Case


FBCI took possession of the Calatagan Property after the RTC Balayan
rendered a judgment by default in FBCIs favor. The judgment by default was
nullified after the RTC Balayan found out that the service of summons on
Silverio, Jr., Esses and Tri-Star was procured fraudulently. The RTC Balayan
thus recalled the writ of possession it had issued to FBCI. Silverio, Jr., Esses
and Tri-Star were served anew with summons. The RTC Balayan restored
possession of the Calatagan Property to Silverio, Jr., Esses and Tri-Star as
restitution resulting from the annulment of the judgment by default. The order
restoring possession of the Calatagan Property to Silverio, Jr., Esses and Tri-
Star has attained finality. This case then proceeded to pre-trial.
FBCI has resisted the enforcement of the writ of possession by barricading
the Calatagan Property and threatening violence if its possession of the
property is taken away from it. To avoid bloodshed, as FBCI also claimed that
Silverio, Jr. had armed civilians threatening to shoot FBCIs
representatives,[16] the RTC Balayan momentarily suspended the execution of
the writ. The RTC Balayan also had to rule on FBCIs claim of a supervening
event that would allegedly make the execution of the writ absurd,[17] as FBCI
alleges it now owns the controlling interest in Esses and Tri-Star. The RTC
Balayan lifted the suspension of the writ but it cancelled the hearings on the
supervening event to give way to the Court of Appeals action on this issue. The
RTC Balayan decided to await the appellate courts resolution because it did not
want to violate the rule against forum shopping.
Silverio, Jr., Esses and Tri-Star argue that the RTC Balayan has no power
to conduct hearings on the supervening event because res judicata has set in
on the issue. They also contend that the supervening event is an intra-corporate
controversy that is within the jurisdiction of the Securities and Exchange
Commission, not the trial court. Silverio, Jr., Esses and Tri-Star point out that
despite the lifting of the suspension RTC Balayan has still to execute the writ of
possession in their favor. On the other hand, FBCI maintains that its acquisition
of Esses and Tri-Star is a supervening event, which the RTC Balayan could
hear and is sufficient ground to stay the execution of the writ of possession.
We rule in favor of Silverio, Jr., Esses and Tri-Star.
The court may stay immediate execution of a judgment when supervening
events, occurring subsequent to the judgment, bring about a material change
in the situation of the parties.[18] To justify the stay of immediate execution, the
supervening events must have a direct effect on the matter already litigated and
settled.[19] Or, the supervening events must create a substantial change in the
rights or relations of the parties which would render execution of a final
judgment unjust, impossible or inequitable making it imperative to stay
immediate execution in the interest of justice.[20]
In this case, there is no judgment on the merits, only a judgment on a
technicality. Even then, the judgment of default rendered in FBCIs favor was
voided because the RTC Balayan did not acquire jurisdiction over Silverio, Jr.,
Esses and Tri-Star due to a fraudulent service of summons. The case for
consolidation of title, from which this petition stemmed, is in fact still being
litigated before the RTC Balayan.
The issuance of the writ of possession in favor of Silverio, Jr., Esses and
Tri-Star is also not a judgment on the merits.[21] A writ of possession is an order
whereby the sheriff is commanded to place a person in possession of real or
personal property. [22] The issuance of the writ of possession to Silverio, Jr.,
Esses and Tri-Star is but an order of restitution a consequence of the
nullification of the judgment by default. The order of restitution placed the
parties in the situation prior to the RTC Balayans rendition of the void judgment
by default. Title to the Calatagan Property is still in the names of Esses and Tri-
Star. Possession of the Calatagan Property must revert to Esses and Tri-Star
as legal owners of the property.
However, with the reinstitution of the case for consolidation of title with the
RTC Balayan, possession of the Calatagan Property is now subject to the
outcome of the case. Nonetheless, while this case is still under litigation it is
only in the pre-trial stage Esses and Tri-Star in whose names the Calatagan
Property is titled and in whose favor the order of restitution was issued, are the
ones entitled to possession of the property.
We do not agree with Silverio, Jr., Esses and Tri-Stars assertion that the
RTC Balayan has no power to conduct a hearing on the existence of a
supervening event because of res judicata. Res judicata does not set in where
the court is without jurisdiction over the subject or person, and therefore, the
judgment is a nullity[23] such as the judgment by default in this case. The order
that voided the judgment by default and the order of restitution merely
recognized the nullity of the judgment by default. The orders did not adjudicate
on the merits of the case. Since res judicata had not set in, the case was tried
anew upon the proper service of summons on Silverio, Jr., Esses and Tri-Star.
Moreover, it is the court issuing the writ of possession that has control and
supervision over its processes.[24] The RTC Balayan can therefore hear the
evidence on the existence of a supervening event, provided the subject matter
is within the jurisdiction of the court, as this could affect the execution of the writ
of possession.
We are, therefore, dismayed with the RTC Balayans referral of the existence
of the supervening event to the higher courts. Courts must not shirk from their
duty to rule on an issue. The duty of the appellate or higher courts is to review
the findings and rulings of the lower courts, not to issue advisories. Courts must
execute its processes and should not succumb to threats by any of the parties
to resort to violence in case of such enforcement. Had the RTC Balayan
immediately passed upon FBCIs allegation of a supervening event, it would
have been apparent that this claim is without merit. The RTC Balayan should
have then enforced posthaste the writ of possession in Silverio, Jr., Esses and
Tri-Stars favor.
FBCIs acquisition of the substantial and controlling shares of stocks[25] of
Esses and Tri-Star does not create a substantial change in the rights or
relations of the parties that would entitle FBCI to possession of the Calatagan
Property, a corporate property of Esses and Tri-Star. Esses and Tri-Star, just
like FBCI, are corporations. A corporation has a personality distinct from that of
its stockholders. As early as the case of Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila,[26] the Court explained the principle
of separate juridical personality in this wise:

A corporation is a juridical person distinct from the members composing it. Properties
registered in the name of the corporation are owned by it as an entity separate and
distinct from its members. While shares of stock constitute personal property, they do
not represent property of the corporation. The corporation has property of its own
which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So. 75;
Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies an
aliquot part of the corporation's property, or the right to share in its proceeds to that
extent when distributed according to law and equity (Hall & Faley v. Alabama
Terminal, 173 Ala 398, 56 So., 235), but its holder is not the owner of any part of the
capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to
the possession of any definite portion of its property or assets (Gottfried v. Miller, 104
U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-owner or
tenant in common of the corporate property (Harton v. Hohnston, 166 Ala., 317, 51
So., 992).

Thus, FBCIs alleged controlling shareholdings in Esses and Tri-Star merely


represent a proportionate or aliquot interest in the properties of the two
corporations. Such controlling shareholdings do not vest FBCI with any legal
right or title to any of Esses and Tri-Stars corporate properties. As a
stockholder, FBCI has an interest in Esses and Tri-Stars corporate properties
that is only equitable or beneficial in nature. Even assuming that FBCI is the
controlling shareholder of Esses and Tri-Star, it does not legally make it the
owner of the Calatagan Property, which is legally owned by Esses and Tri-Star
as distinct juridical persons. As such, FBCI is not entitled to the possession of
any definite portion of the Calatagan Property or any of Esses and Tri-Stars
properties or assets. FBCI is not a co-owner or tenant in common of the
Calatagan Property or any of Esses and Tri-Stars corporate properties.
We see no reason why the execution of the writ of possession has been
long delayed. Possession of the Calatagan Property must be restored to Esses
and Tri-Star through their representative, Silverio, Jr. There is no proof on
record that Silverio, Jr. has ceased to be the representative of Esses and Tri-
Star in this case.
WHEREFORE, we GRANT the petition. The Regional Trial Court, Branch
XI, Balayan, Batangas is ordered to immediately execute the writ of possession
in Civil Case No. 3356 in favor of Esses Development Corporation and Tri-Star
Farms, Inc. through their representative, Ricardo S. Silverio, Jr. No costs.
SO ORDERED.
[G.R. No. 149357. March 04, 2005]

MOBILIA PRODUCTS, INC., petitioner, vs. HAJIME


UMEZAWA, respondent.

[G.R. No. 149403. March 04, 2005]

PEOPLE OF THE PHILIPPINES, petitioner, vs. HON. JUDGE RUMOLDO


R. FERNANDEZ and HAJIME UMEZAWA, respondents.

DECISION
CALLEJO, SR., J.:

Before the Court are two consolidated petitions: a petition for review
on certiorari filed by the People of the Philippines, docketed as G.R. No. 149403
of the Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 52440 which
[1]

reversed its decision and granted the petition for certiorari, prohibition and
mandamus filed by respondent Hajime Umezawa; and the petition for review
on certiorari docketed as G.R. No. 149357 filed by petitioner Mobilia Products,
Inc. (MPI), the intervenor in the CA, assailing the same Resolution of the
appellate court.
The Antecedents
The antecedents were amply summarized by the Office of the Solicitor
General (OSG) in the petition at bar, to wit:

Mobilia Products, Inc. is a corporation engaged in the manufacture and export of


quality furniture which caters only to the purchase orders booked and placed through
Mobilia Products Japan, the mother company which does all the marketing and
booking. After orders from customers are booked at the mother company in Japan, the
same are coursed through Mobilia Philippines for implementation and production,
after which, the ordered items are shipped to Japan through the mother company.

Mobilia Products Japan sent Hajime Umezawa to the Philippines in order to head
Mobilia Products, Inc. as President and General Manager. To qualify him as such and
as a Board Director, he was entrusted with one nominal share of stock.
Sometime in the last week of January 1995, Umezawa, then the President and General
Manager of Mobilia Products, Inc., organized another company with his wife Kimiko,
and his sister, Mitsuyo Yaguchi, to be known as Astem Philippines
Corporation, without the knowledge of the Chairman and Chief Executive Officer
Susumo Kodaira and the other members of the Board of Directors of Mobilia.

The said company would be engaged in the same business as Mobilia. Spouses
Umezawa recruited Justin Legaspi, former Production Manager of Mobilia, to act as
Manager and one Yoshikazu Hayano of Phoenix Marble Corporation to serve as
investors [sic].

Pending formal organization, Spouses Umezawa, Justin Legaspi and Yoshikazu


Hayano wanted to accelerate the market potentials of Astem by participating in the
International Furniture Fair 1995 held at the Word Trade Centre of Singapore on
March 6 to 10, 1995.

One of the requirements of such Fair was that the furniture exhibits must arrive and be
received at Singapore not later than February 23, 1995. Pressed for time, with less
than one month to prepare and while Astem had yet no equipment and machinery, no
staff and no ready personnel, Umezawa, with grave abuse of the confidence reposed
on him as President and General Manager of Mobilia Products, Inc., and in conspiracy
with his wife, his sister Mitsuyo Yaguchi, Yoshikazu Hayano and Justin Legaspi, all
with intent to gain for themselves and for their company Astem Philippines
Corporation, stole prototype furniture from petitioner Mobilia so that the said pieces
of furniture would be presented and exhibited as belonging to Astem in the
International Furniture Fair 95 in Singapore.

In order to avoid detection, Umezawa contacted Henry Chua, the owner of Dew
Foam, one of the suppliers of Mobilia, for that the latter to load several pieces of
prototype furniture into a Dew Foam truck and store them at the Dew Foam
warehouse. The first batch of furniture was stolen on February 8, 1995, when Mr.
Henry Chua, upon the request of respondent Umezawa, caused to be loaded into his
Dew Foam truck two prototype sofa models worth P500,000.00, after which, the same
were spirited from the Mobilia compound, then transported and stored in Henry Chuas
warehouse.

Again, on February 18, 1995, Umezawa, with grave abuse of confidence and taking
advantage of his position as President and General Manager, unlawfully stole
expensive furniture from Mobilias factory worth P2,964,875.00. In order to avoid
detection, the said furniture were loaded in the truck belonging to Dew Foam, with
respondent Umezawa personally supervising the loading, the carting and spiriting
away of the said furniture. Thus, taking advantage of his position as General Manager,
he managed to have the said furniture taken out of the company premises and passed
the company guard without any problem and difficulty.

Further, on February 19, 1995, around 1 oclock in the afternoon, respondent


Umezawa again loaded into his motor vehicle, and took away from company premises
under the same irregular and unlawful circumstances, an expensive three-seater sofa
worth P255,000.00.

The taking out of the said furniture was effected in violation of the standard
procedures established by petitioner corporation which requires that every shipment or
taking out of the furniture be checked and reviewed by Mobilias Production, Planning,
Inventory Costing and Control (PPICC) Division. All the foregoing furniture were
transported to and stored at Henry Chuas warehouse. After sometime, the foregoing
furniture were photographed for slide photos at Photo Folio at the Reclamation Area,
Cebu City and then finally catalogued for use in the Singapore Fair for the use of
Astem and its supposed owners, namely: spouses Umezawa, Hayano and Legaspi.
The foregoing furniture models were finally shipped for exhibition at the International
Furniture Fair 95 in Singapore as furniture belonging to Astem Philippines
Corporation.

Sometime in March 1995, based on orders booked for Astem, Umezawa, with
unfaithfulness and abuse of confidence reposed on him as the President and General
Manager of petitioner Mobilia, ordered and caused the manufacture of eighty-nine
(89) pieces of furniture with a total value of P17,108,500.00. The said pieces of
furniture were made with Mobilia supplies, materials and machineries, as well as with
Mobilia time and personnel, all of which were under the administration and control of
Umezawa as President and General Manager. The said materials and supplies, the
time and labor, were supposed to be used for the manufacture and production of
quality furniture for the EXCLUSIVE USE of Mobilia. However, Umezawa, in
violation of his duty to apply the same for the use of Mobilia and the duty to account
for the same, converted their use for the benefit of Astem or for the use and benefit of
Umezawa, his wife and sister, Yoshikazu Hayano and Legaspi, much to the damage
and prejudice of Mobilia Products.

The same furniture could also have been taken out of the company premises by
Umezawa and cohorts for shipment and delivery to Astem customers had it not been
for the timely discovery of the previous theft.[2]

The Board of Directors of MPI, consisting of its Chairman Susumo Kodaira


and members Yasushi Kato and Rolando Nonato, approved a Resolution on
May 2, 1995 authorizing the filing of a complaint against Umezawa for two
counts of qualified theft allegedly committed on February 18 and 19, 1995.
Attached to the complaint was the Joint Affidavit of Danilo Lallaban, George del
Rio and Yasushi Kato. The case was docketed as I.S. No. 95-275.
On May 15, 1995, the public prosecutor filed an Information for qualified
theft against Umezawa with the Regional Trial Court (RTC) of Lapu-Lapu City.
The accusatory portion of the Information, docketed as Criminal Case No.
013231-L, reads:

That during or about the period comprised between the 18 th and 19th day of February
1995, in the City of Lapu-Lapu, Philippines, within the jurisdiction of this Honorable
Court, the accused, while being then the President and General Manager of Mobilia
Products, Inc., a corporation engaged in the manufacture and export of furniture,
holding office and doing business in the Mactan Export Processing Zone, Lapu-Lapu
City, with grave abuse of the confidence reposed upon him by his employer, with
intent to gain, did then and there willfully, unlawfully and feloniously take, steal and
carry away from the corporations factory in Mactan Export Processing Zone, Lapu-
Lapu City, expensive pieces of furniture, to wit:

1) 1 set, Model No. 3, 2-seater


German leather sofa, worth - - - - - - - - - - - - - - - - - - P 208,125.00
2) 1 set, Model No. 8, 2-seater
German leather sofa, worth - - - - - - - - - - - - - - - - - - P 315,000.00
3) 1 set, Model No. 5, 2-seater
German leather sofa, worth - - - - - - - - - - - - - - - - - - P 108,000.00
4) 1 set, Model No. 4, 2-seater
German leather sofa, worth - - - - - - - - - - - - - - - - - - P 277,500.00
5) 1 set, Model No. 6, 1-seater
German leather sofa, worth - - - - - - - - - - - - - - - - - - P 146,250.00
6) 1 set, Model No. 2, 2-seater
German leather sofa, worth - - - - - - - - - - - - - - - - - - P 225,000.00
7) 1 set, Model No. 1, 2-seater
German leather sofa, worth - - - - - - - - - - - - - - - - - - P 275,000.00
8) 1 piece, Model Table No. 2,
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 93,750.00
9) 1 piece, Model Table No. 4,
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 105,000.00
10) 2 pieces, Model Pedestal
No. 6, Italian marble pedestal, worth - - - - - - - - - - - - - P 150,000.00
11) 1 piece, Model Column
Standard No. 11, Italian marble worth - - - - - - - - - - - - P 93,750.00
12) 1 piece, Model Table No. 1,
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 105,000.00
13) 1 piece, Model High Table
No. 10, Italian marble, worth - - - - - - - - - - - - - - - - - - - P 187,500.00
14) 1 piece, Model Table No. 8,
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 187,500.00
15) 1 piece, Model Table No. 7
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 187,500.00
16) 1 piece, Model Table No. 5
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 112,500.00
17) 1 piece, Model Table No. 9,
Italian marble table, worth - - - - - - - - - - - - - - - - - - - - P 187,500.00
18) 3-seater sofa, worth- - - - - - - - - - - - - - - - - - P 255,000.00

with an aggregate value of P3,219,875.00, Philippine currency, without the consent of


his employer, to the damage and prejudice of Mobilia Products, Inc., in the said
amount of P3,219,875.00.

Contrary to law. [3]

On motion of the prosecution, the trial court issued a writ of preliminary


attachment covering the properties of Umezawa.
Umezawa then filed an Omnibus Motion to quash the information filed
against him, the discharge of the writ of attachment issued by the trial court,
and to set the case for preliminary investigation. MPI, the private complainant
therein, opposed the motion.
In the meantime on July 21, 1995, MPI filed another criminal complaint for
qualified theft against Umezawa, his wife Kimiko Umezawa, Mitsuyo Yaguchi,
Justin Legaspi, Yoshikazu Hayano and Henry Chua allegedly committed in
March 1995, with the Office of the City Prosecutor. The case was docketed as
I.S. No. 95-442.
On July 25, 1995, the trial court issued an Order in Criminal Case No.
013231-L denying the omnibus motion. On joint motion of Umezawa and the
public prosecutor, the trial court ordered a reinvestigation of the case.
Conformably, the public prosecutor conducted a reinvestigation of Criminal
Case No. 013231-L jointly with I.S. No. 95-442.
On September 25, 1995, Umezawa filed a petition with the Securities and
Exchange Commission (SEC), docketed as SEC Case No. 002919, for the
nullification of the Resolution issued by the three alleged members of MPI
Board of Directors, authorizing the filing of criminal complaints against him in
behalf of the corporation.
On January 3, 1996, the public prosecutor issued a Joint Resolution finding
probable cause for qualified theft and one count of estafa against Umezawa,
and dismissing the case against the other accused. The Prosecutor maintained
his finding of probable cause against Umezawa in Criminal Case No. 013231-
L.
On February 20, 1996, the public prosecutor filed an Information for
qualified theft with the RTC of Lapu-Lapu City against Umezawa, docketed as
Criminal Case No. 013423-L. The accusatory portion reads:

That on the 8th day of February 1995, in the City of Lapu-Lapu, Philippines, within
the jurisdiction of this Honorable Court, the above-named accused, while being the
President and General Manager of Mobilia Products, Inc., a corporation engaged in
the manufacture and export of quality furniture, whose principal place of business is at
the Mactan Export Processing Zone, Lapu-Lapu City, with intent to gain, without the
consent of his employer, and with grave abuse of confidence, did then and there
willfully, unlawfully and feloniously take, steal and carry away from the corporations
factory the following expensive pieces of furniture, to wit:

1) 1 set, Model No. 2, 2-seater German


leather sofa, all valued at . . . . . . . . . . . . . . P 225,000.00
2) 1 set, Model No. 1, 2-seater German
leather sofa, all valued at . . . . . . . . . . . . . . . . P 275,000.00

with an aggregate value of P500,000.00 Philippine Currency, to the damage and


prejudice of Mobilia Products, Inc.

CONTRARY TO LAW. [4]

Another Information for estafa was thereafter filed against the same
accused, docketed as Criminal Case No. 013424-L. The accusatory portion
reads:

That sometime in March 1995, in the City of Lapu-Lapu, Philippines, within the
jurisdiction of this Honorable Court, the above-named accused, by means of
unfaithfulness and abuse of confidence reposed upon him as the President and General
Manager of Mobilia Products, Inc., did then and there willfully, unlawfully and
feloniously misappropriate and convert to his own personal use and benefit the
amount of Seventeen Million One Hundred Eight Thousand Five Hundred
(P17,108,500.00) Pesos, Philippine Currency, which was the total value of the
furnitures ordered and manufactured by the accused or at his instance using Mobilia
supplies, materials and machineries, as well as time and personnel which were
supposed to be for the exclusive use of Mobilia Products, Inc. but were converted for
the use and benefit of the accused and Astem Philippines Corporation, a company or
firm engaged in the same business as that of Mobilia Products, Inc., which is, [in] the
manufacture and production of quality furniture for export, owned by the accused, to
the damage and prejudice of Mobilia Products, Inc.

CONTRARY TO LAW. [5]

On April 25, 1996, Umezawa filed a motion for the suspension of the
proceedings on the ground of the pendency of his petition with the SEC in Case
No. 002919. The trial court, however, issued an Order on May 21, 1996,
denying the said motion. It held that the filing and the pendency of a petition
before the SEC did not warrant a suspension of the criminal cases.
On September 25, 1998, Umezawa was arraigned and pleaded not guilty.
On September 30, 1998, Umezawa filed anew a Joint Motion to Quash the
Informations in Criminal Cases Nos. 013231-L and 013423-L, on the ground
that the facts alleged therein did not constitute the felony of qualified theft.
Umezawa claimed that based on the Joint Affidavit of the witnesses for the
prosecution submitted during the preliminary investigation, Yasushi Kato and
George del Rio, MPI Vice-President and the head of the Upholstery
Department, respectively, the appropriate charge should be estafa and not
qualified theft. Umezawa further claimed that for their failure to object to and
resist his alleged delictual acts, the said witnesses were as guilty as he was
and should have been included in the Information. He also asserted that there
was, likewise, no allegation in the Informations as to who was the owner of the
articles stolen; hence, there was no offended party. He noted that the
Informations merely alleged that MPI was his employer. He further posited that
there was no valid charge against him because the resolution authorizing the
filing of the cases against him was approved by a mere minority of the members
of the MPI Board of Directors. [6]

Umezawa, likewise, filed a Motion to Quash the Information in Criminal


[7]

Case No. 013424-L on the ground that the facts alleged in the Information did
not constitute the felony of estafa. He posited that the Information did not
contain any allegation that any demand was made for him to return the goods.
Furthermore, the owner of the said articles was not specified. He noted that as
gleaned from the Joint Affidavit of the witnesses for the prosecution, there was
no lawful private complainant. He reiterated that the MPI board resolution
authorizing the filing of the charge against him was not approved by the majority
of the members of its board of directors. Umezawa also alleged that the charge
for estafa with abuse of confidence was already included in the charge for
qualified theft, where it was alleged that he committed theft with abuse of
confidence; hence, the charge for estafa should be quashed, otherwise, he
would be placed in double jeopardy. The motion was duly opposed by the
prosecution.
On January 29, 1999, the trial court issued a Joint Order dismissing the
[8]

cases for lack of jurisdiction. It held that the dispute between the private
complainant and the accused over the ownership of the properties subject of
the charges is intra-corporate in nature, and was within the exclusive jurisdiction
of the SEC. It ruled that Umezawa, as a member of the board of directors and
president of MPI, was also a stockholder thereof. While Umezawa claimed to
be the bona fide owner of the properties subject of the Informations which he
appropriated for himself, the private complainant disputes the same; hence,
according to the trial court, the conflicting claims of the parties should be
resolved by the SEC. The private and public prosecutors received their
respective copies of the Joint Order on February 2, 1999.
The MPI, through the private prosecutor, filed a motion for reconsideration
of the joint order of the court and for the reinstatement of the cases on February
15, 1999. The MPI relied on the following grounds:

a. The Honorable Court has jurisdiction and must exercise it over these cases;
b. The above-entitled case is not an intra-corporate controversy;
and
c. The accused could not claim ownership nor co-ownership of the properties of
private complainant corporation.
[9]

The MPI maintained that the trial court had jurisdiction over the cases and
cited Section 5 of Presidential Decree (P.D.) No. 902-A, which provides the
rules on cases over which the SEC has original and exclusive jurisdiction. A
copy of the motion was served on the public prosecutor for his approval.
However, the public prosecutor did not affix his conformity to the motion, and
instead opted to appear before the trial court during the hearing of the same.
During the hearing, both the public and private prosecutors appeared. In
support of his motion, the private prosecutor argued that the trial of the case
must be done in the presence of and under the control and supervision of the
public prosecutor. [10]

The trial court denied the motion in an Order dated April 19, 1999. It held
that the SEC, not the trial court, had jurisdiction over intra-corporate
controversies. It also ruled that the motion of the private complainant was pro
forma, it appearing that the public prosecutor had not approved the same.
The public prosecutor received a copy of the Order on April 20, 1999. On
April 26, 1999, the People of the Philippines, through the OSG, filed a petition
for certiorari and mandamuswith the CA against Presiding Judge Rumuldo R.
Fernandez and Umezawa, docketed as CA-G.R. SP No. 52440. The CA
allowed the MPI to intervene as petitioner, and admitted its petition- in-
intervention.
The People of the Philippines, as the petitioner therein, raised the following
issues:
I

WHETHER OR NOT IT IS THE LEGAL AND MINISTERIAL DUTY OF THE


REGIONAL TRIAL COURT TO TAKE COGNIZANCE AND JURISDICTION OF
THESE SUBJECT CRIMINAL CASES;

II

WHETHER OR NOT THE SECURITIES AND EXCHANGE COMMISSION HAS


JURISDICTION OVER THE CRIMINAL CASES AGAINST RESPONDENT
HAJIME UMEZAWA;

III

WHETHER OR NOT RESPONDENT JUDGE COMMITTED GRAVE ABUSE OF


DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN
DISMISSING THE CRIMINAL CASES AND DENYING PETITIONERS MOTION
FOR RECONSIDERATION. [11]

The People asserted that the controversy involving the criminal cases was
not between Umezawa and the other stockholders of MPI, but one between him
as the accused therein and the People of the Philippines. It averred that under
Section 20(b) of Batas Pambansa (B.P.) Blg. 129, the RTC has exclusive
jurisdiction over the cases against Umezawa. It also alleged that in dismissing
the criminal cases against Umezawa on the ground that it had no jurisdiction
over the crimes charged, the RTC committed grave abuse of its discretion
amounting to excess or lack of jurisdiction.
On September 2, 1999, the CA rendered judgment granting the petition and
nullifying the assailed Orders of the RTC. It ruled that the issue of ownership of
the properties subject of the Informations was not an intra-corporate dispute. It
held that Umezawa, although president and general manager of the MPI and a
stockholder thereof, was not a joint owner or co-owner of the personal
properties subject of the charges. It also held that the dispute between a private
corporation and any of its stockholders relative to the ownership of properties
does not ipso facto negate the jurisdiction of the RTC over the criminal cases
under B.P. Blg. 129, as amended. It also declared that the material averments
of the Informations sufficiently charged qualified theft and estafa.
Umezawa filed a motion for the reconsideration of the decision of the CA.
In a complete volte face, the appellate court issued a Resolution on August 8,
2001, granting the motion and reversing its decision. It affirmed the ruling of the
RTC that the dispute between Umezawa and the other stockholders and
officers over the implementation of the MPIs standard procedure is intra-
corporate in nature; hence, within the exclusive jurisdiction of the SEC. Citing
Section 5(a)(b) of P.D. No. 902-A, and the ruling of this Court in Alleje v. Court
of Appeals, the appellate court ruled that based on the material allegations of
[12]

the Solicitor General in the petition before the CA, the SEC had exclusive
jurisdiction over the conflicting claims of the parties. It likewise affirmed the
ruling of the RTC that the absence of any allegation in the Information that the
MPI was the owner of the properties subject of the Information is fatal.
The petitioner MPI filed the instant petition for review on certiorari, raising
the following issues:
I

WHETHER OR NOT THE SECURITIES AND EXCHANGE COMMISSION HAS


JURISDICTION OVER THE CRIMINAL CASES AGAINST UMEZAWA.

II

WHETHER OR NOT ALL THE NECESSARY ELEMENTS OF THE CRIMES OF


QUALIFIED THEFT AND ESTAFA ARE SUFFICIENTLY ALLEGED IN THE
INFORMATIONS.

III

EVEN ASSUMING ARGUENDO THAT THE FACTS ALLEGED DO NOT


CONSTITUTE AN OFFENSE THE CORRECT RULING IS NOT TO DISMISS
THE CASE BUT TO ORDER AMENDMENT.

IV

WHETHER OR NOT THE STATE HS LOST ITS RIGHT TO APPEAL.

WHETHER OR NOT THE MOTION FOR RECONSIDERATION OF UMEZAWA


IS PRO FORMA. [13]
The People of the Philippines filed a separate petition for review on
certiorari, contending that:

1. THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW AND


GRAVE ABUSE OF DISCRETION IN FINDING THAT THE PETITION FOR
MANDAMUS, CERTIORARI AND INJUNCTION WAS FILED OUT OF TIME
AND THAT PETITIONER HAS LOST ITS RIGHT TO APPEAL;

2. THE COURT OF APEALS COMMITTED SERIOUS ERRORS OF LAW IN


RULING THAT NOT ALL THE ELEMENTS OF QUALIFIED THEFT AND
ESTAFA ARE PRESENT;

3. THE COURT OF APPEALS COMMITTED BLATANT AND SERIOUS


ERRORS OF LAW IN FINDING THAT THE SECURITIES AND EXCHANGE
COMMISSION (SEC) HAS JURISDICTION OVER THE SUBJECT CRIMINAL
CASES;

4. THE COURT OF APPEALS COMMITTED SERIOUS ERRORS OF LAW AND


GRAVE ABUSE OF DISCRETION IN GIVING DUE COURSE TO THE PRO-
FORMA MOTION FOR RECONSIDERATION OF UMEZAWA. [14]

The two petitions were consolidated in the Second Division of the Court.
The threshold issues for resolution are the following: (a) whether or not the
petition for certiorari of the People of the Philippines in the CA assailing the
January 29, 1999 Joint Order of the trial court was time-barred; (b) whether the
RTC has jurisdiction over the crimes charged in the said Informations; (c)
whether the Informations sufficiently charge the felonies of qualified theft and
estafa; and (d) if in the affirmative, whether all the elements of qualified theft
and estafa are alleged in the Informations.
On the first issue, the CA held that the Public Prosecutor failed to file a
motion for the reconsideration of the trial courts January 29, 1999 Joint Order
dismissing the cases, that is, within fifteen days from receipt of a copy of the
said order on February 2, 1999; neither did the People appeal the said Order
within the period therefor. Thus, according to the CA, the People filed its petition
for certiorari, prohibition and mandamus assailing the January 29, 1999 Joint
Order of the trial court only on April 26, 1999, well beyond the 60-day period
therefor. The appellate court, likewise, held that the filing of the motion for
reconsideration of the said Joint Order by the private prosecutor without the
conformity of the Public Prosecutor did not toll the period for the People to file
its motion for reconsideration thereof, or to appeal therefrom, or to file a petition
for certiorari, prohibition or mandamus. It ruled that, having lost its right to
appeal in due course, the People was proscribed from filing a petition for
certiorari, prohibition or mandamus. The CA declared that the motion for
reconsideration filed by petitioner MPI of the Joint Order of the RTC is pro
forma, the public prosecutor not having signified his written conformity thereto.
On the other hand, the petitioner People of the Philippines insists that while
the public prosecutor did not expressly conform to the motion for
reconsideration of the January 29, 1999 Joint Order of the trial court filed by the
private prosecutor, through the public prosecutors presence during the hearing
of the said motion, his supervision and control over the private prosecutor
during the said hearing, he in effect adopted and conformed to the said motion
for reconsideration.
In his comment on the petitions, respondent Umezawa maintains that the
motion for reconsideration of the joint order of the trial court filed by the private
prosecutor did not interrupt the period within which the People could appeal,
citing the ruling of this Court in Cabral v. Puno. The respondent posits that the
[15]

finding of the trial court, which was affirmed by the CA, that the public prosecutor
did not conform to the motion for reconsideration of the private prosecutor, is
binding on this Court. The respondent also avers that the petitioner has no
personality to file the petition. Moreover, he insists that whether the public
prosecutor conformed to the private prosecutors motion for reconsideration is a
question of fact which is not proper in a petition for review on certiorari.

The Courts Ruling

The contention of the petitioner People of the Philippines is not correct. All
criminal actions commenced by complaint or information shall be prosecuted
under the direction and control of the public prosecutor. When the civil action
[16]

for civil liability is instituted in the criminal action pursuant to Rule 111 of the
Rules on Criminal Procedure, the offended party may intervene, by counsel, in
the prosecution of the offense. In Ramiscal, Jr. v. Sandiganbayan, we held
[17] [18]

that under Section 16, Rule 110 of the Rules of Criminal Procedure, the
offended party may intervene in the criminal action personally or by counsel,
who will then act as private prosecutor for the protection of his interests and in
the interest of the speedy and inexpensive administration of justice. A separate
action for the purpose would only prove to be costly, burdensome and time-
consuming for both parties and further delay the final disposition of the case.
The multiplicity of suits must be avoided. With the implied institution of the civil
action in the criminal action, the two actions are merged into one composite
proceeding, with the criminal action predominating the civil. The prime purpose
of the criminal action is to punish the offender in order to deter him and others
from committing the same or similar offense, to isolate him from society, reform
and rehabilitate him or, in general, to maintain social order. [19]

The intervention of the private offended party, through counsel, and his
prosecution of the case shall be under the control and supervision of the public
prosecutor until the final termination of the case. A public prosecutor who has
been entrusted by law with the prosecution of criminal cases is duty-bound to
take charge thereof until its final termination, for under the law, he assumes full
responsibility for his failure or success since he is the one more adequately
prepared to pursue it to its termination. The prosecution of offenses is a public
[20]

function. Indeed, the sole purpose of the civil action is the resolution, reparation
or indemnification of the private offended party for the damage or injury he
sustained by reason of the delictual or felonious act of the accused. Under [21]

Article 104 of the Revised Penal Code, the following are the civil liabilities of the
accused:

ART. 104. What is included in civil liability. The civil liability established in Articles
100, 101, 102 and 103 of this Code includes:

1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.

Thus, when the offended party, through counsel, has asserted his right to
intervene in the proceedings, it is error to consider his appearance merely as a
matter of tolerance. [22]

The public prosecutor may turn over the actual prosecution of the criminal
case, in the exercise of his discretion, but he may, at any time, take over the
actual conduct of the trial. However, it is necessary that the public prosecutor
be present at the trial until the final termination of the case; otherwise, if he is
absent, it cannot be gainsaid that the trial is under his supervision and control. [23]

In a criminal case in which the offended party is the State, the interest of the
private complainant or the offended party is limited to the civil liability arising
therefrom. Hence, if a criminal case is dismissed by the trial court or if there is
an acquittal, a reconsideration of the order of dismissal or acquittal may be
undertaken, whenever legally feasible, insofar as the criminal aspect thereof is
concerned and may be made only by the public prosecutor; or in the case of an
appeal, by the State only, through the OSG. The private complainant or
offended party may not undertake such motion for reconsideration or appeal on
the criminal aspect of the case. However, the offended party or private
[24]

complainant may file a motion for reconsideration of such dismissal or acquittal


or appeal therefrom but only insofar as the civil aspect thereof is concerned. In
[25]

so doing, the private complainant or offended party need not secure the
conformity of the public prosecutor. If the court denies his motion for
reconsideration, the private complainant or offended party may appeal or file a
petition for certiorari or mandamus, if grave abuse amounting to excess or lack
of jurisdiction is shown and the aggrieved party has no right of appeal or given
an adequate remedy in the ordinary course of law.
The public and private prosecutors are not precluded, whenever feasible,
from filing a joint motion for the reconsideration of the dismissal of the case or
the acquittal of the accused, on the criminal and civil aspects of the cases.
In the present case, only petitioner MPI, through counsel, filed a motion for
the reconsideration of the trial courts Joint Order dated January 29, 1999,
praying for the reinstatement of the cases insofar as the civil aspect thereof is
concerned. The public prosecutor did not approve nor conform to the said
motion. Although petitioner MPI provided ample space for the said conformity
of the public prosecutor, the latter did not do so; he merely appeared during the
hearing of the said motion with the private prosecutor when the latter presented
his oral arguments in support of the said motion.
The fact that the public prosecutor did not conform to the said motion,
however, does not mean that the same is pro forma. It must be stressed that
the propriety and efficacy of the motion, insofar as the civil aspect of the cases
is concerned, is not dependent upon the conformity of the public prosecutor.
Hence, the filing of the joint motion for reconsideration effectively suspended
the running of the period for petitioner MPI to assail the joint order in the
CA via an appeal or a special civil action for certiorari or mandamus under Rule
65 of the Rules of Court.
However, since the public prosecutor did not file any motion for the
reconsideration of the joint order nor conform to the motion of petitioner MPI,
insofar as the criminal aspect of the cases is concerned, the period for the State
to assail the said joint order was not suspended. Only the motion for
reconsideration filed by the public prosecutor of the joint order of dismissal of
the cases could have tolled the period within which the State could appeal,
insofar as the criminal aspect of the cases was concerned. The bare fact that
the public prosecutor appeared for the State during the hearing of the motion
for reconsideration of petitioner MPI does not amount to or constitute his
adoption of the said motion as that of the State. As ruled by this Court in Cabral
v. Puno:[26]
While it is true that the offended party, Silvino San Diego, through the private
prosecutor, filed a motion for reconsideration within the reglementary fifteen-day
period, such move did not stop the running of the period for appeal. He did not have
the legal personality to appeal or file the motion for reconsideration on his behalf. The
prosecution in a criminal case through the private prosecutor is under the direction
and control of the Fiscal, and only the motion for reconsideration or appeal filed by
the Fiscal could have interrupted the period for appeal.[27]

We agree with the ruling of the CA that the petition for certiorari filed by the
petitioner People of the Philippines with the CA on April 26, 1999 was filed
beyond the 60-day period as provided in Section 4, Rule 65 of the Rules of
Court, it appearing that the public prosecutor received a copy of the joint order
[28]

of the trial court on February 2, 1999, and, thus, had only until April 3, 1999
within which to file the said petition.
Even then, the Court still holds that the CA erred in dismissing the petition
of the People of the Philippines simply because the public prosecutor erred in
not himself filing a motion for reconsideration of the joint order of the trial court,
on his perception that by being present during the hearing of the motion for
reconsideration of petitioner MPI, he thereby adopted the said motion as that of
the States. The settled rule is that the State is not estopped by the mistakes of
its officers and employees. Indeed, in Cruz, Jr. v. Court of Appeals, the Court
[29]

declared:

Estoppel does not lie against the government because of the supposedly mistaken acts
or omissions of its agents. As we declared in People v. Castaeda, there is the long
familiar rule that erroneous application and enforcement of the law by public officers
do not block subsequent correct application of the statute and that the government is
never estopped by mistake or error on the part of its agents.

The Court also held in Chua v. Court of Appeals: [30]

While ordinarily, certiorari is unavailing where the appeal period has lapsed, there are
exceptions. Among them are (a) when public welfare and the advancement of public
policy dictates; (b) when the broader interest of justice so requires; (c) when the writs
issued are null and void; or (d) when the questioned order amounts to an oppressive
exercise of judicial authority.[31]

On the second issue, the petitioners assert that the CA erred in holding that
the dispute between it and the respondent is intra-corporate in nature; hence,
within the exclusive jurisdiction of the SEC. As gleaned from the material
allegations of the Informations, the RTC had exclusive jurisdiction over the
crimes charged. Petitioner MPI further avers that even if there is no allegation
in the Informations identifying it as the owner of the personal properties
described in the Informations, its ownership of the properties can be inferred
from the other allegations. The petitioners maintain that even if the Informations
are deficient, the remedy is the amendment of the Informations and not the
dismissal of the cases.
For his part, the respondent avers that the assailed Resolution of the CA is
correct, and that it is the appellate courts decision which is erroneous.
We agree with the petitioners.
According to Section 20 of B.P. Blg. 129

SEC. 20. Jurisdiction in criminal cases. Regional Trial Courts shall exercise exclusive
original jurisdiction in all criminal cases not within the exclusive jurisdiction of any
court, tribunal or body, except those now falling under the exclusive and concurrent
jurisdiction of the Sandiganbayan which shall hereafter be exclusively taken
cognizance of by the latter.

Section 32 thereof was later amended by Section 2 of Republic Act No.


7691, as follows:

Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in Criminal Cases. Except in cases falling within the
exclusive original jurisdiction of the Regional Trial Court and of the Sandiganbayan,
the Metropolitan Trial Courts, and Municipal Circuit Trial Courts shall exercise:

(1) Exclusive original jurisdiction over all violations of city or municipal ordinances
committed within their respective territorial jurisdiction; and

(2) Exclusive original jurisdiction over all offenses punishable with imprisonment not
exceeding six (6) years irrespective of the amount of fine, and regardless of other
imposable accessory or other penalties, including the civil liability arising from such
offenses or predicated thereon, irrespective of kind, nature, value or amount thereof:
Provided, however, That in offenses involving damage to property through criminal
negligence, they shall have exclusive original jurisdiction thereof.

Case law has it that in order to determine the jurisdiction of the court in
criminal cases, the complaint or Information must be examined for the purpose
of ascertaining whether or not the facts set out therein and the prescribed period
provided for by law are within the jurisdiction of the court, and where the said
Information or complaint is filed. It is settled that the jurisdiction of the court in
criminal cases is determined by the allegations of the complaint or Information
and not by the findings based on the evidence of the court after
trial. Jurisdiction is conferred only by the Constitution or by the law in force at
[32]

the time of the filing of the Information or complaint. Once jurisdiction is vested
in the court, it is retained up to the end of the litigation. Indeed, in People v.
Purisima, this Court held that:
[33]

In criminal prosecutions, it is settled that the jurisdiction of the court is not determined
by what may be meted out to the offender after trial or even by the result of the
evidence that would be presented at the trial, but by the extent of the penalty which the
law imposes for the misdemeanor, crime or violation charged in the complaint. If the
facts recited in the complaint and the punishment provided for by law are sufficient to
show that the court in which the complaint is presented has jurisdiction, that court
must assume jurisdiction.

In Criminal Case No. 013231-L, the value of the properties subject of


qualified theft is P3,219,875.00, while in Criminal Case No. 013423-L, the value
of the property was pegged at P255,000.00. Under Article 309 of the Revised
Penal Code, the penalty for theft when the value of the stolen property
exceeds P22,000.00 is as follows:

1. The penalty of prision mayor in its minimum and medium periods, if the value of
the thing stolen is more than 12,000 pesos but does not exceed 20,000 pesos; but if the
value of the thing stolen exceeds the latter amount, the penalty shall be the maximum
period of the one prescribed in this paragraph and one year of each additional ten
thousand pesos, but the total of the penalty which may be imposed shall not exceed
twenty years. In such cases, and in connection with the accessory penalties which may
be imposed and for the purpose of the other provisions of this Code, the penalty shall
be termed prision mayor or reclusion temporal, as the case may be.

Article 310 of the Revised Penal Code further provides for the penalty for
qualified theft:

Art. 310. Qualified theft. The crime of theft shall be punished by the penalties next
higher by two degrees than those respectively specified in the next preceding article, if
committed by a domestic servant, or with grave abuse of confidence, or if the property
stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from
the premises of a plantation, fish taken from a fishpond or fishery or if property is
taken on the occasion of fire, earthquake, typhoon, volcanic eruption, or any other
calamity, vehicular accident or civil disturbance.
On the other hand, in Criminal Case No. 013424-L for estafa, the amount of
the fraud involved is P500,000.00, and under Article 315 of the Revised Penal
Code, the penalty for such crime is

1st. The penalty of prision correccional in its maximum period to prision mayor in its
minimum period, if the amount of the fraud is over 12,000 pesos but does not exceed
22,000 pesos; and if such amount exceeds the latter sum, the penalty provided in this
paragraph shall be imposed in its maximum period, adding one year for each
additional 10,000 pesos; but the total penalty which may be imposed shall not exceed
twenty years. In such cases, and in connection with the accessory penalties which may
be imposed and for the purpose of the other provisions of this Code, the penalty shall
be termed prision mayor or reclusion temporal, as the case may be.

Patently, then, based on the material allegations of the Informations in the


three cases, the court a quo had exclusive jurisdiction over the crimes charged.
The bare fact that the respondent was the president and general manager
of the petitioner corporation when the crimes charged were allegedly committed
and was then a stockholder thereof does not in itself deprive the court a quo of
its exclusive jurisdiction over the crimes charged. The property of the
corporation is not the property of the stockholders or members or of its officers
who are stockholders. As the Court held in an avuncular case:
[34] [35]

... Properties registered in the name of the corporation are owned by it as an entity
separate and distinct from its members. While shares of stock constitute personal
property, they do not represent property of the corporation. The corporation has
property of its own which consists chiefly of real estate (Nelson v. Owen, 113 Ala.,
372, 21 So. 75; Morrow v. Gould, 145 Iowa, 1, 123 N.W. 743). A share of stock only
typifies an aliquot part of the corporations property, or the right to share in its
proceeds to that extent when distributed according to law and equity (Hall & Faley v.
Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the owner of any
part of the capital of the corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he
entitled to the possession of any definite portion of its property or assets (Gottfried v.
Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474). The stockholder is not a co-
owner or tenant in common of the corporate property (Harton v. Johnston, 166 Ala.,
317, 51 So., 992) [36]

As early as the case of Fisher v. Trinidad, the Court already declared that
[37]

[t]he distinction between the title of a corporation, and the interest of its
members or stockholders in the property of the corporation, is familiar and well-
settled. The ownership of that property is in the corporation, and not in the
holders of shares of its stock. The interest of each stockholder consists in the
right to a proportionate part of the profits whenever dividends are declared by
the corporation, during its existence, under its charter, and to a like proportion
of the property remaining, upon the termination or dissolution of the corporation,
after payment of its debts. [38]

We also agree with the ruling of the CA in its decision that the SEC (now
the Regional Trial Court) had no jurisdiction over the cases filed in the court a
quo. The appellate courts reliance in the assailed Resolution issued by the
Board of Directors of the petitioner corporation, on Section 5(b) of P.D. No. 902,
has no factual and legal basis.
Section 5 of P.D. No. 902-A provides that the SEC shall have original and
[39]

exclusive jurisdiction to hear and decide cases involving the following:

(a) devices or schemes employed by, or any acts of, the board of directors, business
associates, its officers or partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the stockholders, partners,
members of association or organizations registered with the Commission, and

(b) controversies arising out of intra-corporate or partnership relations, between and


among stockholders, members or associates; between any or all of them and the
corporation, partnership or association of which they are stockholders, members or
associates, respectively.

In Fabia v. Court of Appeals, the Court explained that Section 5 of P.D.


[40]

No. 902-A should be taken in conjunction with Section 6 of the law. It then
proceeded to explain:

In synthesis, Sec. 5 of PD 902-A mandates that cases involving fraudulent actions and
devices which are detrimental to the interest of stockholders, members or associates
and directors of the corporation are within the original and exclusive jurisdiction of
the SEC. Taken in conjunction with Sec. 6 of the same law, it will be gathered that the
fraudulent acts/schemes which the SEC shall exclusively investigate and prosecute are
those in violation of any law or rules and regulations administered and enforced by the
Commission alone. This investigative and prosecutorial powers of the SEC are further
without prejudice to any liability for violation of any provision of The Revised Penal
Code.

From the foregoing, it can thus be concluded that the filing of the civil/intra-corporate
case before the SEC does not preclude the simultaneous and concomitant filing of a
criminal action before the regular courts; such that, a fraudulent act may give rise to
liability for violation of the rules and regulations of the SEC cognizable by the SEC
itself, as well as criminal liability for violation of the Revised Penal Code cognizable
by the regular courts, both charges to be filed and proceeded independently, and may
be simultaneously with the other. [41]

Thus, the filing of a petition in the SEC for the nullification of the Resolution
of May 2, 1995 issued by the Chairman and two members of the Board of
Directors of petitioner MPI, which authorized the filing of criminal cases against
respondent Umezawa, was not a bar to his prosecution for estafa and qualified
theft for his alleged fraudulent and delictual acts. The relationship of the party-
litigants with each other or the position held by petitioner as a corporate officer
in respondent MPI during the time he committed the crime becomes merely
incidental and holds no bearing on jurisdiction. What is essential is that the
fraudulent acts are likewise of a criminal nature and hence cognizable by the
regular courts. Thus, notwithstanding the fact that respondent Umezawa was
[42]

the president and general manager of petitioner MPI and a stockholder thereof,
the latter may still be prosecuted for the crimes charged. The alleged fraudulent
acts of respondent Umezawa in this case constitute the element of abuse of
confidence, deceit or fraudulent means, and damage under Article 315 of the
Revised Penal Code on estafa. [43]

We agree with the encompassing disquisitions of the CA in its decision, to


wit:

A dispute involving the corporation and its stockholders is not necessarily an intra-
corporate dispute cognizable only by the Securities and Exchange Commission. Nor
does it ipso facto negate the jurisdiction of the Regional Trial Court over the subject
cases. The Supreme Court citing the case of Viray v. Court of Appeals (G.R. No.
92481, 191 SCRA 308 [1990]) in Torio v. Court of Appeals (G.R. No. 107293, March
2, 1994, 230 SCRA 626) held:

It should be obvious that not every conflict between a corporation and its stockholders
involves corporate matters that only the SEC can resolve in the exercise of its
adjudicatory or quasi-judicial powers.

As the Supreme Court further ruled in the Torio case that a contrary interpretation
would distort the meaning and intent of P.D. 902-A, the law re-organizing the
Securities and Exchange Commission. The better policy in determining which body
has jurisdiction over a case would be to consider not only the relationship of the
parties but also the nature of the questions raised in the subject of the controversy.
[44]

On the last issue, we find and so hold that the Informations state all the
essential elements of estafa and qualified theft. It was adequately alleged that
respondent Umezawa, being the President and General Manager of petitioner
MPI, stole and misappropriated the properties of his employer, more
specifically, petitioner MPI. As expostulated by the CA in its decision:

In any event, the allegations in the informations, if hypothetically admitted, are


sufficient to bind Umezawa to the charges of qualified theft and estafa. As aptly ruled
by the court a quo in its Order of July 25, 1995, all the elements of the offense of
qualified theft are present. There is no basis for claiming otherwise. Furthermore, the
private offended party, as well as the subject matter of the felonious taking and the
ownership thereof, have been adequately indicated or identified leaving no room for
any doubt on these matters. Considering that the motions to quash of September 30,
1998 are fundamentally rehash of the motion to quash filed on May 29, 1995 and the
culpable acts subject of the new informations are virtually the same as the first
information filed against Umezawa, there is no conceivable reason why the court a
quo abandoned its previous stand and controverted itself in regard the sufficiency of
the informations.

In our considered view, and as the court a quo had correctly held in its Order of May
26, 1996, even a SEC ruling voiding the resolution authorizing the filing of criminal
charges versus the accused Hajime Umezawa can have no bearing on the validity of
the informations filed in these three criminal cases as pointed out by private
complainant, the public offenses of qualified theft and estafa can [be] prosecuted de
officio. The resolution of the office of the prosecutor on the preliminary investigation
as well as the re-investigation conducted on the letter-complaint filed by private
complainant company sufficiently established prima facie case against the accused
and the legality or illegality of the constitution of the board which authorized the
filing of the complaint does not materially affect either the informations filed against
Umezawa or the pending criminal proceedings. As petitioners contend, the action is
now between the People of the Philippines and herein private respondent. [45]

IN LIGHT OF ALL THE FOREGOING, the petitions are GRANTED. The


Resolution of the Court of Appeals in CA-G.R. SP No. 52440 dated August 8,
2001 is REVERSED and SET ASIDE. The Decision of the Court of Appeals
dated September 2, 1999 is AFFIRMED.
SO ORDERED.
[G.R. No. 124293. January 31, 2005]

J.G. SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS;


COMMITTEE ON PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS,
INC., respondents.

RESOLUTION
PUNO, J.:

For resolution before this Court are two motions filed by the petitioner, J.G.
Summit Holdings, Inc. for reconsideration of our Resolution dated September
24, 2003 and to elevate this case to the Court En Banc. The petitioner questions
the Resolution which reversed our Decision of November 20, 2000, which in
turn reversed and set aside a Decision of the Court of Appeals promulgated on
July 18, 1995.

I. Facts

The undisputed facts of the case, as set forth in our Resolution of


September 24, 2003, are as follows:

On January 27, 1997, the National Investment and Development Corporation (NIDC),
a government corporation, entered into a Joint Venture Agreement (JVA) with
Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction,
operation and management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering Corporation
(PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330
million for the capitalization of PHILSECO in the proportion of 60%-40%
respectively. One of its salient features is the grant to the parties of the right of first
refusal should either of them decide to sell, assign or transfer its interest in the joint
venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[PHILSECO] to any third party without giving the other under the same terms the
right of first refusal. This provision shall not apply if the transferee is a corporation
owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.
On November 25, 1986, NIDC transferred all its rights, title and interest in
PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently
transferred to the National Government pursuant to Administrative Order No. 14. On
December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50
establishing the Committee on Privatization (COP) and the Asset Privatization Trust
(APT) to take title to, and possession of, conserve, manage and dispose of non-
performing assets of the National Government. Thereafter, on February 27, 1987, a
trust agreement was entered into between the National Government and the APT
wherein the latter was named the trustee of the National Government's share in
PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its
huge obligations to PNB, the National Government's shareholdings in PHILSECO
increased to 97.41% thereby reducing KAWASAKI's shareholdings to 2.59%.

In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Government's share in PHILSECO to private
entities. After a series of negotiations between the APT and KAWASAKI, they agreed
that the latter's right of first refusal under the JVA be "exchanged" for the right to top
by five percent (5%) the highest bid for the said shares. They further agreed that
KAWASAKI would be entitled to name a company in which it was a stockholder,
which could exercise the right to top. On September 7, 1990, KAWASAKI informed
APT that Philyards Holdings, Inc. (PHI)[1] would exercise its right to top.

At the pre-bidding conference held on September 18, 1993, interested bidders were
given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific
Bidding Rules (ASBR) drafted for the National Government's 87.6% equity share in
PHILSECO. The provisions of the ASBR were explained to the interested bidders
who were notified that the bidding would be held on December 2, 1993. A portion of
the ASBR reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is
the National Government's equity in PHILSECO consisting of 896,869,942 shares of
stock (representing 87.67% of PHILSECO's outstanding capital stock), which will be
sold as a whole block in accordance with the rules herein enumerated.

xxx xxx xxx

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both
the APT Board of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative
price set for the National Government's 87.67% equity in PHILSECO is PESOS: ONE
BILLION THREE HUNDRED MILLION (P1,300,000,000.00).

xxx xxx xxx

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its
regular meeting following the bidding, for the purpose of determining whether or not
it should be endorsed by the APT Board of Trustees to the COP, and the latter
approves the same. The APT shall advise Kawasaki Heavy Industries, Inc. and/or its
nominee, [PHILYARDS] Holdings, Inc., that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of
receipt of such advice from APT within which to exercise their "Option to Top the
Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent
thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc.
exercise their "Option to Top the Highest Bid," they shall so notify the APT about
such exercise of their option and deposit with APT the amount equivalent to ten
percent (10%) of the highest bid plus five percent (5%) thereof within the thirty (30)-
day period mentioned in paragraph 6.0 above. APT will then serve notice upon
Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. declaring them
as the preferred bidder and they shall have a period of ninety (90) days from the
receipt of the APT's notice within which to pay the balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail
to exercise their "Option to Top the Highest Bid" within the thirty (30)-day period,
APT will declare the highest bidder as the winning bidder.

xxx xxx xxx

12.0 The bidder shall be solely responsible for examining with appropriate care these
rules, the official bid forms, including any addenda or amendments thereto issued
during the bidding period. The bidder shall likewise be responsible for informing
itself with respect to any and all conditions concerning the PHILSECO Shares which
may, in any manner, affect the bidder's proposal. Failure on the part of the bidder to so
examine and inform itself shall be its sole risk and no relief for error or omission will
be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings,
Inc.[2] submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00)
with an acknowledgment of KAWASAKI/[PHILYARDS'] right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30)
days to act on APT's recommendation based on the result of this bidding. Should the
COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc.
and/or its nominee, [PHILYARDS] Holdings, Inc. that the highest bid is acceptable to
the National Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS]
Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of
receipt of such advice from APT within which to exercise their "Option to Top the
Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent
thereof.

As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 "subject to the right of Kawasaki Heavy Industries,
Inc./[PHILYARDS] Holdings, Inc. to top JGSMI's bid by 5% as specified in the
bidding rules."

On December 29, 1993, petitioner informed APT that it was protesting the offer of
PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed
of KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life
violated the ASBR because the last four (4) companies were the losing bidders
thereby circumventing the law and prejudicing the weak winning bidder; (b) only
KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI
constituted unwarranted benefit to a third party; (d) no right of first refusal can be
exercised in a public bidding or auction sale; and (e) the JG Summit consortium was
not estopped from questioning the proceedings.

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified
petitioner that PHI had exercised its option to top the highest bid and that the COP had
approved the same on January 6, 1994. On February 24, 1994, the APT and PHI
executed a Stock Purchase Agreement. Consequently, petitioner filed with this Court
a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was
referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the
same for lack of merit. It ruled that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of the right of first refusal and the
right to top that was exercised by KAWASAKI/PHI, and that the matter must be
brought "by the proper party in the proper forum at the proper time and threshed out
in a full blown trial." The Court of Appeals further ruled that the right of first refusal
and the right to top are prima facie legal and that the petitioner, "by participating in
the public bidding, with full knowledge of the right to top granted to
KAWASAKI/[PHILYARDS] isestopped from questioning the validity of the award
given to [PHILYARDS] after the latter exercised the right to top and had paid in full
the purchase price of the subject shares, pursuant to the ASBR." Petitioner filed a
Motion for Reconsideration of said Decision which was denied on March 15, 1996.
Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of
discretion on the part of the appellate court.

On November 20, 2000, this Court rendered x x x [a] Decision ruling among others
that the Court of Appeals erred when it dismissed the petition on the sole ground of
the impropriety of the special civil action of mandamus because the petition was also
one of certiorari. It further ruled that a shipyard like PHILSECO is a public utility
whose capitalization must be sixty percent (60%) Filipino-owned. Consequently, the
right to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR)
drafted for the sale of the 87.67% equity of the National Government in PHILSECO is
illegal not only because it violates the rules on competitive bidding but more so,
because it allows foreign corporations to own more than 40% equity in the shipyard. It
also held that "although the petitioner had the opportunity to examine the ASBR
before it participated in the bidding, it cannot be estopped from questioning the
unconstitutional, illegal and inequitable provisions thereof." Thus, this Court voided
the transfer of the national government's 87.67% share in PHILSECO to Philyard[s]
Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title
to the said shares, viz:

WHEREFORE, the instant petition for review on certiorari is GRANTED. The


assailed Decision and Resolution of the Court of Appeals are REVERSED and SET
ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million
Pesos (P2,030,000,000.00), less its bid deposit plus interests upon the finality of this
Decision. In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests
from petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks


representing 87.6% of PHILSECO's total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One
Hundred Thirty-One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.

In separate Motions for Reconsideration, respondents submit[ted] three basic issues


for x x x resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the
1977 JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the
total capitalization of PHILSECO; and (3) Whether the right to top granted to
KAWASAKI violates the principles of competitive bidding.[3] (citations omitted)

In a Resolution dated September 24, 2003, this Court ruled in favor of the
respondents. On the first issue, we held that Philippine Shipyard and
Engineering Corporation (PHILSECO) is not a public utility, as by nature, a
shipyard is not a public utility[4] and that no law declares a shipyard to be a public
utility.[5] On the second issue, we found nothing in the 1977 Joint Venture
Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (KAWASAKI) from acquiring more than 40% of PHILSECOs total
capitalization.[6] On the final issue, we held that the right to top granted to
KAWASAKI in exchange for its right of first refusal did not violate the principles
of competitive bidding.[7]
On October 20, 2003, the petitioner filed a Motion for Reconsideration[8] and
a Motion to Elevate This Case to the Court En Banc.[9] Public respondents
Committee on Privatization (COP) and Asset Privatization Trust (APT), and
private respondent Philyards Holdings, Inc. (PHILYARDS) filed their Comments
on J.G. Summit Holdings, Inc.s (JG Summits) Motion for Reconsideration and
Motion to Elevate This Case to the Court En Banc on January 29, 2004 and
February 3, 2004, respectively.

II. Issues

Based on the foregoing, the relevant issues to resolve to end this litigation
are the following:
1. Whether there are sufficient bases to elevate the case at bar to the
Court en banc.
2. Whether the motion for reconsideration raises any new matter or cogent
reason to warrant a reconsideration of this Courts Resolution of September 24,
2003.

Motion to Elevate this Case to the


Court En Banc

The petitioner prays for the elevation of the case to the Court en banc on
the following grounds:
1. The main issue of the propriety of the bidding process involved in the
present case has been confused with the policy issue of the supposed fate of
the shipping industry which has never been an issue that is determinative of
this case.[10]
2. The present case may be considered under the Supreme Court
Resolution dated February 23, 1984 which included among en banc cases
those involving a novel question of law and those where a doctrine or principle
laid down by the Court en banc or in division may be modified or reversed.[11]
3. There was clear executive interference in the judicial functions of the
Court when the Honorable Jose Isidro Camacho, Secretary of Finance,
forwarded to Chief Justice Davide, a memorandum dated November 5, 2001,
attaching a copy of the Foreign Chambers Report dated October 17, 2001,
which matter was placed in the agenda of the Court and noted by it in a formal
resolution dated November 28, 2001.[12]
Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS
points out the petitioners inconsistency in previously opposing PHILYARDS
Motion to Refer the Case to the Court En Banc. PHILYARDS contends that J.G.
Summit should now be estopped from asking that the case be referred to the
Court en banc. PHILYARDS further contends that the Supreme Court en
banc is not an appellate court to which decisions or resolutions of its divisions
may be appealed citing Supreme Court Circular No. 2-89 dated February 7,
1989.[13] PHILYARDS also alleges that there is no novel question of law
involved in the present case as the assailed Resolution was based on well-
settled jurisprudence. Likewise, PHILYARDS stresses that the Resolution was
merely an outcome of the motions for reconsideration filed by it and the COP
and APT and is consistent with the inherent power of courts to amend and
control its process and orders so as to make them conformable to law and
justice. (Rule 135, sec. 5)[14] Private respondent belittles the petitioners
allegations regarding the change in ponente and the alleged executive
interference as shown by former Secretary of Finance Jose Isidro Camachos
memorandum dated November 5, 2001 arguing that these do not justify a
referral of the present case to the Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should
be granted, J.G. Summit further argued that: its Opposition to the Office of the
Solicitor Generals Motion to Refer is different from its own Motion to Elevate;
different grounds are invoked by the two motions; there was unwarranted
executive interference; and the change in ponente is merely noted in asserting
that this case should be decided by the Court en banc.[15]
We find no merit in petitioners contention that the propriety of the bidding
process involved in the present case has been confused with the policy issue
of the fate of the shipping industry which, petitioner maintains, has never been
an issue that is determinative of this case. The Courts Resolution of September
24, 2003 reveals a clear and definitive ruling on the propriety of the bidding
process. In discussing whether the right to top granted to KAWASAKI in
exchange for its right of first refusal violates the principles of competitive
bidding, we made an exhaustive discourse on the rules and principles of public
bidding and whether they were complied with in the case at bar.[16] This Court
categorically ruled on the petitioners argument that PHILSECO, as a shipyard,
is a public utility which should maintain a 60%-40% Filipino-foreign equity ratio,
as it was a pivotal issue. In doing so, we recognized the impact of our ruling on
the shipbuilding industry which was beyond avoidance.[17]
We reject petitioners argument that the present case may be considered
under the Supreme Court Resolution dated February 23, 1984 which included
among en banc cases those involving a novel question of law and those where
a doctrine or principle laid down by the court en banc or in division may be
modified or reversed. The case was resolved based on basic principles of the
right of first refusal in commercial law and estoppel in civil law. Contractual
obligations arising from rights of first refusal are not new in this jurisdiction and
have been recognized in numerous cases.[18] Estoppel is too known a civil law
concept to require an elongated discussion. Fundamental principles on public
bidding were likewise used to resolve the issues raised by the petitioner. To be
sure, petitioner leans on the right to top in a public bidding in arguing that the
case at bar involves a novel issue. We are not swayed. The right to top was
merely a condition or a reservation made in the bidding rules which was fully
disclosed to all bidding parties. In Bureau Veritas, represented by Theodor
H. Hunermann v. Office of the President, et al., [19]we dealt with this
conditionality, viz:

x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al.,
(L-18751, 28 April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a
condition imposed upon the bidders to the effect that the bidding shall be subject
to the right of the government to reject any and all bids subject to its discretion.
In the case at bar, the government has made its choice and unless an unfairness
or injustice is shown, the losing bidders have no cause to complain nor right to
dispute that choice. This is a well-settled doctrine in this jurisdiction and
elsewhere."

The discretion to accept or reject a bid and award contracts is vested in the
Government agencies entrusted with that function. The discretion given to the
authorities on this matter is of such wide latitude that the Courts will not interfere
therewith, unless it is apparent that it is used as a shield to a fraudulent award
(Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise of this discretion is a
policy decision that necessitates prior inquiry, investigation, comparison, evaluation,
and deliberation. This task can best be discharged by the Government agencies
concerned, not by the Courts. The role of the Courts is to ascertain whether a branch
or instrumentality of the Government has transgressed its constitutional boundaries.
But the Courts will not interfere with executive or legislative discretion exercised
within those boundaries. Otherwise, it strays into the realm of policy decision-making.

It is only upon a clear showing of grave abuse of discretion that the Courts will set
aside the award of a contract made by a government entity. Grave abuse of discretion
implies a capricious, arbitrary and whimsical exercise of power (Filinvest Credit
Corp. v. Intermediate Appellate Court, No. 65935, 30 September 1988, 166 SCRA
155). The abuse of discretion must be so patent and gross as to amount to an evasion
of positive duty or to a virtual refusal to perform a duty enjoined by law, as to act at
all in contemplation of law, where the power is exercised in an arbitrary and despotic
manner by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et
al[.], L-40867, 26 July 1988, 163 SCRA 489).

The facts in this case do not indicate any such grave abuse of discretion on the part of
public respondents when they awarded the CISS contract to Respondent SGS. In the
"Invitation to Prequalify and Bid" (Annex "C," supra), the CISS Committee made an
express reservation of the right of the Government to "reject any or all bids or
any part thereof or waive any defects contained thereon and accept an offer most
advantageous to the Government." It is a well-settled rule that where such
reservation is made in an Invitation to Bid, the highest or lowest bidder, as the
case may be, is not entitled to an award as a matter of right (C & C Commercial
Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or
any Bid may be rejected or, in the exercise of sound discretion, the award may be
made to another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra,
citing 43 Am. Jur., 788). (emphases supplied)

Like the condition in the Bureau Veritas case, the right to top was a condition
imposed by the government in the bidding rules which was made known to all
parties. It was a condition imposed on all bidders equally, based on the
APTs exercise of its discretion in deciding on how best to privatize the
governments shares in PHILSECO. It was not a whimsical or arbitrary
condition plucked from the ether and inserted in the bidding rules but a condition
which the APT approved as the best way the government could comply with its
contractual obligations to KAWASAKI under the JVA and its mandate of getting
the most advantageous deal for the government. The right to top had its history
in the mutual right of first refusal in the JVA and was reached by agreement of
the government and KAWASAKI.
Further, there is no executive interference in the functions of this Court by
the mere filing of a memorandum by Secretary of Finance Jose Isidro Camacho.
The memorandum was merely noted to acknowledge its filing. It had no further
legal significance. Notably too, the assailed Resolution dated September 24,
2003 was decided unanimously by the Special First Division in favor of
the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the
Supreme Court[20] and the Court en banc is not an appellate court to which
decisions or resolutions of a Division may be appealed.[21]
For all the foregoing reasons, we find no basis to elevate this case to the
Court en banc.

Motion for Reconsideration

Three principal arguments were raised in the petitioners Motion for


Reconsideration. First, that a fair resolution of the case should be based on
contract law, not on policy considerations; the contracts do not authorize the
right to top to be derived from the right of first refusal.[22] Second, that neither
the right of first refusal nor the right to top can be legally exercised by the
consortium which is not the proper party granted such right under either the JVA
or the Asset Specific Bidding Rules (ASBR).[23] Third, that the maintenance of
the 60%-40% relationship between the National Investment and Development
Corporation (NIDC) and KAWASAKI arises from contract and from the
Constitution because PHILSECO is a landholding corporation and need not be
a public utility to be bound by the 60%-40% constitutional limitation.[24]
On the other hand, private respondent PHILYARDS asserts that J.G.
Summit has not been able to show compelling reasons to warrant a
reconsideration of the Decision of the Court.[25] PHILYARDS denies that the
Decision is based mainly on policy considerations and points out that it is
premised on principles governing obligations and contracts and corporate law
such as the rule requiring respect for contractual stipulations, upholding rights
of first refusal, and recognizing the assignable nature of contracts
rights.[26] Also, the ruling that shipyards are not public utilities relies on
established case law and fundamental rules of statutory construction.
PHILYARDS stresses that KAWASAKIs right of first refusal or even the right to
top is not limited to the 40% equity of the latter.[27] On the landholding issue
raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue and
even involves a question of fact. Even assuming that this Court can take
cognizance of such question of fact even without the benefit of a trial,
PHILYARDS opines that landholding by PHILSECO at the time of the bidding
is irrelevant because what is essential is that ultimately a qualified entity would
eventually hold PHILSECOs real estate properties.[28] Further, given the
assignable nature of the right of first refusal, any applicable nationality
restrictions, including landholding limitations, would not affect the right of first
refusal itself, but only the manner of its exercise.[29] Also, PHILYARDS argues
that if this Court takes cognizance of J.G. Summits allegations of fact regarding
PHILSECOs landholding, it must also recognize PHILYARDS assertions that
PHILSECOs landholdings were sold to another corporation.[30] As regards the
right of first refusal, private respondent explains that KAWASAKIs reduced
shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of
its contractually granted right of first refusal.[31] Also, the bidding was valid
because PHILYARDS exercised the right to top and it was of no moment that
losing bidders later joined PHILYARDS in raising the purchase price.[32]
In cadence with the private respondent PHILYARDS, public respondents
COP and APT contend:
1. The conversion of the right of first refusal into a right to top by 5% does
not violate any provision in the JVA between NIDC and KAWASAKI.
2. PHILSECO is not a public utility and therefore not governed by the
constitutional restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the
proceedings of the public bidding as it voluntarily submitted itself to the terms
of the ASBR which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of
KAWASAKI and the fact that PHILYARDS formed a consortium to raise the
required amount to exercise the right to top the highest bid by 5% does not
violate the JVA or the ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the
acquisition of lands does not apply to PHILSECO because as admitted by
petitioner itself, PHILSECO no longer owns real property.
6. Petitioners motion to elevate the case to the Court en banc is baseless
and would only delay the termination of this case.[33]
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered
the arguments of the public and private respondents in this wise:

1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with


losing bidders through the exercise of a right to top, which is contrary to law
and the constitution is null and void for being violative of substantive due
process and the abuse of right provision in the Civil Code.

a. The bidders[] right to top was actually exercised by losing bidders.

b. The right to top or the right of first refusal cannot co-exist with a genuine
competitive bidding.

c. The benefits derived from the right to top were unwarranted.

2. The landholding issue has been a legitimate issue since the start of this case but
is shamelessly ignored by the respondents.

a. The landholding issue is not a non-issue.

b. The landholding issue does not pose questions of fact.

c. That PHILSECO owned land at the time that the right of first refusal was
agreed upon and at the time of the bidding are most relevant.

d. Whether a shipyard is a public utility is not the core issue in this case.

3. Fraud and bad faith attend the alleged conversion of an inexistent right of first
refusal to the right to top.

a. The history behind the birth of the right to top shows fraud and bad faith.

b. The right of first refusal was, indeed, effectively useless.

4. Petitioner is not legally estopped to challenge the right to top in this case.

a. Estoppel is unavailing as it would stamp validity to an act that is prohibited


by law or against public policy.

b. Deception was patent; the right to top was an attractive nuisance.


c. The 10% bid deposit was placed in escrow.

J.G. Summits insistence that the right to top cannot be sourced from the
right of first refusal is not new and we have already ruled on the issue in our
Resolution of September 24, 2003. We upheld the mutual right of first refusal in
the JVA.[34] We also ruled that nothing in the JVA prevents KAWASAKI from
acquiring more than 40% of PHILSECOs total capitalization.[35]Likewise,
nothing in the JVA or ASBR bars the conversion of the right of first refusal to
the right to top. In sum, nothing new and of significance in the petitioners
pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first
refusal nor the right to top can legally be exercised by the consortium which is
not the proper party granted such right under either the JVA or the ASBR. Thus,
we held:

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group,
Insular Life Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's
effort to raise P2.131 billion necessary in exercising the right to top is not contrary to
law, public policy or public morals. There is nothing in the ASBR that bars the losing
bidders from joining either the winning bidder (should the right to top is not
exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise
the purchase price. The petitioner did not allege, nor was it shown by competent
evidence, that the participation of the losing bidders in the public bidding was done
with fraudulent intent. Absent any proof of fraud, the formation by [PHILYARDS] of
a consortium is legitimate in a free enterprise system. The appellate court is thus
correct in holding the petitioner estopped from questioning the validity of the transfer
of the National Government's shares in PHILSECO to respondent.[36]

Further, we see no inherent illegality on PHILYARDS act in seeking funding


from parties who were losing bidders. This is a purely commercial decision over
which the State should not interfere absent any legal infirmity. It is emphasized
that the case at bar involves the disposition of shares in a corporation which the
government sought to privatize. As such, the persons with whom PHILYARDS
desired to enter into business with in order to raise funds to purchase the shares
are basically its business. This is in contrast to a case involving a contract for
the operation of or construction of a government infrastructure where the
identity of the buyer/bidder or financier constitutes an important consideration.
In such cases, the government would have to take utmost precaution to protect
public interest by ensuring that the parties with which it is contracting have the
ability to satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a
landholding company, KAWASAKI could exercise its right of first refusal only
up to 40% of the shares of PHILSECO due to the constitutional prohibition on
landholding by corporations with more than 40% foreign-owned equity. It further
argues that since KAWASAKI already held at least 40% equity in PHILSECO,
the right of first refusal was inutile and as such, could not subsequently be
converted into the right to top. [37] Petitioner also asserts that, at present,
PHILSECO continues to violate the constitutional provision on landholdings as
its shares are more than 40% foreign-owned.[38] PHILYARDS admits that it may
have previously held land but had already divested such landholdings.[39] It
contends, however, that even if PHILSECO owned land, this would not affect
the right of first refusal but only the exercise thereof. If the land is retained, the
right of first refusal, being a property right, could be assigned to a qualified party.
In the alternative, the land could be divested before the exercise of the right of
first refusal. In the case at bar, respondents assert that since the right of first
refusal was validly converted into a right to top, which was exercised not by
KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of its
shares are owned by Filipinos), then there is no violation of the
Constitution.[40] At first, it would seem that questions of fact beyond cognizance
by this Court were involved in the issue. However, the records show
that PHILYARDS admits it had owned land up until the time of the
bidding.[41] Hence, the only issue is whether KAWASAKI had a valid right
of first refusal over PHILSECO shares under the JVA considering that
PHILSECO owned land until the time of the bidding and KAWASAKI
already held 40% of PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the JVA
between KAWASAKI and NIDC. First of all, the right of first refusal is a property
right of PHILSECO shareholders, KAWASAKI and NIDC, under the terms of
their JVA. This right allows them to purchase the shares of their co-shareholder
before they are offered to a third party. The agreement of co-shareholders to
mutually grant this right to each other, by itself, does not constitute a
violation of the provisions of the Constitution limiting land ownership to
Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if
PHILSECO still owns land, the right of first refusal can be validly assigned to a
qualified Filipino entity in order to maintain the 60%-40% ratio. This transfer, by
itself, does not amount to a violation of the Anti-Dummy Laws, absent proof of
any fraudulent intent. The transfer could be made either to a nominee or such
other party which the holder of the right of first refusal feels it can comfortably
do business with. Alternatively, PHILSECO may divest of its landholdings, in
which case KAWASAKI, in exercising its right of first refusal, can exceed 40%
of PHILSECOs equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the
foreign stockholders ownership of the shares which is adversely affected
but the capacity of the corporation to own land that is, the corporation
becomes disqualified to own land. This finds support under the basic corporate
law principle that the corporation and its stockholders are separate juridical
entities. In this vein, the right of first refusal over shares pertains to the
shareholders whereas the capacity to own land pertains to the corporation.
Hence, the fact that PHILSECO owns land cannot deprive stockholders of their
right of first refusal. No law disqualifies a person from purchasing shares in
a landholding corporation even if the latter will exceed the allowed foreign
equity, what the law disqualifies is the corporation from owning land. This
is the clear import of the following provisions in the Constitution:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora
and fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may
enter into co-production, joint venture, or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five years, and
under such terms and conditions as may be provided by law. In cases of water rights
for irrigation, water supply, fisheries, or industrial uses other than the development of
water power, beneficial use may be the measure and limit of the grant.

xxx xxx xxx

Section 7. Save in cases of hereditary succession, no private lands shall be


transferred or conveyed except to individuals, corporations, or associations
qualified to acquire or hold lands of the public domain.[42] (emphases supplied)

The petitioner further argues that an option to buy land is void in itself
(Philippine Banking Corporation v. Lui She, 21 SCRA 52 [1967]). The right of
first refusal granted to KAWASAKI, a Japanese corporation, is similarly void.
Hence, the right to top, sourced from the right of first refusal, is also
void.[43] Contrary to the contention of petitioner, the case of Lui She did not that
say an option to buy land is void in itself, for we ruled as follows:

x x x To be sure, a lease to an alien for a reasonable period is valid. So is an


option giving an alien the right to buy real property on condition that he is
granted Philippine citizenship. As this Court said in Krivenko vs. Register of
Deeds:

[A]liens are not completely excluded by the Constitution from the use of lands for
residential purposes. Since their residence in the Philippines is temporary, they may
be granted temporary rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of
land, by virtue of which the Filipino owner cannot sell or otherwise dispose of his
property, this to last for 50 years, then it becomes clear that the arrangement is a
virtual transfer of ownership whereby the owner divests himself in stages not
only of the right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus
abutendi) but also of the right to dispose of it (jus disponendi) rights the sum total
of which make up ownership. It is just as if today the possession is transferred,
tomorrow, the use, the next day, the disposition, and so on, until ultimately all
the rights of which ownership is made up are consolidated in an alien. And yet this
is just exactly what the parties in this case did within this pace of one year, with the
result that Justina Santos'[s] ownership of her property was reduced to a hollow
concept. If this can be done, then the Constitutional ban against alien landholding in
the Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in grave
peril.[44] (emphases supplied; Citations omitted)

In Lui She, the option to buy was invalidated because it amounted to a virtual
transfer of ownership as the owner could not sell or dispose of his properties.
The contract in Lui Sheprohibited the owner of the land from selling, donating,
mortgaging, or encumbering the property during the 50-year period of the option
to buy. This is not so in the case at bar where the mutual right of first refusal in
favor of NIDC and KAWASAKI does not amount to a virtual transfer of land to
a non-Filipino. In fact, the case at bar involves a right of first refusal over
shares of stock while the Lui She case involves an option to buy the land
itself. As discussed earlier, there is a distinction between the shareholders
ownership of shares and the corporations ownership of land arising from the
separate juridical personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that
PHILSECO continues to violate the Constitution as its foreign equity is above
40% and yet owns long-term leasehold rights which are real rights.[45] It
cites Article 415 of the Civil Code which includes in the definition of immovable
property, contracts for public works, and servitudes and other real rights over
immovable property.[46] Any existing landholding, however, is denied by
PHILYARDS citing its recent financial statements.[47] First, these are questions
of fact, the veracity of which would require introduction of evidence. The Court
needs to validate these factual allegations based on competent and reliable
evidence. As such, the Court cannot resolve the questions they pose. Second,
J.G. Summit misreads the provisions of the Constitution cited in its own
pleadings, to wit:

29.2 Petitioner has consistently pointed out in the past that private respondent is not a
60%-40% corporation, and this violates the Constitution x x x The violation continues
to this day because under the law, it continues to own real property

xxx xxx xxx

32. To review the constitutional provisions involved, Section 14, Article XIV of the
1973 Constitution (the JVA was signed in 1977), provided:

Save in cases of hereditary succession, no private lands shall be transferred or


conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain.

32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.

32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the
public domain are corporations at least 60% of which is owned by Filipino citizens
(Sec. 22, Commonwealth Act 141, as amended). (emphases supplied)

As correctly observed by the public respondents, the prohibition in the


Constitution applies only to ownership of land.[48] It does not extend to
immovable or real property as defined under Article 415 of the Civil
Code. Otherwise, we would have a strange situation where the ownership of
immovable property such as trees, plants and growing fruit attached to the
land[49] would be limited to Filipinos and Filipino corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioners Motion for


Reconsideration is DENIED WITH FINALITY and the decision appealed from is
AFFIRMED. The Motion to Elevate This Case to the Court En Banc is likewise
DENIED for lack of merit.
SO ORDERED.
[G.R. No. 123893. November 22, 2001]

LUISITO PADILLA and PHOENIX-OMEGA DEVELOPMENT AND


MANAGEMENT CORPORATION, petitioners, vs. THE HONORABLE
COURT OF APPEALS and SUSANA REALTY, INC., respondents.

DECISION
QUISUMBING, J.:

This petition for review seeks the reversal of the Court of Appeals decision[1] in CA-G.R. SP
No. 36685, refusing to set aside (1) the order dated November 29, 1994 of the Regional Trial Court
of Pasay City, Branch 113, which authorized the issuance of an alias writ of execution in
connection with Civil Case No. 7302 filed before said court; and (2) the order dated February 10,
1995, which denied petitioners motion for reconsideration of the order of November 29, 1994,
regarding the annulment of the alias writ of execution and cancellation of the notice of levy and
sale dated December 16, 1994, issued pursuant to the implementation of said alias writ.
The antecedent facts, as summarized by the Court of Appeals, are as follows:

On June 27, 1983, Susana Realty, Inc. (SRI), by a deed of absolute sale, sold to the
Light Rail Transit Authority (LRTA) several parcels of land located in Taft Avenue
Extension, San Rafael District, Pasay City. Under paragraph 7 of the deed of sale, SRI
reserved to itself the right of first refusal to develop and/or improve the property sold
should the LRTA decide to lease and/or assign to any person the right to develop
and/or improve the property.

On November 28, 1986, the LRTA and Phoenix Omega Development and
Management Corporation (Phoenix Omega) entered into a Commercial Stall
Concession Contract authorizing the latter to construct and develop commercial stalls
on a 90 sq. m. portion of the property bought from SRI. SRI opposed the agreement as
having violated the deed of sale it entered with LRTA. A tripartite agreement was
later concluded by the parties, however, whereby SRI agreed to honor the terms of the
concession contract and to lease to Phoenix Omega its (SRIs) property (remaining
property) adjacent to the 90 sq. m. portion subject of the concession contract.

A contract was thus entered into on July 28, 1988 between Phoenix Omega and SRI
with LRTA whereby Phoenix Omega undertook to construct commercial stalls on the
90-sq. m. property in accordance with plans and specifications prepared by the latter,
the construction to begin, however, only upon SRIs approval of such plans and
specifications. Also on July 28, 1988, Phoenix Omega, by a deed of assignment,
assigned its right and interests over the remaining property unto its sister company,
PKA Development and Management Corporation (PKA). Signatories to the deed of
assignment were Eduardo Gatchalian in his capacity as President of Phoenix Omega,
and Luisito B. Padilla (Padilla), one of the petitioners herein, in his capacity as
President and General Manager of PKA. The development of the remaining property
having been assigned to PKA, it entered into a contract of lease with SRI likewise on
July 28, 1988.

In the meantime, SRI sold part of its remaining property to a third party. An amended
contract of lease was thus forged in January 1989 among SRI, PKA and Phoenix
Omega, whereby the parties agreed to substitute the already sold portion of SRIs
remaining property with 2 parcels of land also belonging to SRI. In this amended
contract of lease, PKA was again represented by Padilla in his capacity as its
President and General Manager. And Phoenix Omega, which was not a party to the
July 28, 1988 lease contract sought to be amended but which was a party, to the
amended contract, was also represented by Padilla as Chairman of the Board of
Directors of Phoenix Omega.

PKAs building permit was later revoked due to certain violations of the National
Building Code (BP 344).

On August 24, 1989, PKA was allowed by the (Department) of Public Works and
Highway(s) to resume construction on the leased premises subject to PKAs correction
of the defects in the construction to conform to BP 344.

As SRIs approval of PKAs amended plans in the construction was required, PKA
transmitted the same to SRI which withheld approval thereof pending PKAs
correction of the defects in the construction.

Repeated requests for approval of its amended plans not having been heeded by SRI,
PKA filed at the court a quo the action at bar for rescission of contract of lease against
SRI, alleging that SRIs refusal to approve the plans without any justifiable reason
deprived it of the use of the commercial stalls, thereby incurring losses.

SRI, upon the other hand, claimed that it was PKA which violated the terms of their
contract, alleging that PKA failed to complete within six months the construction of
the commercial stalls during which period it was not paying any rentals and that PKA
undertook the construction without first having its plans approved.[2] (Underscoring in
the original.)

On January 7, 1991, the RTC rendered its decision, as follows:

WHEREFORE, judgment is hereby rendered:


1. Declaring the rescission and termination of the Contract of Lease, as amended, and
the passing in ownership of all the improvements now existing on the premises, and
ordering plaintiff to surrender possession of the leased premises to the defendant.

2. Ordering plaintiff to pay to the defendant the following sums of money:

(a) P1,750,000.00 as of April 30, 1990, plus monthly rental of P200,000 per month
starting in May, 1990, until plaintiff shall turn over possession of the premises to the
defendant, with interest at 1% per month until fully paid;

(b) Moral damages in the amount of P100,000.00;

(c) Exemplary damages in the amount of P100,000.00; and

(d) Attorneys fees in the amount of P150,000.00; and

(e) The cost of suit.[3]

PKA appealed the RTC decision to the Court of Appeals. On October 2, 1992, the CA
affirmed the RTC decision, decreeing as follows:

WHEREFORE, with MODIFICATIONS that the award of P100,000.00 for moral


damages and P100,000.00 for exemplary damages is DELETED from the judgment
appealed from, the rest thereof not inconsistent herewith is AFFIRMED. No costs.[4]

PKAs motion for reconsideration was denied by the CA in a resolution dated March 15,
1993. PKA then filed before this Court a petition for review on certiorari, which we denied in a
resolution dated September 27, 1993. We likewise denied PKAs motion for reconsideration in a
resolution dated January 17, 1994.
A writ of execution was issued in due course by the RTC, which reads as follows:

NOW THEREFORE, you are hereby commanded to cause the execution of the
aforesaid decision, ordering the plaintiff and all persons claiming under it to surrender
possession of the premises to the defendant, and that of the goods and chattels of the
plaintiff you cause to be made the sum of P1,750,000.00 plus monthly rental of
P200,000.00 starting in May, 1990 until plaintiff shall turn over possession of the
premises to defendant with interest of 1% per month until fully paid, and the further
sum of P150,000.00 as attorneys fees, and the cost of suit, together with your lawful
fees for service of this execution all in Philippine currency, and that you tender the
same to defendant Susana Realty, Inc. aside from your own fees on this execution and
to likewise return this writ to this Court within sixty (60) days from receipt hereof
with your proceedings endorsed thereon.
But if sufficient personal property of the plaintiff cannot be found whereof to satisfy
the amount of said judgment, you are hereby directed to levy the real property of the
said plaintiff and to sell the same or so much thereof in the manner provided for by
law for the satisfaction of the said judgment.[5]

Possession of the subject properties was subsequently restored to SRI, but the monetary award
was left unsatisfied. Thus, on November 14, 1994, SRI filed a motion for issuance of an alias writ
against herein petitioners, based on the trial courts observation that PKA and Phoenix-Omega are
one and the same entity. This was granted by the RTC in an order[6] dated November 29, 1994,
which reads:

WHEREFORE, as prayed for by the defendant-judgment creditor Susana Realty, Inc.,


let an alias writ of execution issue against the properties, both real and personal, of
PKA Development and Management Corporation, of Phoenix-Omega Development
Corporation, and of Luisito B. Padilla, for the enforcement of the decision dated
January 7, 1991, promulgated by this Court, the same be implemented by deputy
sheriff Edilberto A. Santiago. (Underscoring by petitioners.)

The RTC issued an alias writ on the same day pursuant to the above order:

NOW THEREFORE, you are hereby commanded to cause the execution of the
aforesaid decision and that of the goods and chattels of the plaintiff, PKA
Development and Management Corporation, Phoenix-Omega, caused to be made the
sum of P1,750,000.00 plus monthly rentals of P200,000.00 starting in May, 1990 with
interest of 1% per month, until fully paid, and the further sum of P150,000.00 as
attorneys fees; P100,000.00 moral damages and the cost of suit, together with your
lawful fees for service of this execution all in Philippine currency, and that you tender
the same to the defendant SUSANA REALTY, INC., aside from your own fees on
this execution and to likewise return this writ to this Court within 60 days from receipt
hereof with your proceeding indorsed thereon.

But if sufficient personal properties of the plaintiff cannot be found whereof to satisfy
the amount of said judgment, you are directed to levy the real property of the plaintiff,
PKA Development and Management Corporation, Phoenix-Omega Development and
Management Corporation and Luisito B. Padilla and to sell the same or so much
thereof in the manner provided for by law for the satisfaction of the said judgment.[7]

Alleging that the writ of execution cannot be enforced against them, herein petitioners filed
with the RTC on December 15, 1994, an omnibus motion for the reconsideration of the order of
November 29, 1994, and for annulment of the alias writ of the same date and cancellation of the
notice of levy and sale dated December 16, 1994. Petitioners assailed these orders as confiscatory,
since they were never parties to the case filed by PKA against SRI, and they were unable to present
evidence on their behalf. The motion was denied on February 10, 1995.
Subsequently, on March 8, 1995, petitioners filed with the Court of Appeals a petition
for certiorari and prohibition under Rule 65 of the Rules of Court. This petition was also denied;
so was petitioners motion for reconsideration of said denial.
The Court of Appeals agreed with the RTCs finding that there is evidence on record to support
the RTCs conclusion that PKA and Phoenix-Omega are one and the same, or that the former is a
mere conduit of the latter. It pointed out that petitioner Padilla is both president and general
manager of PKA and at the same time chairman of the board of directors and controlling
stockholder of Phoenix-Omega.PKA and Phoenix-Omega also shared officers, laborers, and
offices.
While aware that the dispositive portion of the RTC decision holds only PKA liable to SRI,
the Court of Appeals pointed out that the intent of the RTC was clearly to hold PKA, Phoenix-
Omega, and Padilla liable, as shown in the body of the RTC decision. The rule that the dispositive
portion of a decision is the subject of execution only applies where the disposition is clear and
unequivocal, according to the CA, unlike in this case where there is uncertainty and ambiguity. The
body of the decision may be consulted to construe the judgment in this case.
On the claim that Phoenix-Omega and Padilla were not parties to the case, the CA ruled that

a person not so impleaded to an action is deemed to be a party to a suit when he


has the right to control the proceedings, to make defense, to adduce and cross
examine witnesses, and to appeal from a decision (67 C.J.S. 887 cited in Albert v.
University Publishing Co., 13 SCRA 84). That petitioner Padilla is in reality the
one who had and duly exercised these rights is glaringly borne by the records.[8]

Hence, this petition for review, in which petitioners allege that the CA erred:

I. IN RENDERING THE DECISION AND RESOLUTION IN QUESTION IN


DEFIANCE OF LAW AND JURISPRUDENCE BY SUSTAINING THE TRIAL
COURTS ORDER AND WRIT BOTH DATED NOVEMBER 29, 1994
FINDING PETITIONERS JOINTLY AND SEVERALLY LIABLE WITH PKA,
THEREBY AUTHORIZING THE EXECUTION OF THE DECISION
AGAINST THEIR PROPERTIES, DESPITE THE ADMITTED FACT THAT --

A. PETITIONERS WERE NEVER IMPLEADED AS PARTIES IN THE


CASE BEFORE THE TRIAL COURT (CIVIL CASE NO. 7302),
THEREBY CONFIRMING THE OPPRESSIVE AND CONFISCATORY
NATURE OF THE ORDER AND WRIT (ANNEXES N AND O);

B. PETITIONERS COULD NOT AND DID NOT HAVE ANY


OPPORTUNITY TO ADDUCE EVIDENCE TO REFUTE THE CAUSES
OF ACTIONS ALLEGED IN RESPONDENT SRIS COMPLAINT BEFORE
THE TRIAL COURT (CIVIL CASE NO. 7302) THUS VIOLATING THEIR
RIGHT TO DUE PROCESS OF LAW.
II. IN CONCLUSIONS REACHED IN THE DECISION AND RESOLUTION
IN QUESTION BY AFFIRMING THE ORDER AND WRIT AS ISSUED BY
THE TRIAL COURT IN CIVIL CASE NO. 7302 WHICH EXPANDED THE
SCOPE OF THE WRIT HOLDING PETITIONERS SOLIDARILY LIABLE
WITH PKA NOTWITHSTANDING THAT THIS FINDING WAS NOT
CONTAINED IN THE DISPOSITIVE PORTION OF THE DECISION, IN
DEFIANCE OF LAW AND JURISPRUDENCE ON THE MATTER.

III. IN APPLYING THE DOCTRINE OF PIERCING THE VEIL OF


CORPORATE FICTION TO THE CASE AT BAR DESPITE THE FACT THAT
THE GROUNDS FOR ITS APPLICATION UNDER CASE LAW HAVE NOT
BEEN SHOWN, THEREBY ABROGATING PRONOUNCEMENTS OF THIS
HONORABLE COURT IN NUMEROUS DECISIONS ON THE SUBJECT.

IV. IN AFFIRMING THE ORDER AND WRIT OF THE TRIAL COURT


NOTWITHSTANDING THE ABSENCE OF ANY MISTAKE, OMISSION OR
AMBIGUITY IN THE JANUARY 9, 1991 DECISION IN THE MAIN CASE
AS WOULD HAVE JUSTIFIED ITS MODIFICATION PURSUANT TO
EXTANT JURISPRUDENCE ON THE MATTER.[9]

Petitioners stress that the RTC, the CA, and this Court, in the main case (Civil Case No. 7302),
did not find them solidarily liable with PKA, and rightly so since PKA and Phoenix-Omega are
two different entities. Phoenix-Omegas only participation in the properties subject of the main case
was as the construction company that would develop the properties on behalf of PKA. Phoenix-
Omega was involved in the amended lease agreement between SRI and PKA only to the extent
that it had to apply the terms of the tripartite agreement (among LRTA, SRI, and Phoenix-Omega)
to the development of the LRTA-owned property situated in front of the lots leased to PKA by
SRI.[10] Petitioners argue that the amended lease contract was, in reality, only between SRI and
PKA.
Petitioners protest the piercing of the veil of corporate fiction between themselves and
PKA. They contend, citing Filmerco Commercial Co., Inc. v. IAC, No. L-70661, 149 SCRA 193
(1987), that the court must first acquire jurisdiction over the corporation attempting to misuse the
corporate vehicle to shield the commission of a fraud.
Petitioners contend that the finding by the trial court as regards the single personality of PKA
and Phoenix-Omega was made only to refute PKAs claim that it was not liable for constructions
made by Phoenix-Omega outside the leased areas.
On the other hand, private respondent argues that there is no error in the issuance of the alias
writ of execution against the properties of petitioners since the trial court, the CA, and this Court
had all ruled that petitioners and PKA are in reality one and the same entity. This is the reason
why, when the first writ of execution was returned unsatisfied, SRI moved for the issuance of an
alias writ of execution not only against the properties of PKA but those of petitioners as well. There
is no violation of petitioners right to due process since petitioner Padilla actively participated in
the proceedings before the RTC as the responsible officer of both PKA and Phoenix-Omega.
Private respondent also contends that the CA ruled on the necessity of construing the
dispositive portion of the judgment along with its text, which petitioners allegedly accepted by not
discussing the issue in their pleadings.
To our mind, the main issue for our consideration is whether or not the trial court had
jurisdiction over petitioners, to justify the issuance of an alias writ of execution against their
properties.
A court acquires jurisdiction over a person through either a valid service of summons or the
persons voluntary appearance in court.[11] A court must necessarily have jurisdiction over a party
for the latter to be bound by a court decision.

Generally accepted is the principle that no man shall be affected by any proceeding to
which he is a stranger, and strangers to a case are not bound by judgment rendered by
the court. xxx[12]

In the present case, we note that the trial court never acquired jurisdiction over petitioners
through any of the modes mentioned above. Neither of the petitioners was even impleaded as a
party to the case.[13]
Without the trial court having acquired jurisdiction over petitioners, the latter could not be
bound by the decision of the court. Execution can only be issued against a party and not against
one who was not accorded his day in court.[14] To levy upon their properties to satisfy a judgment
in a case in which they were not even parties is not only inappropriate; it most certainly is
deprivation of property without due process of law.[15] This we cannot allow.
The courts a quo ruled that petitioner Padilla, in particular, had his day in court. As general
manager of PKA, he actively participated in the case in the trial court. He ha(d) the right to control
the proceedings, to make defense, to adduce and cross examine witnesses, and to appeal from a
decision.[16] Therefore, Padilla and Phoenix-Omega, of which Padilla is chairman of the board,
could not now argue that they did not have the opportunity to present their case in court, according
to private respondent.
To begin with, it is clear that Padilla participated in the proceedings below as general manager
of PKA and not in any other capacity. The fact that at the same time he was the chairman of the
board of Phoenix-Omega cannot, by any stretch of reasoning, equate to participation by Phoenix-
Omega in the same proceedings. We again stress that Phoenix-Omega was not a party to the case
and so could not have taken part therein.
Private respondent, however, insists that the trial court had pierced the veil of corporate fiction
protecting petitioners, and this justifies execution against their properties.
The general rule is that a corporation is clothed with a personality separate and distinct from
the persons composing it. It may not be held liable for the obligations of the persons composing it,
and neither can its stockholders be held liable for its obligations.[17]
This veil of corporate fiction may only be disregarded in cases where the corporate vehicle is
being used to defeat public convenience, justify wrong, protect fraud, or defend crime.[18] PKA and
Phoenix-Omega are admittedly sister companies, and may be sharing personnel and resources, but
we find in the present case no allegation, much less positive proof, that their separate corporate
personalities are being used to defeat public convenience, justify wrong, protect fraud, or defend
crime. For the separate juridical personality of a corporation to be disregarded, the wrongdoing
must be clearly and convincingly established. It cannot be presumed.[19] We find no reason to
justify piercing the corporate veil in this instance.
We understand private respondents frustration at not being able to have the monetary award
in their favor satisfied. But given the circumstances of this case, public respondent cannot order
the seizure of petitioners properties without violating their constitutionally enshrined right to due
process, merely to compensate private respondent.
WHEREFORE, the instant petition is GRANTED. The assailed decision and resolution of
the Court of Appeals in CA-G.R. SP No. 36685 are SET ASIDE, and the order of the trial court
dated November 29, 1994 and the alias writ of execution issued on the same date in connection
with Civil Case No. 7302, are declared NULL and VOID.
Costs against private respondent.
SO ORDERED.
[G.R. No. 130998. August 10, 2001]

MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA


and SHOICHI ONE, petitioners, vs. FELIX LIRAG, respondent.

DECISION
PARDO, J.:

The case is an appeal via certiorari to annul and set aside the decision[1] of the Court of
Appeals finding petitioners Ryoichi Tanaka, Ryohei Kimura and Shoichi One, as officers of
petitioner Marubeni Corporation, jointly and severally liable with the corporation for the
commission claimed by respondent Felix Lirag in the amount of six million (P6,000,000.00) pesos
arising from an oral consultancy agreement.
Petitioner Marubeni Corporation (hereafter, Marubeni) is a foreign corporation organized and
existing under the laws of Japan. It was doing business in the Philippines through its duly licensed,
wholly owned subsidiary, Marubeni Philippines Corporation. Petitioners Ryoichi Tanaka, Ryohei
Kimura and Shoichi One were officers of Marubeni assigned to its Philippine branch.[2]
On January 27, 1989, respondent Felix Lirag filed with the Regional Trial Court, Makati a
complaint[3] for specific performance and damages claiming that petitioners owed him the sum of
P6,000,000.00 representing commission pursuant to an oral consultancy agreement with
Marubeni. Lirag claimed that on February 2, 1987, petitioner Ryohei Kimura hired his consultancy
group for the purpose of obtaining government contracts of various projects. Petitioner Kimura
authorized him to work on the following projects: (1) National Telephone Project, (2) Regional
Telecommunications Project; (3) Cargo Handling Equipment; (4) Maritime Communications; (5)
Philippine National Railways Depot; and (6) Bureau of Posts (Phase II).[4] Petitioners promised to
pay him six percent (6%) consultancy fee based on the total costs of the projects obtained.
The consultancy agreement was not reduced into writing because of the mutual trust between
Marubeni and the Lirag family.[5] Their close business and personal relationship dates back to 1960,
when respondents family was engaged in the textile fabric manufacturing business, in which
Marubeni supplied the needed machinery, equipment, spare parts and raw materials.[6]
In compliance with the agreement, respondent Lirag made representations with various
government officials, arranged for meetings and conferences, relayed pertinent information as well
as submitted feasibility studies and project proposals, including pertinent documents required by
petitioners. As petitioners had been impressed with respondents performance, six (6) additional
projects were given to his group under the same undertaking.[7]
One of the projects handled by respondent Lirag, the Bureau of Post project, amounting to
P100,000,000.00 was awarded to the Marubeni-Sanritsu tandem.[8] Despite respondents repeated
formal verbal demands for payment of the agreed consultancy fee, petitioners did not pay. In
response to the first demand letter, petitioners promised to reply within fifteen (15) days, but they
did not do so.
Pursuant to the consultancy agreement, respondent claimed a commission of six percent (6%)
of the total contract price, or a total of P6,000,000.00, or in the alternative, that he be paid the same
amount by way of damages or as the reasonable value of the services he rendered to petitioners,
and further claimed twenty percent (20%) of the amount recoverable as attorneys fees and the costs
of suit.
In their answer, petitioners denied the consultancy agreement. Petitioner Ryohei Kimura did
not have the authority to enter into such agreement in behalf of Marubeni. Only Mr. Morihiko
Maruyama, the general manager, upon issuance of a special power of attorney by the principal
office in Tokyo, Japan, could enter into any contract in behalf of the corporation. Mr. Maruyama
did not discuss with respondent Lirag any of the matters alleged in the complaint, nor agreed to
the payment of commission. Moreover, Marubeni did not participate in the bidding for the Bureau
of Post project, nor benefited from the supposed project. Thus, petitioners moved for the dismissal
of the complaint.
Petitioner Shoichi One submitted a separate answer raising similar arguments.
With regard to petitioner Ryohei Kimura, the trial court did not acquire jurisdiction over his
person because he was recalled to the principal office in Tokyo, Japan before the complaint and
the summons could be served on him.
During the pre-trial conferences held on September 18 and October 16, 1989 and on January
24, March 15 and May 17, 1990, no amicable settlement was reached. Trial on the merits ensued.
On April 29, 1993, the trial court promulgated a decision and ruled that respondent is entitled
to a commission. Respondent was led to believe that there existed an oral consultancy
agreement. Hence, he performed his part of the agreement and helped petitioners get the
project. The dispositive portion of the decision reads:

WHEREFORE, defendants are ordered, jointly and severally, to pay to the plaintiff:
(1) the amount of P6,000,000.00, with interest at the legal rate (12% per annum) from
January 10, 1989 until fully paid; (2) 20% of this amount to serve as reimbursement of
plaintiffs attorneys fees; and (3) to pay the cost of the suit.

SO ORDERED.

Makati, Metro Manila, April 29, 1993.

[Original Signed]
SALVADOR P. DE GUZMAN, Jr.
Pairing Judge [9]

On May 26, 1993, petitioners interposed an appeal from the decision to the Court of Appeals.[10]
After due proceedings, on October 9, 1997, the Court of Appeals promulgated a decision
affirming the decision of the trial court. The Court of Appeals ruled that preponderance of evidence
favored the existence of a consultancy agreement between the parties. It upheld the factual findings
of the trial court, thus:
Plaintiffs evidence details the efforts he exerted after having been extended an
appointment by Marubeni as its consultant. He tendered a thanksgiving dinner for the
defendants at the Nandau Restaurant; he and Napoleon Rama visited Marubenis
Morihiko Maruyama in the latters office during which they discussed the BOP II
project. He arranged several conferences between the Marubeni officials
andPostmaster General Angelito Banayo. In one meeting which took place in the
office of Mr. Banayo at Liwasang Bonifacio, a Mr. Ida, the General Manager of
Sanritsu, was conspicuously present. Mr. Banayo testified that Mr. Ida told him that
Sanritsu was representing Marubeni in the BOP II project (tsn., 6/11/90, pp. 15-17;
5/15/91, pp. 10-12). At least thirty (30) conferences between plaintiff and defendants
took place at the Marubeni offices, lasting at least two hours each
meeting. Eventually, the bid was awarded by the Bureau of Post to Sanritsu. Aware
that Sanritsu represented Marubeni, and in fact Marubeni assigned Sanritsu to enter its
bid, plaintiff sent his bill for his services to the defendants in a letter dated April 20,
1988. This was followed by a letter dated September 26, 1990 of plaintiffs
counsel. This time Mr. Tanaka asked for 15 days within which to contact their Head
Office to seek instructions. [11]

The Court of Appeals relied on the doctrine of admission by silence[12] in upholding the
existence of a consultancy agreement, noting that petitioner Tanakas reaction to respondents
September 26, 1988 demand letter was not consistent with their claim that there was no
consultancy agreement. On the contrary, it lent credence to respondents claim that they had an
existing consultancy agreement. Petitioner Tanakas response dated October 13, 1988 to the
demand letter of September 26, 1988 reads:

Referring to your letter dated September 26, 1988, we are pleased to inform you that
the issue is currently being reviewed by us and we would like to reply to you within
fifteen (15) days. [13]

The Court of Appeals observed that if indeed there were no consultancy agreement, it would
have been easy for petitioners to simply deny respondents claim. Yet, they did not do so. The
conglomeration of these circumstances bolstered the existence of the oral consultancy
agreement. The dispositive portion of the decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED. [14]

Hence, this appeal.[15]


In this appeal, petitioners raise the following issues: (1) whether or not there was a consultancy
agreement between petitioners and respondent; and corollary to this, (2) whether or not respondent
is entitled to receive a commission if there was, in fact, a consultancy agreement.[16]
We find the appeal meritorious.
In deciding this appeal, we rely on the rule that a party who has the burden of proof in a civil
case must establish his case by a preponderance of evidence.[17] When the evidence of the parties is
in equipoise, or when there is a doubt as to where the preponderance of evidence lies, the party
with the burden of proof fails and the petition must thus be denied.[18]
As a general rule, factual findings of the Court of Appeals are conclusive on the parties and
are not reviewed by the Supreme Courtand they carry even more weight when the Court of Appeals
affirmed the factual findings of the trial court. It is not the function of the Supreme Court to weigh
anew the evidence passed upon by the Court of Appeals.[19] Moreover, only questions of law may
be raised before the Supreme Court in a petition for review under Rule 45 of the Revised Rules of
Court.[20]
However, the rule is subject to exceptions,[21] such as when the conclusion is grounded on
speculations, surmises, or conjectures,[22] as in the instant case.
An assiduous scrutiny of the testimonial and documentary evidence extant leads us to the
conclusion that the evidence could not support a solid conclusion that a consultancy agreement,
oral or written, was agreed between petitioners and respondent. Respondent attempted to fortify
his own testimony by presenting several corroborative witnesses. However, what was apparent in
the testimonies of these witnesses was the fact that they learned about the existence of the
consultancy agreement only because that was what respondent told them.[23]
In civil cases, he who alleges a fact has the burden of proving it; a mere allegation is not
evidence.[24] He must establish his cause by a preponderance of evidence,[25] which respondent failed
to establish in the instant case.
Assuming for the sake of argument that an oral consultancy agreement has been perfected
between the parties, respondent Lirag could not still claim fees on the project that has not been
awarded to Marubeni.
If respondents contentions were to be taken as truth, he would be entitled to 6% consulting
fee based on the total cost of the projects obtained,[26] or on success basis.[27] However, even
respondent admitted that the Bureau of Post project was not awarded to Marubeni, but to
Sanritsu.[28] Marubeni did not even join the bidding for the Bureau of Post project.
Respondent could not claim from Sanritsu because of the absence of any agreement between
him and the latter. When asked to clarify whether he has an existing consultancy agreement with
Sanritsu, respondent answered in the negative, thus:
COURT:
One clarificatory question-
Do you have any consultancy service contract with Marubeni/San Ritsu do you have?
A: No, sir. I have only Consultancy Agreement on verbal basis with Marubeni.[29]
Hence, how could he be entitled to the 6% commission, when it was not his client who won
in the bidding?
Respondent tried to justify his commission of roughly about P6,000,000.00 in the guise that
Marubeni and Sanritsu are sister corporations, thereby implying the need to pierce the veil of
corporate fiction.Respondent claimed that Marubeni as the supplier and real contractor of the
project hired and sub-contracted the project to Sanritsu.
We believe that this line of reasoning is too far-fetched. Not because two foreign companies
came from the same country and closely worked together on certain projects would the conclusion
arise that one was the conduit of the other, thus piercing the veil of corporate fiction.
To disregard the separate juridical personality of a corporation, the wrongdoing must be
clearly and convincingly established. It cannot be presumed. The separate personality of the
corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary for the protection of creditors.[30] We could not
just rely on respondents testimony regarding the existence of the Marubeni-Sanritsu tandem to
justify his claim for payment of commission. This conclusion is too conjectural to be believed.
Aside from the self-serving testimony of respondent regarding the existence of a close
working relationship between Marubeni and Sanritsu, there was nothing that would support the
conclusion that Sanritsu was an agent of Marubeni. Mr. Lito Banayo, whom respondent presented
to corroborate his testimony on this particular issue said, thus:
ATTY. VALERO
My question is- do you know for a fact whether the impression you have about Japanese Trading Firm
working through Agents was the relationship between Marubeni and San Ritsu when Mr. Iida said
that they were working together?
A: I did not know for a fact because I did not see any contract between Marubeni and San Ritsu presented
to me.[31]
Contrary to the trial courts finding that petitioners led respondent to believe that they hired
respondents services as consultant, the evidence proved otherwise. Petitioner Shoichi One, one of
the officers of Marubeni Phils., testified that at the onset, Marubeni Phils. informed respondent
that it had no authority to commit to anything, as it all depended on the decision of the principal
headquarters in Tokyo, Japan.However, respondent Lirag insisted on providing assistance to
Marubeni to get coveted government contracts because Marubeni might encounter difficulties due
to discrimination from the government.[32]Despite such knowledge, respondent said that its alright
with him as he believes Marubeni was an old time friend so he wanted to work for those
projects.[33] Hence, how could petitioners be guilty of misleading respondent on the acceptance of
the latters offer of consultancy service?
With regard to the Court of Appeals ratiocination that petitioner Tanakas response dated
October 13, 1988 to the demand letter of September 26, 1988, amounted to an implied admission
of the consultancy agreement, the records showed that, to the contrary, this fact strengthened
petitioners allegation that Marubeni Phils. lacked the requisite authority to enter into any binding
agreement.
As explained by petitioner Shoichi One, Marubeni Phils. could enter into a consultancy
agreement only after submitting a recommendation to the principal headquarters in Tokyo,
Japan. If the office in Tokyo, Japan agrees to hire consultants, it would then give a power of
attorney to its general manager in Manila authorizing the latter to enter into such agreement.
In the instant case, the parties did not reach the second stage as the headquarters in Tokyo,
Japan did not see it fit to hire a consultant as they decided not to participate in the bidding. Hence,
no consultancy agreement was perfected, whether oral or written. There was no absolute
acceptance of respondents offer of consultancy services.
Assuming arguendo that the petitioner accepted respondents offer of consultancy services, we
could not give legal imprimatur to the agreement. The service rendered by respondent
contemplated the exploitation of personal influence and solicitation on a public officer.
Respondent said that petitioners sought out his services because they needed somebody who
can help them penetrate and establish goodwill with the government.[34] Petitioners found it difficult
to arrange a meeting with Postmaster General Angelito Banayo because of petitioners reputation
of engaging in questionable transactions.[35] Suddenly, through the intervention of respondent, the
postmaster general became accessible to petitioners. This became possible because of respondents
close personal relationship with the postmaster general, his trusted and long-time
friend.[36] Respondent testified, to wit:
Q: In other words you are saying that Marubeni and San Ritsu representatives had a conference with the
Post Master General Banayo in connection with this Project?
A: Yes and I was the one who made the arrangement.[37]
In another instance, respondent said, thus:
WITNESS:
What we have done by that first, Mr. Banayo went to Tokyo and when he was in Tokyo we were able
to arrange the Marubeni representative in Tokyo to meet and talk with Mr. Banayo in Tokyo
COURT:
Mr?
A. Banayo, the Post Master General and representatives of Marubeni in Tokyo - this was done because
of my intervention.[38]
Any agreement entered into because of the actual or supposed influence which the party has,
engaging him to influence executive officials in the discharge of their duties, which contemplates
the use of personal influence and solicitation rather than an appeal to the judgment of the official
on the merits of the object sought is contrary to public policy.[39] Consequently, the agreement,
assuming that the parties agreed to the consultancy, is null and void as against public
policy.[40] Therefore, it is unenforceable before a court of justice.[41]
In light of the foregoing, we rule that the preponderance of evidence established no
consultancy agreement between petitioners and respondent from which the latter could anchor his
claim for a six percent (6%) consultancy fee on a project that was not awarded to petitioners.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals[42] is hereby
SET ASIDE. Civil Case No. 89-3037 filed before the Regional Trial Court, Branch 143, Makati
City is hereby DISMISSED.
No costs.
SO ORDERED.
[G.R. No. 117416. December 8, 2000]

Avelina G. Ramoso, Renato B. Salvatierra, Benefrido M. Cruz, Leticia L.


Medina, Pelagio Pascual, Domingo P. Santiago, Amado S. Veloira,
Concepcion F. Blaylock, in their own behalf and in behalf of
numerous other persons similarly situated, Commercial Credit
Corp. of North Manila, Commercial Credit Corp. of Cagayan
Valley, Commercial Credit Corp. of Olongapo City, and
Commercial Credit Corp. of Quezon City, petitioners, vs. Court of
Appeals, General Credit Corp. (Formerly Commercial Credit
Corp.), CCC Equity Corp., Resource and Finance Corp., Generoso
G. Villanueva and Leonardo B. Alejandrino, and Securities and
Exchange Commission, respondents.

DECISION
QUISUMBING, J.:

This petition for review on certiorari assails the decision[1] of the Court of Appeals
dated October 8, 1993, and its resolution[2] dated September 22, 1994 in CA G.R. SP No.
29225, which affirmed the Securities and Exchange Commissions decision stating thus:

WHEREFORE, the appealed decision of the hearing officer in SEC Case No.
2581 is hereby MODIFIED as follows:

1. Piercing the veil of corporate fiction among GCC, CCC Equity and the franchise
companies - Commercial Credit Corporation of North Manila, Commercial Credit
Corporation of Cagayan Valley, Commercial Credit Corporation of Olongapo City, and
Commercial Credit Corporation of Quezon City - is not proper for being without merit;
and
2. The declaration that petitioning franchise corporations and individual petitioners are
not liable for the payment of bad accounts assigned to, and discounted by GCC is
SET ASIDE for being in excess of jurisdiction.[3]
The facts of this case as gleaned from the records are as follows:
On March 11, 1957, Commercial Credit Corporation was registered with SEC as a
general financing and investment corporation. CCC made proposals to several investors
for the organization of franchise companies in different localities. The proposed trade
names and indicated areas were: (a) Commercial Credit Corporation - Cagayan Valley;
(b) Commercial Credit Corporation - Olongapo City; and (c) Commercial Credit
Corporation - Quezon City.
Petitioners herein invested and bought majority shares of stocks, while CCC retained
minority holdings. Management contracts were executed between each franchise
company and CCC, under the following terms and conditions: (1) The franchise company
shall be managed by CCCs resident manager. (2) Management fee equivalent to 10% of
net profit before taxes shall be paid to CCC. (3) All expenses shall be borne by the
franchise company, except the salary of the resident manager and the cost of credit
investigation. (4) CCC shall set prime rates for discounting or rediscounting of
receivables. Apart from these, each investor was required to sign a continuing guarantee
for bad accounts that might be incurred by CCC due to discounting activities.
In 1974, CCC attempted to obtain a quasi-banking license from Central Bank of the
Philippines. But there was a hindrance because Section 1326 of CBs Manual of
Regulations for Banks and Other Financial Intermediaries, states:

Sec. 1326. General Policy. Dealings of a bank with any of its directors, officers
or stockholders and their related interests should be in the regular course of
business and upon terms not less favorable to the bank than those offered to
others. (Emphasis supplied)

The above DOSRI regulation and set guidelines are entitled to make sure that
lendings by banks or other financial institutions to its own directors, officers, stockholders
or related interests are above board. In view of said hindrance, what CCC did was divest
itself of its shareholdings in the franchise companies. It incorporated CCC Equity to take
over the administration of the franchise companies under new management contracts. In
the meantime, CCC continued providing a discounting line for receivables of the franchise
companies through CCC Equity. Thereafter, CCC changed its name to General Credit
Corporation (GCC).
The companies operations were on course until 1981, when adverse media reports
unraveled anomalies in the business of GCC. Upon investigation, petitioners allegedly
discovered the dissipation of the assets of their respective franchise companies. Among
the alleged fraudulent schemes by GCC involved transfer or assignment of its
uncollectible notes and accounts; utilization of spurious commercial papers to generate
paper revenues; and release of collateral in connivance with unauthorized
loans. Furthermore, GCC allegedly divested itself of its assets through a questionable
offset of receivables arrangement with one of its creditors, Resource and Finance
Corporation.
On February 24, 1984, petitioners filed a suit against GCC, CCC Equity and
RFC. Petitioners prayed for (1) receivership, (2) an order directing GCC and CCC Equity
solidarily to pay petitioners and depositors for the losses they sustained, and (3)
nullification of the agreement between GCC and RFC.
On June 6, 1984, all respondents, except CCC Equity, filed a motion to dismiss
asserting that SEC lacked jurisdiction, and that petitioners were not the real parties in
interest. Both motions, for receivership and for dismissal, were subsequently denied by
the hearing officer.
On February 23, 1990, the hearing officer ordered piercing the corporate veil of GCC,
CCC Equity, and the franchise companies. He later declared that GCC was not liable to
individual petitioners for the losses, since as investors they assumed the risk of their
respective investments. The franchise companies and the individual petitioners were held
not liable to GCC for the bad accounts incurred by the latter through the discounting
process. The decretal portion of his order reads:

WHEREFORE, judgment is hereby rendered, as follows:

1. Declaring GCC, CCC-Equity and the franchised companies - Commercial Credit


Corporation of North Manila, Commercial Credit Corporation of Cagayan Valley,
Commercial Credit Corporation of Olongapo City and Commercial Credit Corporation
of Quezon City - as one corporation;
2. Declaring that the petitioning franchised companies are not liable for the payment of
bad accounts assigned to, and discounted by GCC;
3. Declaring the individual petitioners who executed continuing guaranties to secure the
obligation of the franchised companies to GCC arising from the discounting accounts
should not be held liable thereon;
4. Declaring that GCC is not liable to individual petitioners for the investments they made
in the franchised companies;
5. Dismissing the petition with respect to respondent Resource Finance Corporation,
Generoso Villanueva and Leonardo Alejandrino.[4]
In an en banc decision, dated October 6, 1992, the SEC reversed the ruling of its
hearing officer. Petitioners appealed to the Court of Appeals. On October 8, 1993, the
appellate court affirmed respondent SECs decision. Petitioners moved for a
reconsideration, but it was denied on September 22, 1994.
Hence, the instant petition raising the following issues:
I. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE
THAT GCCS FRAUD UPON PETITIONERS AND MISMANAGEMENT OF THE
FRANCHISE COMPANIES WARRANT THE PIERCING OF ITS VEIL OF
CORPORATE FICTION.
II. WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO RULE
THAT ONLY THE SEC HAS JURISDICTION OVER THE ISSUE OF WHETHER
INDIVIDUAL PETITIONERS MAY BE HELD LIABLE ON THE SURETY
AGREEMENTS FOR BAD ACCOUNTS INCURRED BY GCC THROUGH THE
DISCOUNTING PROCESS.
III.WHETHER THE COURT OF APPEALS ERRED GRAVELY IN FAILING TO
REVERSE AND SET ASIDE THE 06, OCTOBER 1992 SEC DECISION.
Petitioners pray for the piercing of the corporate fiction of GCC, CCC Equity, RFC
and the franchise companies. They allege that (1) GCC was the alter-ego of CCC Equity
and the franchise companies; (2) GCC created CCC Equity to circumvent CBs DOSRI
Regulation; and (3) GCC mismanaged the franchise companies. Ultimately, petitioners
pray that the SEC en banc reinstate the decision of the hearing officer absolving individual
investors of their respective liabilities attached to the continuing guaranty of bad
debts. They pray that should the afore-stated companies be considered as one, then
petitioners liabilities should be nullified.
SEC en banc decided against the petitioners, saying:

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...
[T]he control and breach of duty must proximately cause the injury or unjust
loss for which the complaint is made.

The test may be stated as follows:

In any given case, except express agency, estoppel, or direct tort, three
elements must be proved:

1. Control, not mere majority or complete stock 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
perpetrate the violation of the 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.
[5]

The SEC stated further that:

The second element required for the application of the instrumentality rule is
not present in this case. Upon close scrutiny of the various testamentary and
documentary evidence presented during trial, it may be observed that
petitioners claim of dissipation of assets and resources belonging to the
franchise companies has not been reasonably supported by said evidence at
hand with the Commission. In fact, the disputed decision of the hearing officer
dealt mainly with the aspect of control exercised by GCC over the franchise
companies without a concrete finding of fraud on the part of the former to the
prejudice of individual petitioners interests. As previously discussed, mere
control on the part of GCC through CCC Equity over the operations and
business policies of the franchise companies does not necessarily warrant
piercing the veil of corporate fiction without proof of fraud. In order to
determine whether or not the control exercised by GCC through CCC Equity
over the franchise companies was used to commit fraud or wrong, to violate a
statutory or other positive legal duty, or dishonest and unjust act in
contravention of petitioners legal rights, the circumstances that caused the
bankruptcy of the franchise companies must be taken into consideration. [6]

As a general rule, a corporation will be looked upon as a legal entity, unless and until
sufficient reason to the contrary appears. When the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons.[7] Also, the corporate entity may be disregarded
in the interest of justice in such cases as fraud that may work inequities among members
of the corporation internally, involving no rights of the public or third persons. In both
instances, there must have been fraud, and proof of it. For the separate juridical
personality of a corporation to be disregarded, the wrongdoing must be clearly and
convincingly established.[8] It cannot be presumed.[9]
We agree with the findings of the SEC concurred in by the appellate court that there
was no fraud nor mismanagement in the control exercised by GCC and by CCC Equity,
over the franchise companies. Whether the existence of the corporation should be
pierced depends on questions of facts, appropriately pleaded. Mere allegation that a
corporation is the alter ego of the individual stockholders is insufficient. The presumption
is that the stockholders or officers and the corporation are distinct entities. The burden of
proving otherwise is on the party seeking to have the court pierce the veil of the corporate
entity.[10] In this, petitioner failed.
Petitioners contend that the issue of whether the investors may be held liable on the
surety agreements for bad accounts incurred by GCC through the discounting process
cannot be isolated from the fundamental issue of validly piercing GCCs corporate
veil. They argue that since these surety agreements are intra-corporate matters, only the
SEC has the specialized knowledge to evaluate whether fraud was perpetrated.
We note, however, that petitioners signed the continuing guaranty of the franchise
companies bad debts in their own personal capacities. Consequently, they are
responsible for their individual acts. The liabilities of petitioners as investors arose out of
the regular financing venture of the franchise companies. There is no evidence that these
bad debts were fraudulently incurred. Any taint of bad faith on the part of GCC in enticing
investors may be resolved in ordinary courts, inasmuch as this is in the nature of a
contractual relationship. Changing petitioners subsidiary liabilities by converting them to
guarantors of bad debts cannot be done by piercing the veil of corporate identity.
Private respondents claim they had actually filed collection cases against most, if not
all, of the petitioners to enforce the suretyship liability on accounts discounted with then
CCC (now GCC).[11] In such cases, the trial court may determine the validity of the
promissory notes and the corresponding guarantee contracts. The existence of the
corporate entities need not be disregarded.
On the matter of jurisdiction, we agree with the Court of Appeals when it held that:
. . . [T]he ruling of the hearing officer in relation to the liabilities of the franchise
companies and individual petitioners for the bad accounts incurred by GCC
through the discounting process would necessary entail a prior interpretation
of the discounting agreements entered into between GCC and the various
franchise companies as well as the continuing guaranties executed to secure
the same. A judgment on the aforementioned liabilities incurred through the
discounting process must likewise involve a determination of the validity of the
said discounting agreements and continuing guaranties in order to properly
pass upon the enforcement or implementation of the same. It is crystal clear
from the aforecited authorities and jurisprudence that there is no need to
[12]

apply the specialized knowledge and skill of the SEC to interpret the said
discounting agreements and continuing guaranties executed to secure the
same because the regular courts possess the utmost competence to do so by
merely applying the general principles laid down under civil law on contracts.

xxx

The matter of whether the petitioners must be held liable on their separate
suretyship is one that belongs to the regular courts. As the respondent SEC
notes in its comment, the franchised companies accounts discounted by GCC
would arise even if there is no intra-corporate relationship between the
parties. In other words, the controversy did not arise out of the parties
relationships as stockholders. The Court agrees. This matter is better left to
the regular courts in which the private respondents have filed suits to enforce
the suretyship agreements allegedly executed by the petitioners. [13]

Not every conflict between a corporation and its stockholders involves corporate
matters that only the SEC can resolve. In Viray vs. Court of Appeals, 191 SCRA 308, 323
(1990), we stressed that a contrary interpretation would dissipate the powers of the
regular courts and distort the meaning and intent of PD No. 902-A.

It is true that the trend is toward vesting administrative bodies like the SEC
with the power to adjudicate matters coming under their particular
specialization, to insure a more knowledgeable solution of the problems
submitted to them. This would also relieve the regular courts of a substantial
number of cases that would otherwise swell their already clogged dockets. But
as expedient as this policy may be, it should not deprive the courts of justice
of their power to decide ordinary cases in accordance with the general laws
that do not require any particular expertise or training to interpret and
apply. Otherwise, the creeping take-over by the administrative agencies of the
judicial power vested in the courts would render the Judiciary virtually
impotent in the discharge of the duties assigned to it by the Constitution.
Finally, we note that petitioners were given ample opportunity to present evidence in
support of their claims. But mere allegations do not constitute convincing evidence. We
find no sufficient reason to overturn the decisions of both the SEC and the appellate court.
WHEREFORE, the instant petition is DENIED for lack of merit. The assailed decision
and resolution of the Court of Appeals dated October 8, 1993 and September 22, 1994,
respectively, are AFFIRMED. Costs against petitioners.
SO ORDERED.
[G.R. No. 127181. September 4, 2001]

LAND BANK OF THE PHILIPPINES, petitioner, vs. THE COURT OF


APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL
C. OATE, respondents.

DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks to reverse and set aside the decision[1] promulgated
on June 17, 1996 in CA-GR No. CV-43239 of public respondent and its resolution[2] dated
November 29, 1996 denying petitioners motion for reconsideration.[3]
The facts of this case as found by the Court of Appeals and which we find supported by the
records are as follows:

On various dates in September, October, and November, 1980, appellant Land Bank
of the Philippines (LBP) extended a series of credit accommodations to appellee ECO,
using the trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the
aggregate amount of P26,109,000.00. The proceeds of the credit accommodations
were received on behalf of ECO by appellee Oate.

On the respective maturity dates of the loans, ECO failed to pay the same. Oral and
written demands were made, but ECO was unable to pay. ECO claims that the
company was in financial difficulty for it was unable to collect its investments with
companies which were affected by the financial crisis brought about by the Dewey
Dee scandal.

xxx

On October 20, 1981, ECO proposed and submitted to LBP a Plan of Payment
whereby the former would set up a financing company which would absorb the loan
obligations. It was proposed that LBP would participate in the scheme through the
conversion of P9,000,000.00 which was part of the total loan, into equity.

On March 4, 1982, LBP informed ECO of the action taken by the formers Trust
Committee concerning the Plan of Payment which reads in part, as follows:

xxx

Please be informed that the Banks Trust Committee has deliberated on the plan of
payment during its meetings on November 6, 1981 and February 23, 1982. The
Committee arrived at a decision that you may proceed with your Plan of Payment
provided Land Bank shall not participate in the undertaking in any manner
whatsoever.

In view thereof, may we advise you to make necessary revision in the proposed Plan
of Payment and submit the same to us as soon as possible. (Records, p. 428)

On May 5, 1982, ECO submitted to LBP a Revised Plan of Payment deleting the
latters participation in the proposed financing company. The Trust Committee
deliberated on the Revised Plan of Payment and resolved to reject it. LBP then sent a
letter to the PVTA for the latters comments. The letter stated that if LBP did not hear
from PVTA within five (5) days from the latters receipt of the letter, such silence
would be construed to be an approval of LBPs intention to file suit against ECO and
its corporate officers. PVTA did not respond to the letter.

On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money
against ECO and Emmanuel C. Oate before the Regional Trial Court of Manila,
Branch 50.

After trial on the merits, a judgment was rendered in favor of LBP; however, appellee
Oate was absolved from personal liability for insufficiency of evidence.

Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP
claimed that there was an error in computation in the amounts to be paid. LBP also
questioned the dismissal of the case with regard to Oate.

On the other hand, ECO questioned its being held liable for the amount of the
loan. Upon order of the court, both parties submitted Supplemental Motions for
Reconsideration and their respective Oppositions to each others Motions.

On February 3, 1993, the trial court rendered an Amended Decision, the dispositive
portion of which reads as follows:

ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read


as follows:

WHEREFORE, judgment is rendered ordering defendant Eco Management


Corporation to pay plaintiff Land Bank of the Philippines:

A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan
accommodations plus 16% interest per annum computed from the dates of their
respective maturities until fully paid, broken down as follows:
1. the principal amount of P4,000,000.00 with interest at 16% computed from
September 18, 1981;

2. the principal amount of P5,000,000.00 with interest at 16% computed from


September 21, 1981;

3. the principal amount of P1,000,000.00 with interest rate at 16% computed from
September 28, 1981;

4. the principal amount of P1,000,000.00 with interest at 15% computed from October
5, 1981;

5. the principal amount of P2,000,000.00 with interest rate at of 16% computed from
October 8, 1981;

6. the principal amount of P2,000,000.00 with interest rate at of 16% from October
23, 1981;

7. the principal amount of P814,000.00 with interest rate at of 16% computed from
November 1, 1981;

8. the principal amount of P2,295,000.00 with interest rate at of 16% computed from
November 6, 1981;

9. the principal amount of P3,000,000.00 with interest rate at of 16% computed from
November 7, 1981;

10. the principal amount of P5,000,000.00 with interest rate at 16% computed from
November 9, 1981;

B. The sum of P260,000.00 as attorneys fees; and

C. The costs of the suit.

The case as against defendant Emmanuel Oate is dismissed for insufficiency of


evidence.

SO ORDERED. (Records, p. 608) [4]

The Court of Appeals affirmed in toto the amended decision of the trial court.[5]
On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a
resolution dated November 29, 1996. Hence, this present petition, assigning the following errors
allegedly committed by the Court of Appeals:
A

THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED


ON THE FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A
SUBSTANTIAL AND JUSTIFIABLE GROUND UPON WHICH THE LEGAL
NOTION OF THE CORPORATE FICTION OF RESPONDENT ECO
MANAGEMENT CORPORATION MAY BE PIERCED.
B

THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING


LIABILITY TO RESPONDENT EMMANUEL C. OATE JOINTLY AND
SEVERALLY WITH RESPONDENT ECO MANAGEMENT CORPORATION
FOR THE PRINCIPAL SUM OF P26 M PLUS INTEREST THEREON.
C

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING


OF THE LOWER COURT THE SAME NOT BEING SUPPORTED BY THE
EVIDENCE AND APPLICABLE LAWS AND JURISPRUDENCE. [6]

The primary issues for resolution here are (1) whether or not the corporate veil of ECO
Management Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should be
held jointly and severally liable with ECO Management Corporation for the loans incurred from
Land Bank.
Petitioner contends that the personalities of Emmanuel Oate and of ECO Management
Corporation should be treated as one, for the particular purpose of holding respondent Oate liable
for the loans incurred by corporate respondent ECO from Land Bank. According to petitioner, the
said corporation was formed ostensibly to allow Oate to acquire loans from Land Bank which he
used for his personal advantage.
Petitioner submits the following arguments to support its stand: (1) Respondent Oate owns
the majority of the interest holdings in respondent corporation, specifically during the crucial time
when appellees applied for and obtained the loan from LANDBANK, sometime in September to
November, 1980. (2) The acronym ECO stands for the initials of Emmanuel C. Oate, which is the
logical, sensible and concrete explanation for the name ECO, in the absence of evidence to the
contrary. (3) Respondent Oate has always referred to himself as the debtor, not merely as an officer
or a representative of respondent corporation. (4) Respondent Oate personally paid P1 Million
taken from trust accounts in his name. (5) Respondent Oate made a personal offering to pay his
personal obligation. (6) Respondent Oate controlled respondent corporation by simultaneously
holding two (2) corporate positions, viz., as Chairman and as treasurer, beginning from the time of
respondent corporations incorporation and continuously thereafter without benefit of election. (7)
Respondent corporation had not held any meeting of the stockholders or of the Board of Directors,
as shown by the fact that no proceeding of such corporate activities was filed with or borne by the
record of the Securities and Exchange Commission (SEC). The only corporate records respondent
corporation filed with the SEC were the following:Articles of Incorporation, Treasurers Affidavit,
Undertaking to Change Corporate Name, Statement of Assets and Liabilities.[7]
Private respondents, in turn, contend that Oates only participation in the transaction between
petitioner and respondent ECO was his execution of the loan agreements and promissory notes as
Chairman of the corporations Board of Directors. There was nothing in the loan agreement nor in
the promissory notes which would indicate that Oate was binding himself jointly and severally
with ECO. Respondents likewise deny that ECO stands for Emmanuel C. Oate. Respondents also
note that Oate is no longer a majority stockholder of ECO and that the payment by a third person
of the debt of another is allowed under the Civil Code. They also alleged that there was no fraud
and/or bad faith in the transactions between them and Land Bank. Hence, private respondents
conclude, there is no legal ground to pierce the veil of respondent corporations personality.[8]
At the outset, we find the matters raised by petitioner in his argumentation are mainly
questions of fact which are not proper in a petition of this nature.[9] Petitioner is basically
questioning the evaluation made by the Court of Appeals of the evidence submitted at the trial. The
Court of Appeals had found that petitioners evidence was not sufficient to justify the piercing of
ECOs corporate personality.[10]Petitioner contended otherwise. It is basic that where what is being
questioned is the sufficiency of evidence, it is a question of fact.[11] Nevertheless, even if we regard
these matters as tendering an issue of law, we still find no reason to reverse the findings of the
Court of Appeals.
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.[12]By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities
of the said corporation, and vice versa.[13] This separate and distinct personality is, however, merely
a fiction created by law for convenience and to promote the ends of justice.[14] For this reason, it
may not be used or invoked for ends subversive to the policy and purpose behind its creation [15] or
which could not have been intended by law to which it owes its being.[16] This is particularly true
when the fiction is used to defeat public convenience, justify wrong, protect fraud, defend
crime,[17] confuse legitimate legal or judicial issues,[18] perpetrate deception or otherwise circumvent
the law.[19] This is likewise true where the corporate entity is being used as an alter ego, adjunct, or
business conduit for the sole benefit of the stockholders or of another corporate entity.[20] In all
these cases, the notion of corporate entity will be pierced or disregarded with reference to the
particular transaction involved.[21]
The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using
the personality of the corporation as a means to perpetrate fraud and/or escape a liability and
responsibility demanded by law. In order to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established.[22] In the absence of any
malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable
for corporate liabilities.[23]
The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude
that Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly
all of the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction
of separate corporate personalities.[24] Neither is the fact that the name ECO represents the first
three letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that
the said corporation is merely a dummy of Oate. A corporation may assume any name provided it
is lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials
of one of its shareholders.
That respondent corporation in this case was being used as a mere alter ego of Oate to obtain
the loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also
shown. As the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner,
then they could have just easily absconded instead of going out of their way to propose Plans of
Payment.[25] Likewise, Oate volunteered to pay a portion of the corporations debt.[26] This offer
demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It
is understandable that a shareholder would want to help his corporation and in the process, assure
that his stakes in the said corporation are secured. In this case, it was established that the P1 Million
did not come solely from Oate. It was taken from a trust account which was owned by Oate and
other investors.[27] It was likewise proved that the P1 Million was a loan granted by Oate and his
co-depositors to alleviate the plight of ECO.[28] This circumstance should not be construed as an
admission that he was really the debtor and not ECO.
In sum, we agree with the Court of Appeals conclusion that the evidence presented by the
petitioner does not suffice to hold respondent Oate personally liable for the debt of co-respondent
ECO. No reversible error could be attributed to respondent courts decision and resolution which
petitioner assails.
WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the
Court of Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner.
SO ORDERED.
[G.R. No. 159121. February 3, 2005]

PAMPLONA PLANTATION COMPANY, INC. and/or JOSE LUIS


BONDOC, petitioners, vs. RODEL TINGHIL, MARYGLENN
SABIHON, ESTANISLAO BOBON, CARLITO TINGHIL, BONIFACIO
TINGHIL, NOLI TINGHIL, EDGAR TINGHIL, ERNESTO
ESTOMANTE, SALLY TOROY, BENIGNO TINGHIL JR., ROSE ANN
NAPAO, DIOSDADO TINGHIL, ALBERTO TINGHIL, ANALIE
TINGHIL, and ANTONIO ESTOMANTE, respondents.

DECISION
PANGANIBAN, J.:

To protect the rights of labor, two corporations with identical directors,


management, office and payroll should be treated as one entity only. A suit by
the employees against one corporation should be deemed as a suit against the
other. Also, the rights and claims of workers should not be prejudiced by the
acts of the employer that tend to confuse them about its corporate identity. The
corporate fiction must yield to truth and justice.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,


seeking to annul the January 31, 2003 Decision[2] and the June 17, 2003
Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 62813. The
assailed Decision disposed as follows:

WHEREFORE, in view of the foregoing, the petition is GRANTED. The assailed


decision of public respondent NLRC dated 19 July 2000 [is] REVERSED and SET
ASIDE and a new one entered DIRECTING private respondents to reinstate
petitioners, except Rufino Bacubac, Felix Torres and Antonio Canolas, to their former
positions without loss of seniority rights plus payment of full backwages. However, if
reinstatement is no longer feasible, a one-month salary for every year of service shall
be paid the petitioners as ordered by the Labor Arbiter in his decision dated 31 August
1998 plus payment of full backwages computed from date of illegal dismissal to the
finality of this decision.[4]

The Decision[5] of the National Labor Relations Commission


(NLRC),[6] reversed by the CA, disposed as follows:
WHEREFORE, premises considered, the decision appealed from is hereby
REVERSED, and another one entered DISMISSING the complaint.[7]

The June 17, 2003 Resolution denied petitioners Motion for


Reconsideration.

The Facts

The CA summarized the antecedents as follows:

Sometime in 1993, [Petitioner] Pamplona Plantations Company, Inc. (company for


brevity) was organized for the purpose of taking over the operations of the coconut
and sugar plantation of Hacienda Pamplona located in Pamplona, Negros Oriental. It
appears that Hacienda Pamplona was formerly owned by a certain Mr. Bower who
had in his employ several agricultural workers.

When the company took over the operation of Hacienda Pamplona in 1993, it did not
absorb all the workers of Hacienda Pamplona. Some, however, were hired by the
company during harvest season as coconut hookers or sakador, coconut filers, coconut
haulers, coconut scoopers or lugiteros, and charcoal makers.

Sometime in 1995, Pamplona Plantation Leisure Corporation was established for the
purpose of engaging in the business of operating tourist resorts, hotels, and inns, with
complementary facilities, such as restaurants, bars, boutiques, service shops,
entertainment, golf courses, tennis courts, and other land and aquatic sports and
leisure facilities.

On 15 December 1996, the Pamplona Plantation Labor Independent Union (PAPLIU)


conducted an organizational meeting wherein several [respondents] who are either
union members or officers participated in said meeting.

Upon learning that some of the [respondents] attended the said meeting, [Petitioner]
Jose Luis Bondoc, manager of the company, did not allow [respondents] to work
anymore in the plantation.

Thereafter, on various dates, [respondents] filed their respective complaints with the
NLRC, Sub-Regional Arbitration Branch No. VII, Dumaguete City against
[petitioners] for unfair labor practice, illegal dismissal, underpayment, overtime pay,
premium pay for rest day and holidays, service incentive leave pay, damages,
attorneys fees and 13th month pay.
On 09 October 1997, [respondent] Carlito Tinghil amended his complaint to implead
Pamplona Plantation Leisure Corporation x x x.

On 31 August 1998, Labor Arbiter Jose G. Gutierrez rendered a decision finding


[respondents], except Rufino Bacubac, Antonio Caolas and Felix Torres who were
complainants in another case, to be entitled to separation pay.

xxxxxxxxx

[Petitioners] appealed the Labor Arbiters decision to [the] NLRC. In the assailed
decision dated 19 July 2000, the NLRCs Fourth Division reversed the Labor Arbiter,
ruling that [respondents], except Carlito Tinghil, failed to implead Pamplona
Plantation Leisure Corporation, an indispensable party and that there exist no
employer-employee relation between the parties.

xxxxxxxxx

[Respondents] filed a motion for reconsideration which was denied by [the] NLRC in
a Resolution dated 06 December 2000.[8]

Respondents elevated the case to the CA via a Petition for Certiorari under
Rule 65 of the Rules of Court.

Ruling of the Court of Appeals

Guided by the fourfold test for determining the existence of an employer-


employee relationship, the CA held that respondents were employees of
petitioner-company. Finding there was a power to hire, the appellate court
considered the admission of petitioners in their Comment that they had hired
respondents as coconut filers, coconut scoopers, charcoal makers, or as
pieceworkers. The fact that respondents were paid by piecework did not mean
that they were not employees of the company. Further, the CA ruled that
petitioners necessarily exercised control over the work they performed, since
the latter were working within the premises of the plantation. According to the
CA, the mere existence -- not necessarily the actual exercise -- of the right to
control the manner of doing work sufficed to meet the fourth element of an
employer-employee relation.
The appellate court also held that respondents were regular employees,
because the tasks they performed were necessary and indispensable to the
operation of the company. Since there was no compliance with the twin
requirements of a valid and/or authorized cause and of procedural due process,
their dismissal was illegal.
Hence, this Petition.[9]

Issues

In their Memorandum, petitioners submit the following issues for our


consideration:

1. Whether or not the finding of the Court of Appeals that herein respondents are
employees of Petitioner Pamplona Plantation Company, Inc. is contrary to the
admissions of the respondents themselves.

2. Whether or not the Court of Appeals has decided in a way not in accord with
law and jurisprudence, and with grave abuse of discretion, in not dismissing
the respondents complaint for failure to implead Pamplona Plantation Leisure
Corp., which is an indispensable party to this case.

3. Whether or not the Court of Appeals has decided in a way not in accord with law
and jurisprudence, and with grave abuse of discretion in ordering reinstatement
or payment of separation pay and backwages to the respondents, considering the
lack of employer-employee relationship between petitioner and respondents.[10]

The main issue raised is whether the case should be dismissed for the non-
joinder of the Pamplona Plantation Leisure Corporation. The other issues will
be taken up in the discussion of the main question.

The Courts Ruling

The Petition lacks merit.

Preliminary Issue:
Factual Matters

Section 1 of Rule 45 of the Rules of Court states that only questions of law
are entertained in appeals by certiorari to the Supreme Court. However,
jurisprudence has recognized several exceptions in which factual issues may
be resolved by this Court:[11] (1) the legal conclusions made by the lower tribunal
are speculative;[12] (2) its inferences are manifestly mistaken,[13] absurd, or
impossible; (3) the lower court committed grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts;[14] (5) the findings of fact of the
lower tribunals are conflicting;[15] (6) the CA went beyond the issues; (7) the CAs
findings are contrary to the admissions of the parties;[16] (8) the CA manifestly
overlooked facts not disputed which, if considered, would justify a different
conclusion; (9) the findings of fact are conclusions without citation of the specific
evidence on which they are based; and (10) when the findings of fact of the CA are
premised on the absence of evidence but such findings are contradicted by the
evidence on record.[17]
The very same reason that constrained the appellate court to review the
factual findings of the NLRC impels this Court to take its own look at the facts.
Normally, the Supreme Court is not a trier of facts.[18] However, since the
findings of the CA and the NLRC on this point were conflicting, we waded
through the records to find out if there was basis for the formers reversal of the
NLRCs Decision. We shall discuss our factual findings together with our review
of the main issue.

Main Issue:
Piercing the Corporate Veil

Petitioners contend that the CA should have dismissed the case for the
failure of respondents (except Carlito Tinghil) to implead the Pamplona
Plantation Leisure Corporation, an indispensable party, for being the true and
real employer. Allegedly, respondents admitted in their Affidavits dated
February 3, 1998,[19] that they had been employed by the leisure corporation
and/or engaged to perform activities that pertained to its business.
Further, as the NLRC allegedly noted in their individual Complaints,
respondents specifically averred that they had worked in the golf course and
performed related jobs in the recreational facilities of the leisure corporation.
Hence, petitioners claim that, as a sugar and coconut plantation company
separate and distinct from the Pamplona Plantation Leisure Corporation, the
petitioner-company is not the real party in interest.
We are not persuaded.
An examination of the facts reveals that, for both the coconut plantation and
the golf course, there is only one management which the laborers deal with
regarding their work.[20] A portion of the plantation (also called Hacienda
Pamplona) had actually been converted into a golf course and other
recreational facilities. The weekly payrolls issued by petitioner-company bore
the name Pamplona Plantation Co., Inc.[21] It is also a fact that respondents all
received their pay from the same person, Petitioner Bondoc -- the managing
director of the company. Since the workers were working for a firm known as
Pamplona Plantation Co., Inc., the reason they sued their employer through that
name was natural and understandable.
True, the Petitioner Pamplona Plantation Co., Inc., and the Pamplona
Plantation Leisure Corporation appear to be separate corporate entities. But it
is settled that this fiction of law cannot be invoked to further an end subversive
of justice.[22]
The principle requiring the piercing of the corporate veil mandates courts to
see through the protective shroud that distinguishes one corporation from a
seemingly separate one.[23]The corporate mask may be removed and the
corporate veil pierced when a corporation is the mere alter ego of
another.[24] Where badges of fraud exist, where public convenience is defeated,
where a wrong is sought to be justified thereby, or where a separate corporate
identity is used to evade financial obligations to employees or to third
parties,[25] the notion of separate legal entity should be set aside[26] and the
factual truth upheld. When that happens, the corporate character is not
necessarily abrogated.[27] It continues for other legitimate objectives. However,
it may be pierced in any of the instances cited in order to promote substantial
justice.
In the present case, the corporations have basically the same incorporators
and directors and are headed by the same official. Both use only one office and
one payroll and are under one management. In their individual Affidavits,
respondents allege that they worked under the supervision and control of
Petitioner Bondoc -- the common managing director of both the petitioner-
company and the leisure corporation. Some of the laborers of the plantation
also work in the golf course.[28] Thus, the attempt to make the two corporations
appear as two separate entities, insofar as the workers are concerned, should
be viewed as a devious but obvious means to defeat the ends of the law. Such
a ploy should not be permitted to cloud the truth and perpetrate an injustice.
We note that this defense of separate corporate identity was not raised
during the proceedings before the labor arbiter. The main argument therein
raised by petitioners was their alleged lack of employer-employee relationship
with, and power of control over, the means and methods of work of respondents
because of the seasonal nature of the latters work.[29]
Neither was the issue of non-joinder of indispensable parties raised in
petitioners appeal before the NLRC.[30] Nevertheless, in its Decision[31] dated
July 19, 2000, the Commission concluded that the plantation company and the
leisure corporation were two separate and distinct corporations, and that the
latter was an indispensable party that should have been impleaded. We quote
below pertinent portions of that Decision:

Respondent posits that it is engaged in operating and maintaining sugar and coconut
plantation. The positions of complainants could only be determined through their
individual complaints. Yet all complainants alleged in their affidavits x x x that they
were working at the golf course. Worthy to note that only Carlito Tinghil amended his
complaint to include Pamplona Leisure Corporation, which respondents maintain is a
separate corporation established in 1995. Thus, xxx Pamplona Plantation Co., Inc. and
Pamplona Leisure Corporation are two separate and distinct corporations. Except for
Carlito Tinghil the complainants have the wrong party respondent. Pamplona Leisure
Corporation is an indispensable party without which there could be no final
determination of the case.[32]

Indeed, it was only after this NLRC Decision was issued that the petitioners
harped on the separate personality of the Pamplona Plantation Co., Inc., vis--
vis the Pamplona Plantation Leisure Corporation.
As cited above, the NLRC dismissed the Complaints because of the alleged
admission of respondents in their Affidavits that they had been working at the
golf course. However, it failed to appreciate the rest of their averments. Just
because they worked at the golf course did not necessarily mean that they were
not employed to do other tasks, especially since the golf course was merely a
portion of the coconut plantation. Even petitioners admitted that respondents
had been hired as coconut filers, coconut scoopers or charcoal
makers.[33]Consequently, NLRCs conclusion derived from the Affidavits of
respondents stating that they were employees of the Pamplona Plantation
Leisure Corporation alone was the result of an improper selective appreciation
of the entire evidence.
Furthermore, we note that, contrary to the NLRCs findings, some
respondents indicated that their employer was the Pamplona Plantation Leisure
Corporation, while others said that it was the Pamplona Plantation Co., Inc. But
in all these Affidavits, both the leisure corporation and petitioner-company were
identified or described as entities engaged in the development and operation of
sugar and coconut plantations, as well as recreational facilities such as a golf
course. These allegations reveal that petitioner successfully confused the
workers as to who their true and real employer was. All things considered, their
faulty belief that the plantation company and the leisure corporation were one
and the same can be attributed solely to petitioners. It would certainly be unjust
to prejudice the claims of the workers because of the misleading actions of their
employer.

Non-Joinder of Parties

Granting for the sake of argument that the Pamplona Plantation Leisure
Corporation is an indispensable party that should be impleaded, NLRCs outright
dismissal of the Complaints was still erroneous.
The non-joinder of indispensable parties is not a ground for the dismissal of
an action.[34] At any stage of a judicial proceeding and/or at such times as are
just, parties may be added on the motion of a party or on the initiative of the
tribunal concerned.[35] If the plaintiff refuses to implead an indispensable party
despite the order of the court, that court may dismiss the complaint for the
plaintiffs failure to comply with the order. The remedy is to implead the non-
party claimed to be indispensable.[36] In this case, the NLRC did not require
respondents to implead the Pamplona Plantation Leisure Corporation as
respondent; instead, the Commission summarily dismissed the Complaints.
In any event, there is no need to implead the leisure corporation because,
insofar as respondents are concerned, the leisure corporation and petitioner-
company are one and the same entity. Salvador v. Court of Appeals[37] has held
that this Court has full powers, apart from that power and authority which is
inherent, to amend the processes, pleadings, proceedings and decisions by
substituting as party-plaintiff the real party-in-interest.
In Alonso v. Villamor,[38] we had the occasion to state thus:

There is nothing sacred about processes or pleadings, their forms or contents. Their
sole purpose is to facilitate the application of justice to the rival claims of contending
parties. They were created, not to hinder and delay, but to facilitate and promote, the
administration of justice. They do not constitute the thing itself, which courts are
always striving to secure to litigants. They are designed as the means best adapted to
obtain that thing. In other words, they are a means to an end. When they lose the
character of the one and become the other, the administration of justice is at fault and
courts are correspondingly remiss in the performance of their obvious duty.

The controlling principle in the interpretation of procedural rules is liberality,


so that they may promote their object and assist the parties in obtaining just,
speedy and inexpensive determination of every action and proceeding.[39] When
the rules are applied to labor cases, this liberal interpretation must be upheld
with even greater vigor.[40] Without in any way depriving the employer of its legal
rights, the thrust of statutes and rules governing labor cases has been to benefit
workers and avoid subjecting them to great delays and hardships. This intent
holds especially in this case, in which the plaintiffs are poor laborers.

Employer-Employee Relationship

Petitioners insist that respondents are not their employees, because the
former exercised no control over the latters work hours and method of
performing tasks. Thus, petitioners contend that under the control test, the
workers were independent contractors.
We disagree. As shown by the evidence on record, petitioners hired
respondents, who performed tasks assigned by their respective officers-in-
charge, who in turn were all under the direct supervision and control of
Petitioner Bondoc. These allegations are contained in the workers Affidavits,
which were never disputed by petitioners. Also uncontroverted are the payrolls
bearing the name of the plantation company and signed by Petitioner Bondoc.
Some of these payrolls include the time records of the employees. These
documents prove that petitioner-company exercised control and supervision
over them.
To operate against the employer, the power of control need not have been
actually exercised. Proof of the existence of such power is enough.[41] Certainly,
petitioners wielded that power to hire or dismiss, as well as to check on the
progress and the quality of work of the laborers.
Jurisprudence provides other equally important considerations[42] that
support the conclusion that respondents were not independent
contractors. First, they cannot be said to have carried on an independent
business or occupation.[43] They are not engaged in the business of filing,
scooping and hauling coconuts and/or operating and maintaining a plantation
and a golf course. Second, they do not have substantial capital or investment
in the form of tools, equipment, machinery, work premises, and other
implements needed to perform the job, work or service under their own account
or responsibility.[44] Third, they have been working exclusively for petitioners for
several years. Fourth, there is no dispute that petitioners are in the business of
growing coconut trees for commercial purposes. There is no question, either,
that a portion of the plantation was converted into a golf course and other
recreational facilities. Clearly, respondents performed usual, regular and
necessary services for petitioners business.
WHEREFORE, the Petition is DENIED, and the assailed
Decision AFFIRMED. Costs against the petitioners.
SO ORDERED.
REYNOSO VS CA (345 SCRA 335)
Reynoso vs Court of Appeals
345 SCRA 335 [GR No. 116124-25 November 23, 2000]

Facts: Sometime in early 1960s, the Commercial Credit Corporation (CCC), a financing company and investment
firm, decided to organize franchise companies indifferent parts of the country, wherein it shall hold 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 in Quezon City, known as the Commercial Credit
Corporation of Quezon City. CCC-QC entered into an exclusive agreement 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 interest 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, a
wholly-owned subsidiary, to which CCC transferred its 30% equity in CCC-QC, together with 2 seats in the latter’s
Board of Directors. A complaint for sum of money with preliminary attachment was filed by CCC-equity against
petitioner and the latter was also dismissed from employment to which the lower court’s decision was rendered in
favor of the petitioner and the same has become final and executory. CCC changed its name to General Credit
Corporation (GCC).

Issue: Whether or not the judgement in favor of the petitioner may be executed against respondent GCC.

Held: Yes. 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. 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. 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.

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.

The defense of separateness will be disregarded when 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.

The organization of subsidiary corporations as what was done here is usually resorted to for 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 judgement, 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 continuous for
legitimate objectives. However, it is pursued in order to remedy injustice, such as that inflicted in this case.
JARDINE DAVIES, INC., G.R. No. 151438
Petitioner,
Present:

PUNO, J., Chairman,


AUSTRIA-MARTINEZ,
versus CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
JRB REALTY, INC.,
Respondent. Promulgated:
July 15, 2005
x----------------------------------------------x

DECISION

CALLEJO, SR., J.:

Before us is a petition for review of the Decision[1] of the Court of Appeals


(CA) in CA-G.R. CV No. 54201 affirming in toto that of the Regional Trial Court
(RTC) in Civil Case No. 90-237 for specific performance; and the Resolution dated
January 11, 2002 denying the motion for reconsideration thereof.

The facts are as follows:

In 1979-1980, respondent JRB Realty, Inc. built a nine-storey building, named


Blanco Center, on its parcel of land located at 119 Alfaro St., Salcedo Village,
Makati City. An air conditioning system was needed for the Blanco Law Firm
housed at the second floor of the building. On March 13, 1980, the respondents
Executive Vice-President, Jose R. Blanco, accepted the contract quotation of Mr.
A.G. Morrison, President of Aircon and Refrigeration Industries, Inc. (Aircon), for

two (2) sets of Fedders Adaptomatic 30,000 kcal (Code: 10-TR) air conditioning
equipment with a net total selling price of P99,586.00.[2] Thereafter, two (2) brand
new packaged air conditioners of 10 tons capacity each to deliver 30,000 kcal or

120,000 BTUH[3] were installed by Aircon. When the units with rotary compressors
were installed, they could not deliver the desired cooling temperature. Despite
several adjustments and corrective measures, the respondent conceded that Fedders
Air Conditioning USAs technology for rotary compressors for big capacity
conditioners like those installed at the Blanco Center had not yet been perfected. The
parties thereby agreed to replace the units with reciprocating/semi-hermetic
compressors instead. In a Letter dated March 26, 1981,[4] Aircon stated that it would
be replacing the units currently installed with new ones using rotary compressors, at
the earliest possible time. Regrettably, however, it could not specify a date when

delivery could be effected.


TempControl Systems, Inc. (a subsidiary of Aircon until 1987) undertook the
maintenance of the units, inclusive of parts and services. In October 1987, the

respondent learned, through newspaper ads,[5] that Maxim Industrial and


Merchandising Corporation (Maxim, for short) was the new and exclusive licensee
of Fedders Air Conditioning USA in the Philippines for the manufacture,

distribution, sale, installation and maintenance of Fedders air conditioners. The


respondent requested that Maxim honor the obligation of Aircon, but the latter
refused. Considering that the ten-year period of prescription was fast approaching,
to expire on March 13, 1990, the respondent then instituted, on January 29, 1990, an
action for specific performance with damages against Aircon & Refrigeration

Industries, Inc., Fedders Air Conditioning USA, Inc., Maxim Industrial &
Merchandising Corporation and petitioner Jardine Davies, Inc.[6] The latter was
impleaded as defendant, considering that Aircon was a subsidiary of the petitioner.

The respondent prayed that judgment be rendered, as follows:

1. Ordering the defendants to jointly and severally at their account and


expense deliver, install and place in operation two
brand new units of each 10-tons capacity Fedders unitary packaged air
conditioners with Fedders USAs technology perfected rotary compressors to
always deliver 30,000 kcal or 120,000 BTUH to the second floor of the Blanco
Center building at 119 Alfaro St., Salcedo Village, Makati, Metro Manila;

2. Ordering defendants to jointly and severally reimburse plaintiff not


only the sums of P415,118.95 for unsaved electricity from 21st October 1981 to
7th January 1990 and P99,287.77 for repair costs of the two service units from
7th March 1987 to 11th January 1990, with legal interest thereon from the filing of
this Complaint until fully reimbursed, but also like unsaved electricity costs and
like repair costs therefrom until Prayer No. 1 above shall have been complied
with;

3. Ordering defendants to jointly and severally pay plaintiffs P150,000.00


attorneys fees and other costs of litigation, as well as exemplary damages in an
amount not less than or equal to Prayer 2 above; and

4. Granting plaintiff such other and further relief as shall be just and
equitable in the premises.[7]

Of the four defendants, only the petitioner filed its Answer. The court did not
acquire jurisdiction over Aircon because the latter ceased operations, as its corporate
life ended on December 31, 1986.[8] Upon motion, defendants Fedders Air
Conditioning USA and Maxim were declared in default.[9]
On May 17, 1996, the RTC rendered its Decision, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered ordering defendants Jardine Davies,


Inc., Fedders Air Conditioning USA, Inc. and Maxim Industrial and
Merchandising Corporation, jointly and severally:

1. To deliver, install and place into operation the two (2) brand new
units of Fedders unitary packaged airconditioning units each of 10
tons capacity with rotary compressors to deliver 30,000 kcal or
120,000 BTUH to the second floor of the Blanco Center building,
or to pay plaintiff the current price for two such units;

2. To reimburse plaintiff the amount of P556,551.55 as and for the


unsaved electricity bills from October 21, 1981 up to April 30,
1995; and another amount of P185,951.67 as and for repair costs;

3. To pay plaintiff P50,000.00 as and for attorneys fees; and

4. Cost of suit.[10]

The petitioner filed its notice of appeal with the CA, alleging that the trial
court erred in holding it liable because it was not a party to the contract between JRB
Realty, Inc. and Aircon, and that it had a personality separate and distinct from
that of Aircon.
On March 23, 2000, the CA affirmed the trial courts ruling in toto; hence, this
petition.

The petitioner raises the following assignment of errors:


I.
THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE FOR
THE ALLEGED CONTRACTUAL BREACH OF
AIRCON SOLELY BECAUSE THE LATTER WAS FORMERLY JARDINES
SUBSIDIARY.

II.
ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS
JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOT
DECLARING AIRCONS OBLIGATION TO DELIVER THE TWO (2)
AIRCONDITIONING UNITS TO JRB AS HAVING BEEN
SUBSTANTIALLY COMPLIED WITH IN GOOD FAITH.

III.
ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS
JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN NOT
DECLARING JRBS CAUSES OF ACTION AS HAVING BEEN BARRED BY
LACHES.
IV.
ASSUMING ARGUENDO THAT AIRCON MAY BE CONSIDERED AS
JARDINES MERE ALTER EGO, THE COURT OF APPEALS ERRED IN
FINDING JRB ENTITLED TO RECOVER ALLEGED UNSAVED
ELECTRICITY EXPENSES.

V.
THE COURT OF APPEALS ERRED IN HOLDING JARDINE LIABLE TO
PAY ATTORNEYS FEES.
VI.
THE COURT OF APPEALS ERRED IN NOT HOLDING JRB LIABLE TO
JARDINE FOR DAMAGES.[11]

It is the well-settled rule that factual findings of the trial court, as affirmed by
the CA, are accorded high respect, even finality at times. However, considering that
the factual findings of the CA and the RTC were based on speculation and
conjectures, unsupported by substantial evidence, the Court finds that the instant
case falls under one of the excepted instances. There is, thus, a need to correct the

error.

The trial court ruled that Aircon was a subsidiary of the petitioner, and
concluded, thus:
Plaintiffs documentary evidence shows that at the time it contracted with
Aircon on March 13, 1980 (Exhibit D) and on the date the revised agreement was
reached on March 26, 1981, Aircon was a subsidiary of Jardine. The phrase A
subsidiary of Jardine Davies, Inc. was printed on Aircons letterhead of its March
13, 1980 contract with plaintiff (Exhibit D-1), as well as the Aircons letterhead
of Jardines Director and Senior Vice-President A.G. Morrison and Aircons
President in his March 26, 1981 letter to plaintiff (Exhibit J-2) confirming the
revised agreement. Aircons newspaper ads of April 12 and 26, 1981 and a press
release on August 30, 1982 (Exhibits E, F and L) also show that defendant Jardine
publicly represented Aircon to be its subsidiary.

Records from the Securities and Exchange Commission (SEC) also reveal
that as per Jardines December 31, 1986 and 1985 Financial Statements that The
company acts as general manager of its subsidiaries (Exhibit P). Jardines
Consolidated Balance Sheet as of December 31, 1979 filed with the SEC listed
Aircon as its subsidiary by owning 94.35% of Aircon (Exhibit P-1). Also, Aircons
reportorial General Information Sheet as of April 1980 and April 1981 filed with
the SEC show that Jardine was 94.34% owner of Aircon (Exhibits Q and R) and
that out of seven members of the Board of Directors of Aircon, four (4) are also
of Jardine.

Defendant Jardines witness, Atty. Fe delos Santos-Quiaoit admitted that


defendant Aircon, renamed Aircon & Refrigeration Industries, Inc. is one of the
subsidiaries of Jardine Davies (TSN, September 22, 1995, p. 12). She also
testified that Jardine nominated, elected, and appointed the controlling majority
of the Board of Directors and the highest officers of Aircon (Ibid, pp. 10,13-14).

The foregoing circumstances provide justifiable basis for this Court to


disregard the fiction of corporate entity and treat defendant Aircon as part of the
instrumentality of co-defendant Jardine.[12]

The respondent court arrived at the same conclusion basing its ruling on the
following documents, to wit:

(a) Contract/Quotation #78-No. 80-1639 dated March 03, 1980 (Exh. D-


1);

(b) Newspaper Advertisements (Exhs. E-1 and F-1);

(c) Letter dated March 26, 1981 of A.G. Morrison, President of Aircon, to
Atty. J.R. Blanco (Exh. J);

(d) News items of Bulletin Today dated August 30, 1982 (Exh. L);
(e) Balance Sheet of Jardine Davies, Inc. as of December 31, 1979 listing
Aircon as one of its subsidiaries (Exh. P);

(f) Financial Statement of Aircon as of December 31, 1982 and 1981 (Exh.
S);

(g) Financial Statement of Aircon as of December 31, 1981 (Exh. S-1).[13]

Applying the doctrine of piercing the veil of corporate fiction, both the
respondent and trial courts conveniently held the petitioner liable for the alleged
omissions of Aircon, considering that the latter was its instrumentality or corporate
alter ego. The petitioner is now before us, reiterating its defense of separateness, and
the fact that it is not a party to the contract.

We find merit in the petition.

It is an elementary and fundamental principle of corporation law that a


corporation is an artificial being invested by law with a personality separate and
distinct from its stockholders and from other corporations to which it may be
connected. While a corporation is allowed to exist solely for a lawful purpose, the

law will regard it as an association of persons or in case of two corporations, merge


them into one, when this corporate legal entity is used as a cloak for fraud or
illegality.[14] This is the doctrine of piercing the veil of corporate

fiction which applies only when such corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.[15] The rationale behind
piercing a corporations identity is to remove the barrier between the corporation
from the persons comprising it to thwart the fraudulent and illegal schemes of those
who use the corporate personality as a shield for undertaking certain proscribed

activities.[16]

While it is true that Aircon is a subsidiary of the petitioner, it does not


necessarily follow that Aircons corporate legal existence can just be disregarded.

In Velarde v. Lopez, Inc.,[17] the Court categorically held that a subsidiary has an
independent and separate juridical personality, distinct from that of its parent
company; hence, any claim or suit against the latter does not bind the former,

and vice versa. In applying the doctrine, the following requisites must be established:
(1) control, not merely majority or complete stock control; (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 acts 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.[18]

The records bear out that Aircon is a subsidiary of the petitioner only because
the latter acquired Aircons majority of capital stock. It, however, does not exercise

complete control over Aircon; nowhere can it be gathered that the petitioner manages
the business affairs of Aircon. Indeed, no management agreement exists between the
petitioner and Aircon, and the latter is an entirely different entity from the

petitioner.[19]
Jardine Davies, Inc., incorporated as early as June 28, 1946, [20] is primarily a
financial and trading company. Its Articles of Incorporation states among many

others that the purposes for which the said corporation was formed, are as follows:

(a) To carry on the business of merchants, commission merchants, brokers,


factors, manufacturers, and agents;

(b) Upon complying with the requirements of law applicable thereto, to act
as agents of companies and underwriters doing and engaging in any and all kinds
of insurance business.[21]

On the other hand, Aircon, incorporated on December 27, 1952,[22] is a


manufacturing firm. Its Articles of Incorporation states that its purpose is mainly -
To carry on the business of manufacturers of commercial and household
appliances and accessories of any form, particularly to manufacture, purchase,
sell or deal in air conditioning and refrigeration products of every class and
description as well as accessories and parts thereof, or other kindred articles; and
to erect, or buy, lease, manage, or otherwise acquire manufactories, warehouses,
and depots for manufacturing, assemblage, repair and storing, buying, selling, and
dealing in the aforesaid appliances, accessories and products. [23]

The existence of interlocking directors, corporate officers and shareholders,


which the respondent court considered, is not enough justification to pierce the veil
of corporate fiction, in the absence of fraud or other public policy
considerations.[24] 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] To warrant resort to this extraordinary remedy, there must be proof
that the corporation is being used as a cloak or cover for fraud or illegality, or to
work injustice.[26] Any piercing of the corporate veil has to be done with
caution.[27] The wrongdoing must be clearly and convincingly established. It cannot

just be presumed.[28]

In the instant case, there is no evidence that Aircon was formed or utilized
with the intention of defrauding its creditors or evading its contracts and obligations.

There was nothing fraudulent in the acts of Aircon in this case. Aircon, as a
manufacturing firm of air
conditioners, complied with its obligation of providing two air conditioning units for

the second floor of the Blanco Center in good faith, pursuant to its contract with the
respondent. Unfortunately, the performance of the air conditioning units did not
satisfy the respondent despite several adjustments and corrective measures. In a

Letter[29] dated October 22, 1980, the respondent even conceded that Fedders Air
Conditioning USA has not yet perhaps perfected its technology of rotary
compressors, and agreed to change the compressors with the semi-hermetic type.
Thus, Aircon substituted the units with serviceable ones which delivered the cooling
temperature needed for the law office. After enjoying ten (10) years of its cooling
power, respondent cannot now complain about the performance of these units, nor

can it demand a replacement thereof.

Moreover, it was reversible error to award the respondent the amount

of P556,551.55 representing the alleged 30% unsaved electricity costs


and P185,951.67 as maintenance cost without showing any basis for such award. To
justify a grant of actual or compensatory damages, it is necessary to prove with a
reasonable degree of certainty, premised upon competent proof and on the best

evidence obtainable by the injured party, the actual amount of loss. [30] The
respondent merely based its cause of action on Aircons alleged representation that
Fedders air conditioners with rotary compressors can save as much as 30% on

electricity compared to other brands. Offered in evidence were newspaper


advertisements published on April 12 and 26, 1981. The respondent then recorded
its electricity consumption from October 21, 1981 up to April 3, 1995 and computed
30% thereof, which amounted to P556,551.55. The Court rules that this amount is
highly speculative and merely hypothetical, and for which the petitioner can not be
held accountable.

First. The respondent merely relied on the newspaper advertisements showing


the Fedders window-type air conditioners, which are far different from the big
capacity air conditioning units installed at Blanco Center.

Second. After such print advertisements, the respondent informed Aircon that
it was going to install an electric meter to register its electric consumption so as to
determine the electric costs not saved by the presently installed units with semi-
hermetic compressors. Contrary to the allegations of the respondent that this was in
pursuance to their Revised Agreement, no proof was adduced that Aircon agreed to

the respondents proposition. It was a unilateral act on the part of the respondent,
which Aircon did not oblige or commit itself to pay.
Third. Needless to state, the amounts computed are mere estimates
representing the respondents self-serving claim of unsaved electricity cost, which is

too speculative and conjectural to merit consideration. No other proofs, reports or


bases of comparison showing that Fedders Air Conditioning USA could indeed cut
down electricity cost by 30% were adduced.

Likewise, there is no basis for the award of P185,951.67 representing


maintenance cost. The respondent merely submitted a schedule[31] prepared by the
respondents accountant, listing the alleged repair costs from March 1987 up to June

1994. Such evidence is self-serving and can not also be given probative weight,
considering that there are no proofs of receipts, vouchers, etc., which would
substantiate the amounts paid for such services. Absent any more convincing proof,

the Court finds that the respondents claims are without basis, and cannot, therefore,
be awarded.

We sustain the petitioners separateness from that of Aircon in this case. It


bears stressing that the petitioner was never a party to the contract. Privity of
contracts take effect only between parties, their successors-in-interest, heirs and
assigns.[32] The petitioner, which has a
separate and distinct legal personality from that of Aircon, cannot, therefore, be held
liable.

IN VIEW OF THE FOREGOING, the petition is GRANTED. The assailed


decision of the Court of Appeals, affirming the decision of the Regional Trial Court
is REVERSED and SET ASIDE. The complaint of the respondent
is DISMISSED. Costs against the respondent.

SO ORDERED.
[G.R. No. 128606. December 4, 2000]

REPUBLIC OF THE PHILIPPINES, petitioner, vs. SANDIGANBAYAN


(3RD DIVISION), JOSE L. AFRICA, UNIMOLCO, ROBERTO
BENEDICTO, ANDRES AFRICA and SMART
COMMUNICATIONS, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review assailing the Resolutions[1] of the Sandiganbayan dated
December 6, 1996[2] and March 17, 1997[3] in Civil Case No. 0009, entitled "Republic of the
Philippines, Plaintiff versus Jose L. Africa, et al., Defendants, which upheld the sale by
Universal Molasses Corporation (UNIMOLCO) of its shares of stock in Eastern
Telecommunications Philippines, Inc. (ETPI), to Smart Communications. Petitioner
contends that the sale violated its preemptive right as stockholder of ETPI, which is
guaranteed in the Articles of Incorporation.
ETPI was one of the corporations sequestered by the Presidential Commission on
Good Government (PCGG). Among its stockholders were Roberto S. Benedicto and
UNIMOLCO.
Sometime in 1990, PCGG and Benedicto entered into a compromise agreement
whereby Benedicto ceded to the government 204,000 shares of stock in ETPI,
representing his fifty-one percent (51%) equity therein. The other forty-nine percent
(49%), consisting of 196,000 shares of stock, were released from sequestration and
adjudicated by final judgment to Benedicto and UNIMOLCO. Furthermore, the
government agreed to withdraw the cases filed against Benedicto and free him from
further criminal prosecution.
In a written notice received on April 24, 1996 by Melquiades Gutierrez, the President
and Chairman of the Board of ETPI, UNIMOLCO offered to sell to ETPI its 196,000 shares
of stock therein.
Meanwhile, on motion of petitioner, through the PCGG, the Sandiganbayan issued a
Resolution, dated May 7, 1996, authorizing the entry in the Stock and Transfer Book of
ETPI of the transfer of ownership of 204,000 shares of stock to petitioner, to be taken out
of the shareholdings of UNIMOLCO. On June 5, 1996, Benedicto filed a Manifestation
and Motion with the Sandiganbayan, praying that the Resolution dated May 7, 1996 be
modified such that the entry of the 204,000 shares of stock of petitioner in ETPI be taken
out of the shareholdings of UNIMOLCO and/or Roberto S. Benedicto.
On June 21, 1996, PCGG issued Resolution No. 96-142 enjoining all stockholders of
ETPI from selling shares of stock therein without the written conformity of the PCGG. [4]
Subsequently, on July 24, 1996, UNIMOLCO and Smart Communications executed
a Deed of Absolute Sale whereby UNIMOLCO sold its 196,000 shares of stock in ETPI
to Smart.[5]Prior to the sale, Smart was not a stockholder of ETPI.
Thus, on August 8, 1996, petitioner filed with the Sandiganbayan a Motion to Cite
Defendant Benedicto and the Parties to the Sale of UNIMOLCO Shares in ETPI in
Contempt of Court and to Rescind and/or Annul Said Sale. Petitioner alleged that the sale
of the 196,000 shares of stock of UNIMOLCO to Smart was in defiance of the May 7,
1996 Resolution of the Sandiganbayan, which provided that the 204,000 shares of the
government shall come from the shareholdings of UNIMOLCO, and it interfered with the
proceedings thereon. In support of its prayer for the rescission and annulment of the sale,
petitioner argued that the same violated its right of first refusal to purchase shares of stock
in ETPI.
The right of first refusal is contained in Article 10 of the Articles of Incorporation of
ETPI, which states:

ARTICLE TENTH: In the event any stockholder (hereinafter referred to as the


Offeror) desires to dispose, transfer, sell or assign any shares of stock of the
Corporation (hereinafter referred to as the Offered Stock), except in the case
of any disposal, transfer, sale or assignment between or among the
incorporators or to corporation controlled by the incorporators, the Offeror
shall give a right of first refusal to the Corporation and, thereafter in the event
that the Corporation shall refuse or fail to accept all of the Offered Stock to all
then stockholders of record of the Corporation (except the Offeror) to
purchase the Offered Stock pro rata, at a price and upon terms and conditions
specified by the Offeror based upon a firm, bona fide, written cash offer from
a bona fide purchaser.

The Corporation shall be entitled to exercise its right of first refusal with
respect to all, but not less than all, of the Offered Stock for a period
(hereinafter referred to as the First Period) of thirty (30) days, from the receipt
by it of a written offer to sell from the Offeror.

If the Corporation shall fail or refuse within the First Period to accept the offer
for all of the Offered Stock, then on or before the end of such First Period, the
Secretary of the Corporation shall transmit by registered mail and by telegram
or cable a copy of such offer to each stockholder of record (other than the
Offeror) at his/its address appearing on the books of the Corporation and shall
also notify each stockholder of the expiry date of such offer (such expiry date
being thirty (30) days after the end of the First Period). All then stockholders of
record of the Corporation, other than the Offeror, shall be entitled for a period
(hereinafter referred to as the Second Period) ending thirty (30) days after the
First Period to exercise their rights of first refusal with respect to all or any
portion of the Offered Stock for which they have a right of first refusal and may
in addition offer to purchase any shares thereof not subscribed for by the
other stockholders pursuant to rights of first refusal. Such shares shall be
allocated among stockholders offering to purchase such shares, pro rata, up
to the limits, if any, specified by such purchasing stockholders. Each such
purchasing stockholder shall transmit to the Corporation with his/its
acceptance cash, or a certified check or checks drawn on a Philippine bank or
banks, in an amount sufficient to meet the terms of the offer corresponding to
such number of shares of Offered Stock specified in his/its acceptance.

In its Resolution dated December 6, 1996, the Sandiganbayan denied petitioners


motion for contempt and to rescind or annul the sale of the 196,000 ETPI shares of stock
to Smart.[6]Petitioner filed a motion for reconsideration but the same was denied in a
Resolution dated March 17, 1997.[7]
Hence, this petition for review raising the following grounds:

I. THE SANDIGANBAYAN ERRED IN NOT RECOGNIZING PETITIONER


PCGGS EXERCISE OF ITS RIGHT OF FIRST REFUSAL AS
STOCKHOLDER, TO PURCHASE THE 196,000 ETPI SHARES
REGISTERED IN THE NAME OF UNIMOLCO.

II. THE SANDIGANBAYAN ERRED IN APPROVING/RATIFYING THE SALE


OF THE 196,000 SHARES BY PRIVATE RESPONDENTS UNIMOLCO,
BENEDICTO AND AFRICA IN FAVOR OF SMART.

Petitioner argues that it received the notice of UNIMOLCOs offer to sell its shares of
stock only on August 30, 1996. The written notice, issued by Atty. Bayani K. Tan, ETPI
Corporate Secretary, gave the stockholders, including petitioner, until September 26,
1996 within which to exercise their preemptive right. On September 24, 1996, petitioner
sent a letter to the Corporate Secretary stating that the government is exercising its right
of first refusal and offering payment thereof in the form of compensation or set-off against
the assets of respondent Benedicto still due to the Philippine government under the
Compromise Agreement.
Respondents UNIMOLCO, Benedicto and Andres L. Africa filed their
Comment,[8] arguing that petitioners offer of payment by way of set-off was invalid,
inasmuch as the Articles of Incorporation of ETPI specifically provided that tender of
payment should be in cash, certified check or checks drawn on a Philippine bank.
Respondent SMART filed its Comment,[9] likewise arguing that petitioners proposal to
off-set the purchase price for the shares of stock with assets of Benedicto did not
constitute a valid tender of payment. Moreover, petitioner cannot use assets recovered
as ill-gotten wealth for the purchase of the shares of stock because under Section 63 of
Republic Act No. 6657, any amounts derived therefrom shall be appropriated to fund the
Comprehensive Agrarian Reform Program.
On October 2, 1997, Victor Africa filed a Motion for Leave to Intervene and a
Comment-in-Intervention.[10] He alleges that petitioners exercise of the right of first refusal
is preconditioned on its being a stockholder of ETPI. However, intervenor has a pending
motion before the Sandiganbayan precisely questioning petitioners right to become a
transferee of ETPI shares and to enjoin the registration of petitioner as a legitimate
stockholder in the Stock and Transfer Book of ETPI. On December 10, 1997, the motion
for leave to intervene was granted and the Comment-in-Intervention was admitted.[11]
The petition is without merit.
The records of the case clearly show that the written notice by UNIMOLCO, the
Offeror, of its intention to sell its 196,000 shares of stock was duly received on April 24,
1996 by the President and Chairman of the Board of ETPI. The Sandiganbayan correctly
held that this was valid service of the written offer to the corporation, applying by analogy
the Rules of Court provisions on service of summons. Petitioner does not dispute that the
written notice to the President and Chairman of the Board of ETPI was service to the
corporation. It merely argues that after receipt of the offer, ETPI did not act in accordance
with the procedure laid down in the Articles of Incorporation. Thus, in its petition for
review, petitioner states:

The April 24, 1996 offer sent to ETPI Chairman and President Melquiades
Gutierrez did not become valid and effective as it was not able to completely
comply with the requirements of Article 10 of the ETPI Articles of
Incorporation. Indeed, after receipt by ETPI of the April 24, 1996 offer,
ETPI never acted on it. Assuming that ETPI, as a corporation did not
exercise its right of first refusal within the first thirty day period pursuant to
Article 10, it did not send notices to then stockholders of record of ETPI about
the offered sale and their privilege to exercise their rights of first refusal. In
other words, the ETPI stockholders were denied of its formal notice from ETPI
about the said offer to sell the 196,000 share of stock. [12]

Hence, the First Period of thirty days contemplated in the Articles of Incorporation
commenced to run on April 24, 1996, giving the corporation until May 24, 1996 within
which to exercise its right of first refusal. ETPIs inaction simply means that it did not desire
to purchase the shares of stock. The stockholders right of first refusal, thus, accrued upon
the expiration of the First Period and within the succeeding thirty days, known as the
Second Period. The Sandiganbayan held that the First Period and the Second Period are
continuous in character because the Second Period ends, in the very words of Article 10
of the ETPI Articles, thirty (30) days after the First Period, and the expiry date being thirty
(30) days after the end of the First Period.[13] The Second Period, therefore, covered the
period from May 24, 1996 to June 23, 1996.
Petitioner maintains that under the Articles of Incorporation, the Corporate Secretary
of ETPI should have given the stockholders written notice of the offer to sell on or before
the expiration of the First Period. However, Resolution No. 96-142, adopted by PCGG on
June 21, 1996, states among others:
WHEREAS, on 4 June 1996, the PCGG received copy of a letter of 29 May
1996 from Atty. Juan de Ocampo, alleging that he is the Corporate Secretary
of ETPI, copy of which is hereto attached, stating that under Article Tenth of
the ETPI articles of Incorporation, all stockholders of record have the right of
first refusal to purchase pro rata to their holdings in ETPI to expire 20 days
(supposed to be 30) from expiry date of ETPIs right of first refusal which was
allegedly 24 May 1996, giving the Government up to 18 June 1996 to exercise
the right of first refusal to purchase up to 22,148 shares of stock. [14]

From the above, it clearly appears that, by petitioners own admission and contrary to
its belated protestation, the procedure outlined in the Articles of Incorporation relating to
the right of first refusal was observed. But petitioner takes exception to Atty. De Ocampos
authority to act as Corporate Secretary of ETPI. In this connection, the Sandiganbayan
held:

xxx. The question of who are the legitimate directors and officers of ETPI has
been elevated to the Supreme Court but has not yet been finally
resolved. This should not, however, detract from the fact that PCGG has
actually been informed of the intended sale. [15]

We agree with the Sandiganbayan. The purpose of the notice requirement in Article
10 of the ETPI Articles of Incorporation is to give the stockholders knowledge of the
intended sale of shares of stock of the corporation, in order that they may exercise their
preemptive right. Where it is shown that a stockholder had actual knowledge of the
intended sale within the period prescribed to exercise the right, the notice requirement
had been sufficiently met. In the case at bar, PCGG had actual knowledge of
UNIMOLCOs offer to sell its shares of stock. In fact, it issued Resolution No. 96-142
enjoining the sale of the said shares of stock to Smart. Petitioner, thus, cannot feign lack
of notice.[16]
Parenthetically, PCGG had no more authority to enjoin the sale of UNIMOLCOs
196,000 shares of stock, as it endeavored to do in Resolution No. 96-142. As correctly
found by the Sandiganbayan, since the 196,000 shares of stock had already been
adjudicated by final judgment to Benedicto and UNIMOLCO, PCGG could no longer
exercise power and authority over the same.[17]
Therefore, we sustain the Sandiganbayans ruling that petitioners right of first refusal
was not seasonably exercised.[18]
Even on the assumption that petitioner exercised its right of first refusal on time, it
nonetheless failed to follow the requirement in the Articles of Incorporation that payment
must be tendered in cash or certified checks or checks drawn on a Philippine bank or
banks. The set-off or compensation it proposed does not fall under any of the recognized
modes of payment in the Articles. In order that compensation may be proper, Article 1279
of the Civil Code requires:
(1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things are
consumable, they be of the same kind, and also of the same quality if the later
has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable, and

(5) That over neither of them there be any retention or controversy,


commenced by third persons and communicated in due time to the debtor.

Petitioner sought the offsetting of the price of the shares of stock with assets of
respondent Benedicto, whom it claimed was indebted to it for certain lands and dividends
due to it under their Compromise Agreement. Benedicto was only a stockholder of
UNIMOLCO, the Offeror. While he may be the majority stockholder, UNIMOLCO cannot
be said to be liable for Benedictos supposed obligations to petitioner. To be sure,
Benedicto and UNIMOLCO are separate and distinct persons. On the basis of this alone,
there can be no valid set-off. Petitioner and UNIMOLCO are not principal debtors and
creditors of each other.
Petitioner counters that UNIMOLCOs corporate fiction should be pierced since it is
also owned by Benedicto. However, mere majority ownership of the stocks of a
corporation is not per se a cause for piercing the corporate veil. There was no evidence
that UNIMOLCOs corporate entity was used by respondent Benedicto to commit fraud or
to do wrong on petitioner; neither was it shown that the corporate entity was merely a
farce and that it was used as an alter ego, business conduit or instrumentality of a person
or another entity or that piercing the corporation fiction is necessary to achieve justice or
equity.[19] Only in these instances may the fiction be pierced and disregarded.[20] Being the
party that invoked it, petitioner has the burden of substantiating by clear and convincing
evidence that UNIMOLCOs corporate veil must be pierced.
Besides, petitioners claims on the lands and dividends allegedly due it from
respondent Benedictos other business holdings are not enforceable in court. Only
liquidated debts are enforceable in court, there being no apparent defenses inherent in
them.[21] For compensation to take place, a distinction must be made between a debt and
a mere claim. A debt is a claim which has been formally passed upon by the highest
authority to which it can in law be submitted and has been declared to be a debt. A claim,
on the other hand, is a debt in embryo. It is mere evidence of a debt and must pass
through the process prescribed by law before it develops into what is properly called a
debt.[22] There being no two debts for which either party may be said as principally bound
to each other, again, there can be no set-off.
In the final analysis, the resolution of this case hinges on questions of fact. It is
axiomatic that factual findings of the Sandiganbayan are conclusive on the Supreme
Court.[23] None of the exceptions to this rule[24] is present in this case.
WHEREFORE, the petition is DENIED. The Resolutions of the Sandiganbayan dated
December 6, 1996 and March 17, 1997 in Civil Case No. 0009 are AFFIRMED.
SO ORDERED.
[G.R. No. 138104. April 11, 2002]

MR HOLDINGS, LTD., petitioner, vs. SHERIFF CARLOS P. BAJAR,


SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK
CORPORATION, AND MARCOPPER MINING
CORPORATION, respondents.

DECISION
SANDOVAL-GUTIERREZ, J.:

In the present Petition for Review on Certiorari, petitioner MR Holdings, Ltd.


assails the a) Decision[1] dated January 8, 1999 of the Court of Appeals in CA-G.R. SP
No. 49226 finding no grave abuse of discretion on the part of Judge Leonardo P.
Ansaldo of the Regional Trial Court (RTC), Branch 94, Boac, Marinduque, in denying
petitioners application for a writ of preliminary injunction; [2] and b)Resolution[3] dated
March 29, 1999 denying petitioners motion for reconsideration.
The facts of the case are as follows:
Under a Principal Loan Agreement[4] and Complementary Loan Agreement,[5] both
dated November 4, 1992, Asian Development Bank (ADB), a multilateral development
finance institution, agreed to extend to Marcopper Mining Corporation (Marcopper) a
loan in the aggregate amount of US$40,000,000.00 to finance the latters mining project
at Sta. Cruz, Marinduque. The principal loan of US$ 15,000,000.00 was sourced from
ADBs ordinary capital resources, while the complementary loan of US$ 25,000,000.00
was funded by the Bank of Nova Scotia, a participating finance institution.
On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign corporation
which owns 40% of Marcopper, executed a Support and Standby Credit Agreement
whereby the latter agreed to provide Marcopper with cash flow support for the payment
of its obligations to ADB.
To secure the loan, Marcopper executed in favor of ADB a Deed of Real Estate and
Chattel Mortgage[6] dated November 11, 1992, covering substantially all of its
(Marcoppers) properties and assets in Marinduque. It was registered with the Register
of Deeds on November 12, 1992.
When Marcopper defaulted in the payment of its loan obligation, Placer Dome, in
fulfillment of its undertaking under the Support and Standby Credit Agreement, and
presumably to preserve its international credit standing, agreed to have its subsidiary
corporation, petitioner MR Holding, Ltd., assumed Marcoppers obligation to ADB in
the amount of US$ 18,453,450.02. Consequently, in an Assignment Agreement[7] dated
March 20, 1997, ADB assigned to petitioner all its rights, interests and obligations
under the principal and complementary loan agreements, (Deed of Real Estate and
Chattel Mortgage, and Support and Standby Credit Agreement). On December 8, 1997,
Marcopper likewise executed a Deed of Assignment[8] in favor of petitioner. Under its
provisions, Marcopper assigns, transfers, cedes and conveys to petitioner, its assigns
and/or successors-in-interest all of its (Marcoppers) properties, mining equipment and
facilities, to wit:

Land and Mining Rights

Building and Other Structures

Other Land Improvements

Machineries & Equipment, and Warehouse Inventory

Mine/Mobile Equipment

Transportation Equipment and Furniture & Fixtures

Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation (Solidbank)


obtained a Partial Judgment[9] against Marcopper from the RTC, Branch 26, Manila, in
Civil Case No. 96-80083 entitledSolidbank Corporation vs. Marcopper Mining
Corporation, John E. Loney, Jose E. Reyes and Teodulo C. Gabor, Jr., the decretal
portion of which reads:

WHEREFORE, PREMISES CONSIDERED, partial judgment is hereby rendered


ordering defendant Marcopper Mining Corporation, as follows:

1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine Hundred Seventy
Thousand Pesos Seven Hundred Fifty Six and 89/100 only (PHP 52,970,756.89),
plus interest and charges until fully paid;
2. To pay an amount equivalent to Ten Percent (10%) of above-stated amount as
attorneys fees; and
3. To pay the costs of suit.

"SO ORDERED.

Upon Solidbanks motion, the RTC of Manila issued a writ of execution pending
appeal directing Carlos P. Bajar, respondent sheriff, to require Marcopper to pay the
sums of money to satisfy the Partial Judgment.[10] Thereafter, respondent Bajar issued
two notices of levy on Marcoppers personal and real properties, and over all its stocks
of scrap iron and unserviceable mining equipment.[11] Together with
sheriff Ferdinand M. Jandusay (also a respondent) of the RTC, Branch 94, Boac,
Marinduque, respondent Bajar issued two notices setting the public auction sale of the
levied properties on August 27, 1998 at the Marcopper mine site.[12]
Having learned of the scheduled auction sale, petitioner served an Affidavit of
Third-Party Claim[13] upon respondent sheriffs on August 26, 1998, asserting its
ownership over all Marcoppers mining properties, equipment and facilities by virtue of
the Deed of Assignment.
Upon the denial of its Affidavit of ThirdParty Claim by the RTC of
Manila,[14] petitioner commenced with the RTC of Boac, Marinduque, presided by
Judge Leonardo P. Ansaldo, a complaint for reivindication of properties, etc., with
prayer for preliminary injunction and temporary restraining order against respondents
Solidbank, Marcopper, and sheriffs Bajar and Jandusay.[15] The case was docketed as
Civil Case No. 98-13.
In an Order[16]dated October 6, 1998, Judge Ansaldo
denied petitioners application for a writ of preliminary injunction on the ground
that a) petitioner has no legal capacity to sue, it being a foreign corporation doing
business in the Philippines without license; b) an injunction will amount to staying the
execution of a final judgment by a court of co-equal and concurrent jurisdiction;
and c) the validity of the Assignment Agreement and the Deed of Assignment has been
put into serious question by the timing of their execution and registration.
Unsatisfied, petitioner elevated the matter to the Court of Appeals on a Petition for
Certiorari, Prohibition and Mandamus, docketed therein as CA-G.R. SP No. 49226. On
January 8, 1999, the Court of Appeals rendered a Decision holding that Judge Ansaldo
did not commit grave abuse of discretion in denying petitioners prayer for a writ of
preliminary injunction, ratiocinating as follows:

Petitioner contends that it has the legal capacity to sue and seek redress from
Philippine courts as it is a non-resident foreign corporation not doing business in the
Philippines and suing on isolated transactions.

xxxxxx

We agree with the finding of the respondent court that petitioner is not suing on an
isolated transaction as it claims to be, as it is very obvious from the deed of
assignment and its relationships with Marcopper and Placer Dome, Inc. that its
unmistakable intention is to continue the operations of Marcopper and shield its
properties/assets from the reach of legitimate creditors, even those holding valid and
executory court judgments against it. There is no other way for petitioner to recover
its huge financial investments which it poured into Marcoppers rehabilitation and the
local situs where the Deeds of Assignment were executed, without petitioner
continuing to do business in the country.

xxxxxx

While petitioner may just be an assignee to the Deeds of Assignment, it may still
fall within the meaning of doing business in light of the Supreme Court ruling in
the case of Far East International Import and Export Corporation vs. Nankai
Kogyo Co., 6 SCRA 725, that:

Where a single act or transaction however is not merely incidental or casual but
indicates the foreign corporations intention to do other business in the
Philippines, said single act or transaction constitutes doing or engaging in or
transacting business in the Philippines.

Furthermore, the court went further by declaring that even a single act may
constitute doing business if it is intended to be the beginning of a series of
transactions. (Far East International Import and Export Corporation vs. Nankai
Kogyo Co. supra).

On the issue of whether petitioner is the bona fide owner of all the mining facilities
and equipment of Marcopper, petitioner relies heavily on the Assignment Agreement
allegedly executed on March 20, 1997 wherein all the rights and interest of Asian
Development Bank (ADB) in a purported Loan Agreement were ceded and
transferred in favor of the petitioner as assignee, in addition to a subsequent Deed of
Assignment dated December 28, 1997 conveying absolutely all the properties, mining
equipment and facilities of Marcopper in favor of petitioner.

The Deeds of Assignment executed in favor of petitioner cannot be binding on the


judgment creditor, private respondent Solidbank, under the general legal principle that
contracts can only bind the parties who had entered into it, and it cannot favor or
prejudice a third person (Quano vs. Court of Appeals, 211 SCRA 40). Moreover, by
express stipulation, the said deeds shall be governed, interpreted and construed in
accordance with laws of New York.

The Deeds of Assignment executed by Marcopper, through its President, Atty.


Teodulo C. Gabor, Jr., were clearly made in bad faith and in fraud of creditors,
particularly private respondent Solidbank. The first Assignment Agreement
purportedly executed on March 20, 1997 was entered into after Solidbank had
filed on September 19, 1996 a case against Marcopper for collection of sum of
money before Branch 26 of the Regional Trial Court docketed as Civil Case No.
96-80083. The second Deed of Assignment purportedly executed on December 28,
1997 was entered into by President Gabor after Solidbank had filed its Motion
for Partial Summary Judgment, after the rendition by Branch 26 of the Regional
Trial Court of Manila of a Partial Summary Judgment and after the said trial
court had issued a writ of execution, and which judgment was later affirmed by
the Court of Appeals. While the assignments (which were not registered with the
Registry of Property as required by Article 1625 of the new Civil Code) may be valid
between the parties thereof, it produces no effect as against third parties. The
purported execution of the Deeds of Assignment in favor of petitioner was in violation
of Article 1387 of the New Civil Code x x x. (Emphasis Supplied)

Hence, the present Petition for Review on Certiorari by MR Holdings, Ltd. moored
on the following grounds:

A. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN COMPLETELY DISREGARDING AS A
MATERIAL FACT OF THE CASE THE EXISTENCE OF THE
PRIOR, REGISTERED 1992 DEED OF REAL ESTATE AND
CHATTEL MORTGAGE CREATING A LIEN OVER THE LEVIED
PROPERTIES, SUBJECT OF THE ASSIGNMENT AGREEMENT
DATED MARCH 20, 1997, THUS, MATERIALLY CONTRIBUTING
TO THE SAID COURTS MISPERCEPTION AND
MISAPPRECIATION OF THE MERITS OF PETITIONERS CASE.

B. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN MAKING A FACTUAL FINDING THAT
THE SAID ASSIGNMENT AGREEMENT IS NOT REGISTERED,
THE SAME BEING CONTRARY TO THE FACTS ON RECORD,
THUS, MATERIALLY CONTRIBUTING TO THE SAID COURTS
MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF
PETITIONERS CASE.

C. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN MAKING A FACTUAL FINDING ON THE
EXISTENCE OF AN ATTACHMENT ON THE PROPERTIES
SUBJECT OF INSTANT CASE, THE SAME BEING CONTRARY TO
THE FACTS ON RECORD, THUS, MATERIALLY CONTRIBUTING
TO THE SAID COURTS MISPERCEPTION AND
MISAPPRECIATION OF THE MERITS OF PETITIONERS CASE.

D. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN HOLDING THAT THE SAID
ASSIGNMENT AGREEMENT AND THE DEED OF ASSIGNMENT
ARE NOT BINDING ON RESPONDENT SOLIDBANK WHO IS NOT
A PARTY THERETO, THE SAME BEING CONTRARY TO LAW
AND ESTABLISHED JURISPRUDENCE ON PRIOR REGISTERED
MORTGAGE LIENS AND ON PREFERENCE OF CREDITS.

E. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN FINDING THAT THE
AFOREMENTIONED ASSIGNMENT AGREEMENT AND DEED OF
ASSIGNMENT ARE SHAM, SIMULATED, OF DUBIOUS
CHARACTER, AND WERE MADE IN BAD FAITH AND IN FRAUD
OF CREDITORS, PARTICULARLY RESPONDENT SOLIDBANK,
THE SAME BEING IN COMPLETE DISREGARD OF, VIZ: (1) THE
LAW AND ESTABLISHED JURISPRUDENCE ON PRIOR,
REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF
CREDITS, BY REASON OF WHICH THERE EXISTS NO CAUSAL
CONNECTION BETWEEN THE SAID CONTRACTS AND THE
PROCEEDINGS IN CIVIL CASE NO. 96-80083; (2) THAT THE
ASIAN DEVELOPMENT BANK WILL NOT OR COULD NOT HAVE
AGREED TO A SHAM; SIMULATED, DUBIOUS AND
FRAUDULENT TRANSACTION; AND (3) THAT RESPONDENT
SOLIDBANKS BIGGEST STOCKHOLDER, THE BANK OF NOVA
SCOTIA, WAS A MAJOR BENEFICIARY OF THE ASSIGNMENT
AGREEMENT IN QUESTION.

F. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN HOLDING THAT PETITIONER IS
WITHOUT LEGAL CAPACITY TO SUE AND SEEK REDRESS
FROM PHILIPPINE COURTS, IT BEING THE CASE THAT
SECTION 133 OF THE CORPORATION CODE IS WITHOUT
APPLICATION TO PETITIONER, AND IT BEING THE CASE THAT
THE SAID COURT MERELY RELIED ON SURMISES AND
CONJECTURES IN OPINING THAT PETITIONER INTENDS TO DO
BUSINESS IN THE PHILIPPINES.

G. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN HOLDING THAT RESPONDENT
MARCOPPER, PLACER DOME, INC., AND PETITIONER ARE ONE
AND THE SAME ENTITY, THE SAME BEING WITHOUT FACTUAL
OR LEGAL BASIS.

H. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN HOLDING PETITIONER GUILTY OF
FORUM SHOPPING, IT BEING CLEAR THAT NEITHER LITIS
PENDENTIA NOR RES JUDICATA MAY BAR THE INSTANT
REIVINDICATORY ACTION, AND IT BEING CLEAR THAT AS
THIRD-PARTY CLAIMANT, THE LAW AFFORDS PETITIONER
THE RIGHT TO FILE SUCH REIVINDICATORY ACTION.

I. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN RENDERING A DECISION WHICH IN
EFFECT SERVES AS JUDGMENT ON THE MERITS OF THE CASE.

J. THE SHERIFFS LEVY AND SALE, THE SHERIFFS


CERTIFICATE OF SALE DATED OCTOBER 12, 1998, THE RTC-
MANILA ORDER DATED FEBRUARY 12, 1999, AND THE RTC-
BOAC ORDER DATED NOVEMBER 25, 1998 ARE NULL AND VOID.

K. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN AFFIRMING THE DENIAL BY THE RTC-
BOAC OF PETITIONERS APPLICATION FOR PRELIMINARY
INJUNCTION, THE SAME BEING IN TOTAL DISREGARD OF
PETITIONERS RIGHT AS ASSIGNEE OF A PRIOR, REGISTERED
MORTGAGE LIEN, AND IN DISREGARD OF THE LAW AND
JURISPRUDENCE ON PREFERENCE OF CREDIT."

In its petition, petitioner alleges that it is not doing business in the Philippines and
characterizes its participation in the assignment contracts (whereby Marcoppers assets
where transferred to it) as mere isolated acts that cannot foreclose its right to sue in
local courts. Petitioner likewise maintains that the two assignment contracts, although
executed during the pendency of Civil Case No. 96-80083 in the RTC of Manila, are
not fraudulent conveyances as they were supported by valuable
considerations. Moreover, they were executed in connection with prior transactions that
took place as early as 1992 which involved ADB, a reputable financial
institution. Petitioner further claims that when it paid Marcoppers obligation to ADB,
it stepped into the latters shoes and acquired its (ADBS) rights, titles, and interests under
the Deed of Real Estate and Chattel Mortgage. Lastly, petitioner asserts its existence as
a corporation, separate and distinct from Placer Dome and Marcopper.
In its comment, Solidbank avers that: a) petitioner is doing business in the
Philippines and this is evidenced by the huge investment it poured into the assignment
contracts; b) granting that petitioner is not doing business in the Philippines, the nature
of its transaction reveals an intention to do business or to begin a series of transaction
in the country; c) petitioner, Marcopper and Placer Dome are one and the same entity,
petitioner being then a wholly-owned subsidiary of Placer Dome, which, in turn, owns
40% of Marcopper; d) the timing under which the assignments contracts were executed
shows that petitioners purpose was to defeat any judgment favorable to it (Solidbank);
and e) petitioner violated the rule on forum shopping since the object of Civil Case No.
98-13 (at RTC, Boac, Marinduque) is similar to the other cases filed by Marcopper in
order to forestall the sale of the levied properties.
Marcopper, in a separate comment, states that it is merely a nominal party to the
present case and that its principal concerns are being ventilated in another case.
The petition is impressed with merit.
Crucial to the outcome of this case is our resolution of the following issues: 1) Does
petitioner have the legal capacity to sue? 2) Was the Deed of Assignment between
Marcopper and petitioner executed in fraud of creditors? 3) Are petitioner MR
Holdings, Ltd., Placer Dome, and Marcopper one and the same entity? and 4) Is
petitioner guilty of forum shopping?
We shall resolve the issues in seriatim.

The Court of Appeals ruled that petitioner has no legal capacity to sue in the
Philippine courts because it is a foreign corporation doing business here without
license. A review of this ruling does not pose much complexity as the principles
governing a foreign corporations right to sue in local courts have long been settled by
our Corporation Law.[17] These principles may be condensed in three statements, to
wit: a) if a foreign corporation does business in the Philippines without a license,
it cannot sue before the Philippine courts;[18] b) if a foreign corporation is not doing
business in the Philippines, it needs no license to sue before Philippine courts on an
isolated transaction[19]or on a cause of action entirely independent of any business
transaction;[20] and c) if a foreign corporation does business in the Philippines with the
required license, it can sue before Philippine courts on any transaction. Apparently, it
is not the absence of the prescribed license but the doing (of) business in the Philippines
without such license which debars the foreign corporation from access to our courts. [21]
The task at hand requires us to weigh the facts vis--vis the established
principles. The question whether or not a foreign corporation is doing business is
dependent principally upon the facts and circumstances of each particular case,
considered in the light of the purposes and language of the pertinent statute or statutes
involved and of the general principles governing the jurisdictional authority of the state
over such corporations.[22]
Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the
Philippines, is silent as to what constitutes doing or transacting business in the
Philippines. Fortunately, jurisprudence has supplied the deficiency and has held that the
term implies a continuity of commercial dealings and arrangements, and contemplates,
to that extent, the performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of, the purpose and object for
which the corporation was organized.[23] In Mentholatum Co. Inc., vs.
Mangaliman,[24] this Court laid down the test to determine whether a foreign company
is doing business, thus:

x x x The true test, however, seems to be whether the foreign corporation is


continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another. (Traction Cos. vs. Collectors of Int. Revenue [C.C.A., Ohio], 223 F.
984,987.) x x x.

The traditional case law definition has metamorphosed into a statutory definition,
having been adopted with some qualifications in various pieces of legislation in our
jurisdiction. For instance, Republic Act No. 7042, otherwise known as the Foreign
Investment Act of 1991, defines doing business as follows:

d) The phrase doing business shall include soliciting orders, service contracts,
opening offices, whether called liaison offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods totalling one hundred
eight(y) (180) days or more; participating in the management, supervision or
control of any domestic business, firm, entity, or corporation in the
Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works; or the exercise of some of the functions
normally incident to, and in progressive prosecution of, commercial gain
or of the purpose and object of the business organization; Provided,
however, That the phrase doing business shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor, nor
having a nominee director or officer to represent its interests in such
corporation, nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account.
(Emphasis supplied)[25]

Likewise, Section 1 of Republic Act No. 5455,[26] provides that:


SECTION. 1. Definition and scope of this Act. - (1) x x x the phrase doing business
shall include soliciting orders, purchases, service contracts, opening offices, whether
called liaison offices or branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay in the Philippines for a
period or periods totaling one hundred eighty days or more; participating in the
management, supervision or control of any domestic business firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the purpose
and object of the business organization.

There are other statutes[27] defining the term doing business in the same tenor as those
above-quoted, and as may be observed, one common denominator among them all is
the concept of continuity.
In the case at bar, the Court of Appeals categorized as doing business petitioners
participation under the Assignment Agreement and the Deed of Assignment. This is
simply untenable. The expression doing business should not be given such a strict and
literal construction as to make it apply to any corporate dealing whatever.[28] At this
early stage and with petitioners acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended to continue the business
for which it was organized. It may not be amiss to point out
that the purpose or business for which petitioner was organized is not discernible
in the records. No effort was exerted by the Court of Appeals to establish the nexus
between petitioners business and the acts supposed to constitute doing business.
Thus, whether the assignment contracts were incidental to petitioners business or
were continuation thereof is beyond determination. We cannot apply the case cited
by the Court of Appeals, Far East Intl Import and Export Corp. vs. Nankai Kogyo Co.,
Ltd.,[29] which held that a single act may still constitute doing business if it is not merely
incidental or casual, but is of such character as distinctly to indicate a purpose on the
part of the foreign corporation to do other business in the state. In said case, there was
an express admission from an official of the foreign corporation that he was sent to the
Philippines to look into the operation of mines, thereby revealing the foreign
corporations desire to continue engaging in business here. But in the case at bar, there
is no evidence of similar desire or intent.Unarguably, petitioner may, as the Court of
Appeals suggested, decide to operate Marcoppers mining business, but, of course, at
this stage, that is a mere speculation. Or it may decide to sell the credit secured by the
mining properties to an offshore investor, in which case the acts will still be isolated
transactions. To see through the present facts an intention on the part of petitioner
to start a series of business transaction is to rest on assumptions or probabilities
falling short of actual proof. Courts should never base its judgments on a state of
facts so inadequately developed that it cannot be determined where inference ends
and conjecture begins.
Indeed, the Court of Appeals holding that petitioner was determined to be doing
business in the Philippines is based mainly on conjectures and speculation. In
concluding that the unmistakable intentionof petitioner is to continue Marcoppers
business, the Court of Appeals hangs on the wobbly premise that there is no other way
for petitioner to recover its huge financial investments which it poured into Marcoppers
rehabilitation without it (petitioner) continuing Marcoppers business in the
country.[30] This is a mere presumption. Absent overt acts of petitioner from which we
may directly infer its intention to continue Marcoppers business, we cannot give our
concurrence. Significantly, a view subscribed upon by many authorities is that the mere
ownership by a foreign corporation of a property in a certain state, unaccompanied by
its active use in furtherance of the business for which it was formed, is insufficient
in itself to constitute doing business.[31] In Chittim vs. Belle Fourche Bentonite Products
Co.,[32] it was held that even if a foreign corporation purchased
and took conveyances of a mining claim, did some assessment work thereon, and
endeavored to sell it, its acts will not constitute the doing of business so as to subject
the corporation to the statutory requirements for the transacting of business. On
the same vein, petitioner, a foreign corporation, which becomes the assignee of mining
properties, facilities and equipment cannot be automatically considered as doing
business, nor presumed to have the intention of engaging in mining business.
One important point. Long before petitioner assumed Marcoppers debt to ADB and
became their assignee under the two assignment contracts, there already existed a
Support and Standby Credit Agreement between ADB and Placer Dome whereby the
latter bound itself to provide cash flow support for Marcoppers payment of its
obligations to ADB. Plainly, petitioners payment of US$ 18,453, 450.12 to ADB was
more of a fulfillment of an obligation under the Support and Standby Credit Agreement
rather than an investment. That petitioner had to step into the shoes of ADB as
Marcoppers creditor was just a necessary legal consequence of the transactions that
transpired. Also, we must hasten to add that the Support and Standby Credit Agreement
was executed four (4) years prior to Marcoppers insovency, hence, the
alleged intention of petitioner to continue Marcoppers business could have no basis for
at that time, Marcoppers fate cannot yet be determined.
In the final analysis, we are convinced that petitioner was engaged only in isolated
acts or transactions. Single or isolated acts, contracts, or transactions of foreign
corporations are not regarded as a doing or carrying on of business. Typical examples
of these are the making of a single contract, sale, sale with the taking of a note and
mortgage in the state to secure payment therefor, purchase, or note, or the mere
commission of a tort.[33] In these instances, there is no purpose to do any other business
within the country.
II

Solidbank contends that from the chronology and timing of events, it is evident that
there existed a pre-set pattern of response on the part of Marcopper to defeat whatever
court ruling that may be rendered in favor of Solidbank.
We are not convinced.
While it may appear, at initial glance, that the assignment contracts are in the nature
of fraudulent conveyances, however, a closer look at the events that transpired prior to
the execution of those contracts gives rise to a different conclusion. The obvious flaw
in the Court of Appeals Decision lies in its constricted view of the facts obtaining in the
case. In its factual narration, the Court of Appeals definitely left out some events. We
shall see later the significance of those events.
Article 1387 of the Civil Code of the Philippines provides:

Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous
title are presumed to have been entered into in fraud of creditors, when the donor did
not reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons
against whom some judgment has been rendered in any instance or some writ of
attachment has been issued. The decision or attachment need not refer to the
property alienated, and need not have been obtained by the party seeking
rescission.

In addition to these presumptions, the design to defraud creditors may be proved in


any other manner recognized by law and of evidence.

This article presumes the existence of fraud made by a debtor. Thus, in the absence
of satisfactory evidence to the contrary, an alienation of a property will be held
fraudulent if it is made after a judgment has been rendered against the debtor making
the alienation.[34] This presumption of fraud is not conclusive and may be rebutted by
satisfactory and convincing evidence. All that is necessary is to establish
affirmatively that the conveyance is made in good faith and for a sufficient and
valuable consideration.[35]
The Assignment Agreement and the Deed of Assignment were executed for
valuable considerations. Patent from the Assignment Agreement is the fact that
petitioner assumed the payment of US$ 18,453,450.12 to ADB in satisfaction of
Marcoppers remaining debt as of March 20, 1997.[36] Solidbank cannot deny this fact
considering that a substantial portion of the said payment, in the sum of US$
13,886,791.06, was remitted in favor of the Bank of Nova Scotia, its major
stockholder.[37]
The facts of the case so far show that the assignment contracts were executed in
good faith. The execution of the Assignment Agreement on Macrh 20, 1997 and the
Deed of Assignment on December 8,1997 is not the alpha of this case. While the
execution of these assignment contracts almost coincided with the rendition on May 7,
1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila RTC, however,
there was no intention on the part of petitioner to defeat Solidbanks claim. It bears
reiterating that as early as November 4, 1992, Placer Dome had already bound itself
under a Support and Standby Credit Agreement to provide Marcopper with cash flow
support for the payment to ADB of its obligations. When Marcopper ceased operations
on account of disastrous mine tailings spill into the Boac River and ADB pressed for
payment of the loan, Placer Dome agreed to have its subsidiary, herein petitioner, paid
ADB the amount of US $18,453,450.12. Thereupon, ADB and Marcopper executed,
respectively, in favor of petitioner an Assignment Agreement and a Deed of
Assignment. Obviously, the assignment contracts were connected with transactions that
happened long before the rendition in 1997 of the Partial Judgment in Civil Case No.
96-80083 by the Manila RTC. Those contracts cannot be viewed in isolation. If we may
add, it is highly inconceivable that ADB, a reputable international financial
organization, will connive with Marcopper to feign or simulate a contract in 1992 just
to defraud Solidbank for its claim four years thereafter. And it is equally incredible for
petitioner to be paying the huge sum of US $ 18, 453, 450.12 to ADB only for the
purpose of defrauding Solidbank of the sum of P52,970.756.89.
It is said that the test as to whether or not a conveyance is fraudulent is -- does it
prejudice the rights of creditors?[38] We cannot see how Solidbanks right was prejudiced
by the assignment contracts considering that substantially all of Marcoppers properties
were already covered by the registered Deed of Real Estate and Chattel Mortgage
executed by Marcopper in favor of ADB as early as November 11, 1992. As such,
Solidbank cannot assert a better right than ADB, the latter being a preferred creditor. It
is basic that mortgaged properties answer primarily for the mortgaged credit, not for the
judgment credit of the mortgagors unsecured creditor. Considering that petitioner
assumed Marcoppers debt to ADB, it follows that Solidbanks right as judgment creditor
over the subject properties must give way to that of the former.

III

The record is lacking in circumstances that would suggest that petitioner


corporation, Placer Dome and Marcopper are one and the same entity. While
admittedly, petitioner is a wholly-owned subsidiary of Placer Dome, which in turn,
which, in turn, was then a minority stockholder of Marcopper, however, 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 subsidiarys separate existence shall be respected, and the liability of the
parent corporation as well as the subsidiary will be confined to those arising in their
respective business.[39]
The recent case of Philippine National Bank vs. Ritratto Group Inc.,[40] outlines the
circumstances which are useful in the determination of whether a subsidiary is but a
mere instrumentality of the parent-corporation, to wit:
(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 corporations 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.

In this catena of circumstances, what is only extant in the records is the matter
of stock ownership. There are no other factors indicative that petitioner is a mere
instrumentality of Marcopper or Placer Dome. The mere fact that Placer Dome
agreed, under the terms of the Support and Standby Credit Agreement to provide
Marcopper with cash flow support in paying its obligations to ADB, does not mean that
its personality has merged with that of Marcopper. This singular undertaking,
performed by Placer Dome with its own stockholders in Canada and elsewhere, is not
a sufficient ground to merge its corporate personality with Marcopper which has its own
set of shareholders, dominated mostly by Filipino citizens. The same view applies to
petitioners payment of Marcoppers remaining debt to ADB.
With the foregoing considerations and the absence of fraud in the transaction of the
three foreign corporations, we find it improper to pierce the veil of corporate fiction
that equitable doctrine developed to address situations where the corporate personality
of a corporation is abused or used for wrongful purposes.

IV

On the issue of forum shopping, there could have been a violation of the rules
thereon if petitioner and Marcopper were indeed one and the same entity. But since
petitioner has a separate personality, it has the right to pursue its third-party claim by
filing the independent reivindicatory action with the RTC of Boac, Marinduque,
pursuant to Rule 39, Section 16 of the 1997 Rules of Civil Procedures. This remedy has
been recognized in a long line of cases decided by this Court.[41] In Rodriguez vs. Court
of Appeals,[42] we held:

. . . It has long been settled in this jurisdiction that the claim of ownership of a third
party over properties levied for execution of a judgment presents no issue for
determination by the court issuing the writ of execution.

. . .Thus, when a property levied upon by the sheriff pursuant to a writ of execution is
claimed by third person in a sworn statement of ownership thereof, as prescribed by
the rules, an entirely different matter calling for a new adjudication arises. And
dealing as it does with the all important question of title, it is reasonable to require the
filing of proper pleadings and the holding of a trial on the matter in view of the
requirements of due process.

. . . In other words, construing Section 17 of Rule 39 of the Revised Rules of Court


(now Section 16 of the 1997 Rules of Civil Procedure), the rights of third-party
claimants over certain properties levied upon by the sheriff to satisfy the
judgment may not be taken up in the case where such claims are presented but in a
separate and independent action instituted by the claimants. (Emphasis supplied)

This reivindicatory action has for its object the recovery of ownership or possession
of the property seized by the sheriff, despite the third party claim, as well as damages
resulting therefrom, and it may be brought against the sheriff and such other parties as
may be alleged to have connived with him in the supposedly wrongful execution
proceedings, such as the judgment creditor himself. Such action is an entirely
separate and distinct action from that in which execution has been issued. Thus,
there being no identity of parties and cause of action between Civil Case No. 98-13
(RTC, Boac) and those cases filed by Marcopper, including Civil Case No. 96-80083
(RTC, Manila) as to give rise to res judicata or litis pendentia, Solidbanks allegation of
forum-shopping cannot prosper.[43]
All considered, we find petitioner to be entitled to the issuance of a writ of
preliminary injunction. Section 3, Rule 58 of the 1997 Rules of Civil Procedure
provides:

SEC. 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.

Petitioners right to stop the further execution of the properties covered by the
assignment contracts is clear under the facts so far established. An execution can be
issued only against a party and not against one who did not have his day in court.[44] The
duty of the sheriff is to levy the property of the judgment debtor not that of a third
person. For, as the saying goes, one mans goods shall not be sold for another man's
debts.[45] To allow the execution of petitioners properties would surely work injustice to
it and render the judgment on the reivindicatory action, should it be favorable,
ineffectual. In Arabay, Inc., vs. Salvador,[46] this Court held that an injunction is a proper
remedy to prevent a sheriff from selling the property of one person for the purpose of
paying the debts of another; and that while the general rule is that no court has authority
to interfere by injunction with the judgments or decrees of another court of equal or
concurrent or coordinate jurisdiction, however, it is not so when a third-party claimant
is involved. We quote the instructive words of Justice Querube C. Makalintal in Abiera
vs. Court of Appeals,[47] thus:

The rationale of the decision in the Herald Publishing Company case[48] is peculiarly
applicable to the one before Us, and removes it from the general doctrine enunciated
in the decisions cited by the respondents and quoted earlier herein.

1. Under Section 17 of Rule 39 a third person who claims property levied upon on
execution may vindicate such claim by action. Obviously a judgment rendered in his
favor, that is, declaring him to be the owner of the property, would not constitute
interference with the powers or processes of the court which rendered the judgment to
enforce which the execution was levied. If that be so and it is so because the
property, being that of a stranger, is not subject to levy then an interlocutory
order such as injunction, upon a claim and prima facie showing of ownership by
the claimant, cannot be considered as such interference either.

WHEREFORE, the petition is GRANTED. The assailed Decision dated January


8, 1999 and the Resolution dated March 29, 1999 of the Court of Appeals in CA G.R.
No. 49226 are set aside. Upon filing of a bond of P1,000,000.00, respondent sheriffs
are restrained from further implementing the writ of execution issued in
Civil Case No. 96-80083 by the RTC, Branch 26, Manila, until further orders from this
Court. The RTC, Branch 94, Boac, Marinduque, is directed to dispose of Civil Case No.
98-13 with dispatch.
SO ORDERED.
[G.R. No. 141617. August 14, 2001]

ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT


CORPORATION, petitioners, vs. RITA C. MEJIA, as Executrix of
Testate Estate of ANDREA CORDOVA VDA. DE
GUTIERREZ, respondent.

DECISION
GONZAGA-REYES, J.:

In this petition for review by certiorari, petitioners pray for the setting aside of the Decision
of the Court of Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution in
CA-G.R. CV No. 19281.
As culled from the decisions of the lower courts and the pleadings of the parties, the factual
background of this case is as set out herein:
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in
Camarin, Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area of
twenty-five (25) hectares and was covered by Transfer Certificate of Title (TCT) No. 5779 of the
Registry of Deeds of Caloocan City. The property was later subdivided into five lots with an area
of five hectares each and pursuant thereto, TCT No. 5779 was cancelled and five new transfer
certificates of title were issued in the name of Gutierrez, namely TCT No. 7123 covering Lot 861-
A, TCT No. 7124 covering Lot 861-B, TCT No. 7125 covering Lot 861-C, TCT No. 7126 covering
Lot 861-D and TCT No. 7127 covering Lot 861-E.
On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale)
executed a Deed of Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125, 7126
and 7127, for the consideration of P800,000.00. Upon the execution of the deed, Cardale paid
Gutierrez P171,000.00. It was agreed that the balance of P629,000.00 would be paid in several
installments within five years from the date of the deed, at an interest of nine percent per annum
based on the successive unpaid principal balances. Thereafter, the titles of Gutierrez were
cancelled and in lieu thereof TCT Nos. 7531 to 7534 were issued in favor of Cardale.
To secure payment of the balance of the purchase price, Cardale constituted a mortgage on
three of the four parcels of land covered by TCT Nos. 7531, 7532 and 7533, encompassing fifteen
hectares of land.[1] The encumbrance was annotated upon the certificates of title and the owners
duplicate certificates. The owners duplicates were retained by Gutierrez.
On 26 August 1968, owing to Cardales failure to settle its mortgage obligation, Gutierrez filed
a complaint for rescission of the contract with the Quezon City Regional Trial Court (RTC), which
was docketed as Civil Case No. Q-12366.[2] On 20 October 1969, during the pendency of the
rescission case, Gutierrez died and was substituted by her executrix, respondent Rita C. Mejia
(Mejia). In 1971, plaintiffs presentation of evidence was terminated. However, Cardale, which was
represented by petitioner Adalia B. Francisco (Francisco) in her capacity as Vice-President and
Treasurer of Cardale, lost interest in proceeding with the presentation of its evidence and the case
lapsed into inactive status for a period of about fourteen years.
In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533 became
delinquent in the payment of real estate taxes in the amount of P102,300.00, while the other
mortgaged property covered by TCT No. 7531 became delinquent in the amount of P89,231.37,
which culminated in their levy and auction sale on 1 and 12 September 1983, in satisfaction of the
tax arrears. The highest bidder for the three parcels of land was petitioner Merryland Development
Corporation (Merryland), whose President and majority stockholder is Francisco. A memorandum
based upon the certificate of sale was then made upon the original copies of TCT Nos. 7531 to
7533.
On 13 August 1984, before the expiration of the one year redemption period, Mejia filed a
Motion for Decision with the trial court. The hearing of said motion was deferred, however, due
to a Motion for Postponement filed by Cardale through Francisco, who signed the motion in her
capacity as officer-in-charge, claiming that Cardale needed time to hire new counsel. However,
Francisco did not mention the tax delinquencies and sale in favor of Merryland. Subsequently, the
redemption period expired and Merryland, acting through Francisco, filed petitions for
consolidation of title,[3] which culminated in the issuance of certain orders[4] decreeing the
cancellation of Cardales TCT Nos. 7531 to 7533 and the issuance of new transfer certificates of
title free from any encumbrance or third-party claim whatsoever in favor of Merryland. Pursuant
to such orders, the Register of Deeds of Caloocan City issued new transfer certificates of title in
the name of Merryland which did not bear a memorandum of the mortgage liens in favor of
Gutierrez.
Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated
Manifestation to the effect that the properties subject of the mortgage and covered by TCT Nos.
7531 to 7533 had been levied upon by the local government of Caloocan City and sold at a tax
delinquency sale. Francisco further claimed that the delinquency sale had rendered the issues in
Civil Case No. Q-12366 moot and academic. Agreeing with Francisco, the trial court dismissed
the case, explaining that since the properties mortgaged to Cardale had been transferred to
Merryland which was not a party to the case for rescission, it would be more appropriate for the
parties to resolve their controversy in another action.
On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with
the RTC of Quezon City a complaint for damages with prayer for preliminary attachment against
Francisco, Merryland and the Register of Deeds of Caloocan City. The case was docketed as Civil
Case No. Q-49766. On 15 April 1988, the trial court rendered a decision[5] in favor of the
defendants, dismissing the complaint for damages filed by Mejia. It was held that plaintiff Mejia,
as executrix of Gutierrezs estate, failed to establish by clear and convincing evidence her
allegations that Francisco controlled Cardale and Merryland and that she had employed fraud by
intentionally causing Cardale to default in its payment of real property taxes on the mortgaged
properties so that Merryland could purchase the same by means of a tax delinquency
sale. Moreover, according to the trial court, the failure to recover the property subject of the Deed
of Sale with Mortgage was due to Mejias failure to actively pursue the action for rescission (Civil
Case No. 12366), allowing the case to drag on for eighteen years. Thus, it ruled that -
xxx xxx xxx
The act of not paying or failing to pay taxes due the government by the defendant
Adalia B. Francisco, as treasurer of Cardale Financing and Realty Corporation do not,
per se, constitute perpetration of fraud or an illegal act. It do [sic] not also constitute
an act of evasion of an existing obligation (to plaintiff) if there is no clear showing
that such an act of non-payment of taxes was deliberately made despite its (Cardales)
solvency and capability to pay. There is no evidence showing that Cardale Financing
and Realty Corporation was financially capable of paying said taxes at the time.

There are times when the corporate fiction will be disregarded: (1) where all
the members or stockholders commit illegal act; (2) where the corporation is used as
dummy to commit fraud or wrong; (3) where the corporation is an agency for a parent
corporation; and (4) where the stock of a corporation is owned by one person. (I,
Fletcher, 58, 59, 61 and 63). None of the foregoing reasons can be applied to the
incidents in this case: (1) there appears no illegal act committed by the stockholders of
defendant Merryland Development Corporation and Cardale Financing and Realty
Corporation; (2) the incidents proven by evidence of the plaintiff as well as that of the
defendants do not show that either or both corporations were used as dummies by
defendant Adalia B. Francisco to commit fraud or wrong. To be used as [a] dummy,
there has to be a showing that the dummy corporation is controlled by the person
using it. The evidence of plaintiff failed to prove that defendant Adalia B. Francisco
has controlling interest in either or both corporations. On the other hand, the evidence
of defendants clearly show that defendant Francisco has no control over either of the
two corporations; (3) none of the two corporations appears to be an agency for a
parent (the other) corporation; and (4) the stock of either of the two corporation [sic]
is not owned by one person (defendant Adalia B. Francisco). Except for defendant
Adalia B. Francisco, the incorporators and stockholders of one corporation are
different from the other.

xxx xxx xxx

The said case (Civil Case No. 12366) remained pending for almost 18 years before the
then Court of First Instance, now the Regional Trial Court. Even if the trial of the said
case became protracted on account of the retirement and/or promotion of the presiding
judge, as well as the transfer of the case from one sala to another, and as claimed by
the plaintiff that the defendant lost interest, (which allegation is unusual, so to speak),
the court believe [sic] that it would not have taken that long to dispose [of] said case
had plaintiff not slept on her rights, and her duty and obligation to see to it that the
case is always set for hearing so that it may be adjudicated [at] the earliest possible
time. This duty pertains to both parties, but plaintiff should have been more assertive,
as it was her obligation, similar to the obligation of plaintiff relative to the service of
summons in other cases. The fact that Cardale Financing and Realty Corporation did
not perform its obligation as provided in the said Deed of Sale with Mortgage (Exhibit
A) is very clear. Likewise, the fact that Andrea Cordova, the contracting party,
represented by the plaintiff in this case did not also perform her duties and/or
obligation provided in the said contract is also clear. This could have been the reason
why the plaintiff in said case (Exhibit E) slept on her rights and allowed the same to
remain pending for almost 18 years. However, and irrespective of any other reason
behind the same, the court believes that plaintiff, indeed, is the one to blame for the
failure of the testate estate of the late Andrea Cordova Vda. de Gutierrez to recover
the money or property due it on the basis of Exhibit A.

xxx xxx xxx

xxx Had the plaintiff not slept on her rights and had it not been for her failure to
perform her commensurate duty to pursue vigorously her case against Cardale
Financing and Realty Corporation in said Civil Case No. 12366, she could have easily
known said non-payment of realty taxes on the said properties by said Cardale
Financing and Realty Corporation, or, at least the auction sales that followed, and
from which she could have redeemed said properties within the one year period
provided by law, or, have availed of remedies at the time to protect the interest of the
testate estate of the late Andrea Cordova Vda. de Gutierrez.

xxx xxx xxx


The dispositive portion of the trial courts decision states -

WHEREFORE, in view of all the foregoing consideration, the court hereby renders
judgment in favor of the defendants Register of Deeds of Caloocan City, Merryland
Development Corporation and Adalia B. Francisco, and against plaintiff Rita C.
Mejia, as Executrix of the Testate Estate of Andrea Cordova Vda. De Gutierrez, and
hereby orders:

1. That this case for damages be dismissed, at the same time, plaintiffs motion for
reconsideration dated September 23, 1987 is denied;

2. Plaintiff pay the defendants Merryland Development Corporation and the


Register of Deeds the sum of P20,000.00, and another sum of P20,000.00 to the
defendant Adalia B. Francisco, as and for attorneys fees and litigation expenses,
and pay the costs of the proceedings.

SO ORDERED.

The Court of Appeals,[6] in its decision[7] promulgated on 13 April 1999, reversed the trial court,
holding that the corporate veil of Cardale and Merryland must be pierced in order to hold Francisco
and Merryland solidarily liable since these two corporations were used as dummies by Francisco,
who employed fraud in allowing Cardale to default on the realty taxes for the properties mortgaged
to Gutierrez so that Merryland could acquire the same free from all liens and encumbrances in the
tax delinquency sale and, as a consequence thereof, frustrating Gutierrezs rights as a mortgagee
over the subject properties. Thus, the Court of Appeals premised its findings of fraud on the
following circumstances
xxx xxx xxx

xxx Appellee Francisco knew that Cardale of which she was vice-president and
treasurer had an outstanding obligation to Gutierrez for the unpaid balance of the real
properties covered by TCT Nos. 7531 to 7533, which Cardale purchased from
Gutierrez which account, as of December 1988, already amounted to P4,414,271.43
(Exh. K, pp. 39-44, record); she also knew that Gutierrez had a mortgage lien on the
said properties to secure payment of the aforesaid obligation; she likewise knew that
the said mortgaged properties were under litigation in Civil Case No. Q-12366 which
was an action filed by Gutierrez against Cardale for rescission of the sale and/or
recovery of said properties (Exh. E). Despite such knowledge, appellee Francisco did
not inform Gutierrezs Estate or the Executrix (herein appellant) as well as the trial
court that the mortgaged properties had incurred tax delinquencies, and that Final
Notices dated July 9, 1982 had been sent by the City Treasurer of Caloocan
demanding payment of such tax arrears within ten (10) days from receipt thereof
(Exhs. J & J-1, pp. 37-38, record). Both notices which were addressed to

Cardale Financing & Realty Corporation c/o Merryland Development


Corporation

and sent to appellee Franciscos address at 83 Katipunan Road, White Plains, Quezon
City, gave warning that if the taxes were not paid within the aforesaid period, the
properties would be sold at public auction to satisfy the tax delinquencies.

To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did


not inform the Estate of Gutierrez or her executrix about the tax delinquencies and of
the impending auction sale of the said properties. Even a modicum of good faith and
fair play should have encouraged appellee Francisco to at least advise Gutierrezs
Estate through her executrix (herein appellant) and the trial court which was hearing
the complaint for rescission and recovery of said properties of such fact, so that the
Estate of Gutierrez, which had a real interest on the properties as mortgagee and as
plaintiff in the rescission and recovery suit, could at least take steps to forestall the
auction sale and thereby preserve the properties and protect its interests thereon. And
not only did appellee Francisco allow the auction sale to take place, but she used her
other corporation (Merryland) in participating in the auction sale and in acquiring the
very properties which her first corporation (Cardale) had mortgaged to
Gutierrez. Again, appellee Francisco did not thereafter inform the Estate of Gutierrez
or its executrix (herein appellant) about the auction sale, thus precluding the Estate
from exercising its right of redemption. And it was only after the expiration of the
redemption period that appellee Francisco filed a Manifestation in Civil Case No. Q-
12366 (Exh. I, p. 36, record), in which she disclosed for the first time to the trial court
and appellant that the properties subject of the case and on which Gutierrez or her
Estate had a mortgage lien, had been sold in a tax delinquency sale. And in order to
further conceal her deceptive maneuver, appellee Francisco did not divulge in her
aforesaid Manifestation that it was her other corporation (Merryland) that acquired the
properties in the auction sale.

We are not impressed by appellees submission that no evidence was adduced to prove
that Cardale had the capacity to pay the tax arrears and therefore she or Cardale may
not be faulted for the tax delinquency sale of the properties in question. Appellee
Franciscos bad faith or deception did not necessarily lie in Cardales or her failure to
settle the tax deliquencies in question, but in not disclosing to Gutierrezs estate or its
executrix (herein appellant) which had a mortgage lien on said properties the tax
delinquencies and the impending auction sale of the encumbered properties.

Appellee Franciscos deception is further shown by her concealment of the tax


delinquency sale of the properties from the estate or its executrix, thus preventing the
latter from availing of the right of redemption of said properties. That appellee
Francisco divulged the auction sale of the properties only after such redemption
period had lapsed clearly betrays her intention to keep Gutierrezs Estate or its
Executrix from availing of such right. And as the evidence would further show,
appellee Francisco had a hand in securing for Merryland consolidation of its
ownership of the properties and in seeing to it that Merrylands torrens certificates for
the properties were free from liens and encumbrances. All these appellee Francisco
did even as she was fully aware that Gutierrez or her estate had a valid and subsisting
mortgage lien on the said properties.

It is likewise worthy of note that early on appellee Francisco had testified in the action
for rescission of sale and recovery of possession and ownership of the properties
which Gutierrez filed against Cardale (Civil Case No. Q-12366) in her capacity as
defendant Cardales vice-president and treasurer. But then, for no plausible reason
whatsoever, she lost interest in continuing with the presentation of evidence for
defendant Cardale. And then, when appellant Mejia as executrix of Gutierrezs Estate
filed on August 13, 1984 a Motion for Decision in the aforesaid case, appellee
Francisco moved to defer consideration of appellants Motion on the pretext that
defendant Cardale needed time to employ another counsel. Significantly, in her
aforesaid Motion for Postponement dated August 16, 1984 which appellee Francisco
personally signed as Officer-in-Charge of Cardale, she also did not disclose the fact
that the properties subject matter of the case had long been sold at a tax delinquency
sale and acquired by her other corporation Merryland.

And as if what she had already accomplished were not enough fraudulence, appellee
Francisco, acting in behalf of Merryland, caused the issuance of new transfer
certificates of title in the name of Merryland, which did not anymore bear the
mortgage lien in favor of Gutierrez. In the meantime, to further avoid payment of
the mortgage indebtedness owing to Gutierrezs estate, Cardale corporation was
dissolved.Finally, to put the properties beyond the reach of the mortgagee, Gutierrezs
estate, Merryland caused the subdivision of such properties, which were subsequently
sold on installment basis.

In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to
inform the mortgagee of the tax delinquencies, if any, of the mortgaged properties. Moreover,
petitioners claim that Cardales failure to pay the realty taxes, per se, does not constitute fraud since
it was not proven that Cardale was capable of paying the taxes. Petitioners also contend that if
Mejia, as executrix of Gutierrezs estate, was not remiss in her duty to pursue Civil Case No. 12366,
she could have easily learned of the non-payment of realty taxes on the subject properties and of
the auction sale that followed and thus, have redeemed the properties or availed of some other
remedy to conserve the estate of Gutierrez. In addition, Mejia could have annotated a notice of lis
pendens on the titles of the mortgaged properties, but she failed to do so. It is the stand of
petitioners that respondent has not adduced any proof that Francisco controlled both Cardale and
Merryland and that she used these two corporations to perpetuate a fraud upon Gutierrez or her
estate. Petitioners maintain that the evidence shows that, apart form the meager share of petitioner
Francisco, the stockholdings of both corporations comprise other shareholders, and the
stockholders of either of them, aside from petitioner Francisco, are composed of different persons.
As to Civil Case No. 12366, petitioners insist that the decision of the trial court in that case
constitutes res judicata to the instant case.[8]
It is dicta in corporation law that a corporation is a juridical person with a separate and distinct
personality from that of the stockholders or members who compose it.[9] However, when the legal
fiction of the separate corporate personality is abused, such as when the same is used for fraudulent
or wrongful ends, the courts have not hesitated to pierce the corporate veil. One of the earliest
formulations of this doctrine of piercing the corporate veil was made in the American case
of United States v. Milwaukee Refrigerator Transit Co.[10] -

If any general rule can be laid down, in the present state of authority, it is that a
corporation will be looked upon as a legal entity as a general rule, and until sufficient
reason to the contrary appears; but, when the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will regard
the corporation as an association of persons.

Since then a good number of cases have firmly implanted this doctrine in Philippine
jurisprudence.[11] One such case is Umali v. Court of Appeals[12] wherein the Court declared that
Under the doctrine of piercing the veil of corporate entity, when valid grounds
therefore exist, the legal fiction that a corporation is an entity with a juridical
personality separate and distinct from its members or stockholders may be
disregarded. In such cases, the corporation will be considered as a mere association of
persons. The members or stockholders of the corporation will be considered as the
corporation, that is, liability will attach directly to the officers and stockholders. 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.

With specific regard to corporate officers, the general rule is that the officer cannot be held
personally liable with the corporation, whether civilly or otherwise, for the consequences of his
acts, if he acted for and in behalf of the corporation, within the scope of his authority and in good
faith. In such cases, the officers acts are properly attributed to the corporation.[13] However, if it is
proven that the officer has used the corporate fiction to defraud a third party,[14] or that he has acted
negligently, maliciously or in bad faith,[15] then the corporate veil shall be lifted and he shall be held
personally liable for the particular corporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the totality of the
circumstances appertaining conduce to the inevitable conclusion that petitioner Francisco acted in
bad faith. The events leading up to the loss by the Gutierrez estate of its mortgage security attest
to this. It has been established that Cardale failed to comply with its obligation to pay the balance
of the purchase price for the four parcels of land it bought from Gutierrez covered by TCT Nos.
7531 to 7534, which obligation was secured by a mortgage upon the lands covered by TCT Nos.
7531, 7532 and 7533. This prompted Gutierrez to file an action for rescission of the Deed of Sale
with Mortgage (Civil Case No. Q-12366), but the case dragged on for about fourteen years when
Cardale, as represented by Francisco, who was Vice-President and Treasurer of the same,[16] lost
interest in completing its presentation of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrezs estate, filed a Motion
for Decision with the trial court, there is no question that Francisco knew that the properties subject
of the mortgage had become tax delinquent. In fact, as treasurer of Cardale, Francisco herself was
the officer charged with the responsibility of paying the realty taxes on the corporations properties.
This was admitted by the trial court in its decision.[17] In addition, notices dated 9 July 1982 from
the City Treasurer of Caloocan demanding payment of the tax arrears on the subject properties and
giving warning that if the realty taxes were not paid within the given period then such properties
would be sold at public auction to satisfy the tax delinquencies were sent directly to Franciscos
address in White Plains, Quezon City.[18] Thus, as early as 1982, Francisco could have informed the
Gutierrez estate or the trial court in Civil Case No. Q-12366 of the tax arrears and of the notice
from the City Treasurer so that the estate could have taken the necessary steps to prevent the
auction sale and to protect its interests in the mortgaged properties, but she did no such
thing. Finally, in 1983, the properties were levied upon and sold at public auction wherein
Merryland - a corporation where Francisco is a stockholder[19] and concurrently acts as President
and director[20] - was the highest bidder.
When Mejia filed the Motion for Decision in Civil Case No. Q-12366,[21] the period for
redeeming the properties subject of the tax sale had not yet expired.[22] Under the Realty Property
Tax Code,[23]pursuant to which the tax levy and sale were prosecuted,[24] both the delinquent
taxpayer and in his absence, any person holding a lien or claim over the property shall have the
right to redeem the property within one year from the date of registration of the sale. [25] However,
if these persons fail to redeem the property within the time provided, then the purchaser acquires
the property free from any encumbrance or third party claim whatsoever.[26] Cardale made no
attempts to redeem the mortgaged property during this time. Moreover, instead of informing Mejia
or the trial court in Q-12366 about the tax sale, the records show that Francisco filed a Motion for
Postponement[27] in behalf of Cardale - even signing the motion in her capacity as officer-in-charge
- which worked to defer the hearing of Mejias Motion for Decision. No mention was made by
Francisco of the tax sale in the motion for postponement. Only after the redemption period had
expired did Francisco decide to reveal what had transpired by filing a Manifestation stating that
the properties subject of the mortgage in favor of Gutierrez had been sold at a tax delinquency
sale; however, Francisco failed to mention that it was Merryland that acquired the properties since
she was probably afraid that if she did so the court would see behind her fraudulent scheme. In this
regard, it is also significant to note that it was Francisco herself who filed the petitions for
consolidation of title and who helped secure for Merryland titles over the subject properties free
from any encumbrance or third-party claim whatsoever.
It is exceedingly apparent to the Court that the totality of Francisos actions clearly betray an
intention to conceal the tax delinquencies, levy and public auction of the subject properties from
the estate of Gutierrez and the trial court in Civil Case No. Q-12366 until after the expiration of
the redemption period when the remotest possibility for the recovery of the properties would be
extinguished.[28]Consequently, Francisco had effectively deprived the estate of Gutierrez of its
rights as mortgagee over the three parcels of land which were sold to Cardale. If Francisco was
acting in good faith, then she should have disclosed the status of the mortgaged properties to the
trial court in Civil Case No. Q-12366 - especially after Mejia had filed a Motion for Decision, in
response to which she filed a motion for postponement wherein she could easily have mentioned
the tax sale - since this action directly affected such properties which were the subject of both the
sale and mortgage.
That Merryland acquired the property at the public auction only serves to shed more light
upon Franciscos fraudulent purposes. Based on the findings of the Court of Appeals, Francisco is
the controlling stockholder and President of Merryland.[29] Thus, aside from the instrumental role
she played as an officer of Cardale, in evading that corporations legitimate obligations to Gutierrez,
it appears that Franciscos actions were also oriented towards securing advantages for another
corporation in which she had a substantial interest. We cannot agree, however, with the Court of
Appeals decision to hold Merryland solidarily liable with Francisco. The only act imputable to
Merryland in relation to the mortgaged properties is that it purchased the same and this by itself is
not a fraudulent or wrongful act. No evidence has been adduced to establish that Merryland was a
mere alter ego or business conduit of Francisco. Time and again it has been reiterated that 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.[30] Neither has it been alleged or proven that Merryland is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct
of Cardale.[31] Even assuming that the businesses of Cardale and Merryland are interrelated, this
alone is not justification for disregarding their separate personalities, absent any showing that
Merryland was purposely used as a shield to defraud creditors and third persons of their
rights.[32] Thus, Merrylands separate juridical personality must be upheld.
Based on a statement of account submitted by Mejia, the Court of Appeals awarded
P4,314,271.43 in favor of the estate of Gutierrez which represents the unpaid balance of the
purchase price in the amount of P629,000.00 with an interest rate of nine percent (9%) per annum,
in accordance with the agreement of the parties under the Deed of Sale with Mortgage, [33] as of
December 1988.[34] Therefore, in addition to the amount awarded by the appellate court, Francisco
should pay the estate of Gutierrez interest on the unpaid balance of the purchase price (in the
amount of P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989
until fully satisfied.
Finally, contrary to petitioners assertions, we agree with the Court of Appeals that the decision
of the trial court in Civil Case No. Q-12366 does not constitute res judicata insofar as the present
case is concerned because the decision in the first case was not a judgment on the merits. Rather,
it was merely based upon the premise that since Cardale had been dissolved and the property
acquired by another corporation, the action for rescission would not prosper. As a matter of fact,
it was even expressly stated by the trial court that the parties should ventilate their issues in another
action.
WHEREFORE, the 13 April 1999 Decision of the Court of Appeals is hereby accordingly
MODIFIED so as to hold ADALIA FRANCISCO solely liable to the estate of Gutierrez for the
amount of P4,314,271.43 and for interest on the unpaid balance of the purchase price (in the
amount of P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989
until fully satisfied.MERRYLAND is hereby absolved from all liability.
SO ORDERED.
[G.R. No. 160039. June 29, 2004]

RAYMUNDO ODANI SECOSA, EL BUENASENSO SY and DASSAD


WAREHOUSING and PORT SERVICES,
INCORPORATED, petitioners, vs. HEIRS OF ERWIN SUAREZ
FRANCISCO, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking the
reversal of the decision of the Court of Appeals dated February 27, 2003 in
[1]

CA-G.R. CV No. 61868, which affirmed in toto the June 19, 1998 decision of [2]

Branch 20 of the Regional Trial Court of Manila in Civil Case No. 96-79554.
The facts are as follows:
On June 27, 1996, at around 4:00 p.m., Erwin Suarez Francisco, an
eighteen year old third year physical therapy student of
the Manila Central University, was riding a motorcycle along Radial 10 Avenue,
near the Veteran Shipyard Gate in the City of Manila. At the same time,
petitioner, Raymundo Odani Secosa, was driving an Isuzu cargo truck with plate
number PCU-253 on the same road. The truck was owned by petitioner,
Dassad Warehousing and Port Services, Inc.
Traveling behind the motorcycle driven by Francisco was a sand and gravel
truck, which in turn was being tailed by the Isuzu truck driven by Secosa. The
three vehicles were traversing the southbound lane at a fairly high speed. When
Secosa overtook the sand and gravel truck, he bumped the motorcycle causing
Francisco to fall. The rear wheels of the Isuzu truck then ran over Francisco,
which resulted in his instantaneous death. Fearing for his life, petitioner Secosa
left his truck and fled the scene of the collision.
[3]

Respondents, the parents of Erwin Francisco, thus filed an action for


damages against Raymond Odani Secosa, Dassad Warehousing and Port
Services, Inc. and Dassads president, El Buenasucenso Sy. The complaint was
docketed as Civil Case No. 96-79554 of the RTC of Manila, Branch 20.
On June 19, 1998, after a full-blown trial, the court a quo rendered a
decision in favor of herein respondents, the dispositive portion of which states:
WHEREFORE, premised on the foregoing, judgment is hereby rendered in favor of
the plaintiffs ordering the defendants to pay plaintiffs jointly and severally:

1. The sum of P55,000.00 as actual and compensatory damages;

2. The sum of P20,000.00 for the repair of the motorcycle;

3. The sum of P100,000.00 for the loss of earning capacity;

4. The sum of P500,000.00 as moral damages;

5. The sum of P50,000.00 as exemplary damages;

6. The sum of P50,000.00 as attorneys fees plus cost of suit.

SO ORDERED.

Petitioners appealed the decision to the Court of Appeals, which affirmed


the appealed decision in toto. [4]

Hence the present petition, based on the following arguments:


I.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE


DECISION OF THE TRIAL COURT THAT PETITIONER DASSAD DID NOT
EXERCISE THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE
SELECTION AND SUPERVISION OF ITS EMPLOYEES WHICH IS NOT IN
ACCORDANCE WITH ARTICLE 2180 OF THE NEW CIVIL CODE AND
RELATED JURISPRUDENCE ON THE MATTER.

II.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT AFFIRMED THE


DECISION OF THE TRIAL COURT IN HOLDING PETITIONER EL
BUENASENSO SY SOLIDARILY LIABLE WITH PETITIONERS DASSAD AND
SECOSA IN VIOLATION OF THE CORPORATION LAW AND RELATED
JURISPRUDENCE ON THE MATTER.

III.

THE JUDGMENT OF THE TRIAL COURT AS AFFIRMED BY THE COURT OF


APPEALS AWARDING P500,000.00 AS MORAL DAMAGES IS MANIFESTLY
ABSURD, MISTAKEN AND UNJUST. [5]
The petition is partly impressed with merit.
On the issue of whether petitioner Dassad Warehousing and Port Services,
Inc. exercised the diligence of a good father of a family in the selection and
supervision of its employees, we find the assailed decision to be in full accord
with pertinent provisions of law and established jurisprudence.
Article 2176 of the Civil Code provides:

Whoever by act or omission causes damage to another, there being fault or


negligence, is obliged to pay for the damage done. Such fault or negligence, if there is
no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.

On the other hand, Article 2180, in pertinent part, states:

The obligation imposed by article 2176 is demandable not only for ones own acts or
omissions, but also for those of persons for whom one is responsible x x x.

Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry x x x.

The responsibility treated of in this article shall cease when the persons herein
mentioned prove that they observed all the diligence of a good father of a family to
prevent damage.

Based on the foregoing provisions, when an injury is caused by the


negligence of an employee, there instantly arises a presumption that there was
negligence on the part of the employer either in the selection of his employee
or in the supervision over him after such selection. The presumption, however,
may be rebutted by a clear showing on the part of the employer that it exercised
the care and diligence of a good father of a family in the selection and
supervision of his employee. Hence, to evade solidary liability for quasi-delict
committed by an employee, the employer must adduce sufficient proof that it
exercised such degree of care. [6]

How does an employer prove that he indeed exercised the diligence of a


good father of a family in the selection and supervision of his employee? The
case of Metro Manila Transit Corporation v. Court of Appeals is instructive:
[7]

In fine, the party, whether plaintiff or defendant, who asserts the affirmative of the
issue has the burden of presenting at the trial such amount of evidence required by law
to obtain a favorable judgment . . . In making proof in its or his case, it is paramount
[8]

that the best and most complete evidence is formally entered. [9]

Coming now to the case at bar, while there is no rule which requires that testimonial
evidence, to hold sway, must be corroborated by documentary evidence, inasmuch as
the witnesses testimonies dwelt on mere generalities, we cannot consider the same as
sufficiently persuasive proof that there was observance of due diligence in the
selection and supervision of employees. Petitioners attempt to prove its deligentissimi
patris familias in the selection and supervision of employees through oral evidence
must fail as it was unable to buttress the same with any other evidence, object or
documentary, which might obviate the apparent biased nature of the testimony. [10]

Our view that the evidence for petitioner MMTC falls short of the required
evidentiary quantum as would convincingly and undoubtedly prove its observance of
the diligence of a good father of a family has its precursor in the underlying rationale
pronounced in the earlier case of Central Taxicab Corp. vs. Ex-Meralco Employees
Transportation Co., et al., set amidst an almost identical factual setting, where we
[11]

held that:

The failure of the defendant company to produce in court any record or other
documentary proof tending to establish that it had exercised all the diligence of a good
father of a family in the selection and supervision of its drivers and buses,
notwithstanding the calls therefor by both the trial court and the opposing counsel,
argues strongly against its pretensions.

We are fully aware that there is no hard-and-fast rule on the quantum of evidence
needed to prove due observance of all the diligence of a good father of a family as
would constitute a valid defense to the legal presumption of negligence on the part of
an employer or master whose employee has by his negligence, caused damage to
another. x x x (R)educing the testimony of Albert to its proper proportion, we do not
have enough trustworthy evidence left to go by. We are of the considered opinion,
therefore, that the believable evidence on the degree of care and diligence that has
been exercised in the selection and supervision of Roberto Leon y Salazar, is not
legally sufficient to overcome the presumption of negligence against the defendant
company.

The above-quoted ruling was reiterated in a recent case again involving the
Metro Manila Transit Corporation, thus:[12]

In the selection of prospective employees, employers are required to examine them as


to their qualifications, experience, and service records. On the other hand, with
[13]

respect to the supervision of employees, employers should formulate standard


operating procedures, monitor their implementation, and impose disciplinary
measures for breaches thereof. To establish these factors in a trial involving the issue
of vicarious liability, employers must submit concrete proof, including documentary
evidence.

In this case, MMTC sought to prove that it exercised the diligence of a good father of
a family with respect to the selection of employees by presenting mainly testimonial
evidence on its hiring procedure. According to MMTC, applicants are required to
submit professional driving licenses, certifications of work experience, and clearances
from the National Bureau of Investigation; to undergo tests of their driving skills,
concentration, reflexes, and vision; and, to complete training programs on traffic
rules, vehicle maintenance, and standard operating procedures during emergency
cases.

xxxxxxxxx

Although testimonies were offered that in the case of Pedro Musa all these
precautions were followed, the records of his interview, of the results of his
examinations, and of his service were not presented. . . [T]here is no record that Musa
attended such training programs and passed the said examinations before he was
employed. No proof was presented that Musa did not have any record of traffic
violations. Nor were records of daily inspections, allegedly conducted by supervisors,
ever presented. . . The failure of MMTC to present such documentary proof puts in
doubt the credibility of its witnesses.

Jurisprudentially, therefore, the employer must not merely present


testimonial evidence to prove that he observed the diligence of a good father of
a family in the selection and supervision of his employee, but he must also
support such testimonial evidence with concrete or documentary evidence. The
reason for this is to obviate the biased nature of the employers testimony or that
of his witnesses. [14]

Applying the foregoing doctrines to the present case, we hold that petitioner
Dassad Warehousing and Port Services, Inc. failed to conclusively prove that it
had exercised the requisite diligence of a good father of a family in the selection
and supervision of its employees.
Edilberto Duerme, the lone witness presented by Dassad Warehousing and
Port Services, Inc. to support its position that it had exercised the diligence of a
good father of a family in the selection and supervision of its employees,
testified that he was the one who recommended petitioner Raymundo Secosa
as a driver to Dassad Warehousing and Port Services, Inc.; that it was his duty
to scrutinize the capabilities of drivers; and that he believed petitioner to be
physically and mentally fit for he had undergone rigid training and attended the
PPA safety seminar. [15]

Petitioner Dassad Warehousing and Port Services, Inc. failed to support the
testimony of its lone witness with documentary evidence which would have
strengthened its claim of due diligence in the selection and supervision of its
employees. Such an omission is fatal to its position, on account of which,
Dassad can be rightfully held solidarily liable with its co-petitioner Raymundo
Secosa for the damages suffered by the heirs of Erwin Francisco.
However, we find that petitioner El Buenasenso Sy cannot be held solidarily
liable with his co-petitioners. While it may be true that Sy is the president of
petitioner Dassad Warehousing and Port Services, Inc., such fact is not by itself
sufficient to hold him solidarily liable for the liabilities adjudged against his co-
petitioners.
It is a settled precept in this jurisdiction that a corporation is invested by law
with a personality separate from that of its stockholders or members. It has a
[16]

personality separate and distinct from those of the persons composing it as well
as from that of any other entity to which it may be related. Mere ownership by
a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not in itself sufficient ground for disregarding the
separate corporate personality. A corporations authority to act and its liability
[17]

for its actions are separate and apart from the individuals who own it. [18]

The so-called veil of corporation fiction treats as separate and distinct the
affairs of a corporation and its officers and stockholders. As a general rule, a
corporation will be looked upon as a legal entity, unless and until sufficient
reason to the contrary appears. When the notion of legal entity is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons. Also, the corporate entity
[19]

may be disregarded in the interest of justice in such cases as fraud that may
work inequities among members of the corporation internally, involving no rights
of the public or third persons. In both instances, there must have been fraud
and proof of it. For the separate juridical personality of a corporation to be
disregarded, the wrongdoing must be clearly and convincingly established. It [20]

cannot be presumed. [21]

The records of this case are bereft of any evidence tending to show the
presence of any grounds enumerated above that will justify the piercing of the
veil of corporate fiction such as to hold the president of Dassad Warehousing
and Port Services, Inc. solidarily liable with it.
The Isuzu cargo truck which ran over Erwin Francisco was registered in the
name of Dassad Warehousing and Port Services, Inc., and not in the name of
El Buenasenso Sy.Raymundo Secosa is an employee of Dassad Warehousing
and Port Services, Inc. and not of El Buenasenso Sy. All these things, when
taken collectively, point toward El Buenasenso Sys exclusion from liability for
damages arising from the death of Erwin Francisco.
Having both found Raymundo Secosa and Dassad Warehousing and Port
Services, Inc. liable for negligence for the death of Erwin Francisco on June 27,
1996, we now consider the question of moral damages which his parents,
herein respondents, are entitled to recover. Petitioners assail the award of
moral damages of P500,000.00 for being manifestly absurd, mistaken and
unjust. We are not persuaded.
Under Article 2206, the spouse, legitimate and illegitimate descendants and
ascendants of the deceased may demand moral damages for mental anguish
for the death of the deceased. The reason for the grant of moral damages has
been explained in this wise:

. . . the award of moral damages is aimed at a restoration, within the limits possible, of
the spiritual status quo ante; and therefore, it must be proportionate to the suffering
inflicted. The intensity of the pain experienced by the relatives of the victim is
proportionate to the intensity of affection for him and bears no relation whatsoever
with the wealth or means of the offender. [22]

In the instant case, the spouses Francisco presented evidence of the


searing pain that they felt when the premature loss of their son was relayed to
them. That pain was highly evident in the testimony of the father who was
forever deprived of a son, a son whose untimely death came at that point when
the latter was nearing the culmination of every parents wish to educate their
children. The death of Francis has indeed left a void in the lives of the
respondents. Antonio Francisco testified on the effect of the death of his son,
Francis, in this manner:
Q: (Atty. Balanag): What did you do when you learned that your son was killed on June
27, 1996?
A: (ANTONIO FRANCISCO): I boxed the door and pushed the image of St. Nio telling
why this happened to us.
Q: Mr. Witness, how did you feel when you learned of the untimely death of your son,
Erwin Suares (sic)?
A: Masakit po ang mawalan ng anak. Its really hard for me, the thought that my son is
dead.
xxxxxxxxx
Q: How did your family react to the death of Erwin Suarez Francisco?
A: All of my family and relatives were felt (sic) sorrow because they knew that my son is
(sic) good.
Q: We know that it is impossible to put money terms(s) [on] the life of [a] human, but
since you are now in court and if you were to ask this court how much would you
and your family compensate? (sic)
A: Even if they pay me millions, they cannot remove the anguish of my son (sic).[23]

Moral damages are emphatically not intended to enrich a plaintiff at the


expense of the defendant. They are awarded to allow the former to obtain
means, diversion or amusements that will serve to alleviate the moral suffering
he has undergone due to the defendants culpable action and must, perforce,
be proportional to the suffering inflicted. We have previously held as proper
[24]

an award of P500,000.00 as moral damages to the heirs of a deceased family


member who died in a vehicular accident. In our 2002 decision in Metro Manila
Transit Corporation v. Court of Appeals, et al., we affirmed the award of moral
[25]

damages of P500,000.00 to the heirs of the victim, a mother, who died from
injuries she sustained when a bus driven by an employee of the petitioner hit
her. In the case at bar, we likewise affirm the portion of the assailed decision
awarding the moral damages.
Since the petitioners did not question the other damages adjudged against
them by the court a quo, we affirm the award of these damages to the
respondents.
WHEREFORE, the petition is DENIED. The assailed decision is
AFFIRMED with the MODIFICATION that petitioner El Buenasenso Sy
is ABSOLVED from any liability adjudged against his co-petitioners in this case.
Costs against petitioners.
SO ORDERED.
[G.R. No. 163981. August 12, 2005]

CONSTRUCTION & DEVELOPMENT CORPORATION OF THE


PHILIPPINES (now PHILIPPINE NATIONAL CONSTRUCTION
CORPORATION), petitioner, vs. RODOLFO M. CUENCA and
MALAYAN INSURANCE CO., INC., respondents.

DECISION
CALLEJO, SR., J.:

Before this Court is a petition for review on certiorari of the Decision[1] of the
Court of Appeals (CA) in CA-G.R. CV No. 44660 and its Resolution denying a
motion for reconsideration thereof.

The Backdrop

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 No. 65734[2] 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.[3]
To protect MICIs interests, UITC, Edilberto Cuenca, and Rodolfo Cuenca,
herein respondent, executed an Indemnity Agreement[4] 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[5] 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.[8] 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 July 23, 1983, UITC wrote MICI proposing the following:

a. Immediate payment of P150,000.00.

b. Balance payable P50,000.00 per month until the obligation is fully liquidated.

c. Interest and penalty charges are to be waived.[15]

In the meantime, Rodolfo filed motion for leave to file a third-party complaint
which the trial court granted.[16] The third-party complaint[17] against CDCP
alleged that it had assumed Rodolfos liability under the indemnity agreement
as indicated in a board resolution. In support of this allegation, he presented in
evidence a certification of Antonio Roque, Assistant Corporate Secretary of
CDCP, attesting to the correctness of an excerpt from the minutes of the Board
of Directors meeting of January 10, 1978, which reads:

GUARANTEE MADE BY CDCP REPRESENTATIVES IN OTHER


CORPORATIONS
_______________________________________________________________

In fairness to the CDCP Board Members and/or Officers who represent the
Corporation in other affiliated corporations and who are made to sign jointly and
severally guarantees for and in support of said affiliated corporations, the Board
under Res. No. BD-59-77/78 made of record CDCPs assumption of all said guarantees
and the liabilities and responsibilities arising therefrom. In the same vein, any
guaranty fee that may be payable to said representatives shall accrue to CDCP.[18]
On August 26, 1983, UITC remitted to MICI P150,000.00 as partial payment
of its obligation.[19] Nonetheless, the parties failed to reach an amicable
settlement of their respective claims.
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. The dispositive portion of the RTC decision reads:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of


plaintiff Malayan Insurance Co., Inc. and against defendant ULTRA and Third-Party
defendant PNCC, ordering the latter to pay jointly and solidarily the former the
following:

a) The sum of P600,000.00 but considering that defendant ULTRA had


already advanced the amount of P150,000.00 to plaintiff, their liability
has then reduced to the sum of P450,000.00 with legal interest from the
date of the filing of the complaint until fully paid;

b) The sum equivalent to 20% of all the amounts due and demandable as and
for attorneys fees; and

c) The costs of suit.

The complaint against defendants Edilberto Cuenca and Rodolfo Cuenca and their
counter-claims are hereby dismissed for lack of merit.

SO ORDERED.[21]

UITC and PNCC appealed the decision to the CA, but MICI did not. On
October 28, 2003, the CA affirmed in toto the appealed decision.[22] The
appellate court held that UITC had impliedly authorized Edilberto and Rodolfo
to procure the surety bond and the indemnity agreement; hence, UITC was
liable. Moreover, UITC was estopped from questioning Edilberto and Rodolfos
authority to enter into the indemnity agreement in its behalf, considering that it
had already partially paid P150,000.00 to MICI. The appellate court added that
Edilberto and Rodolfo, having signed the indemnity agreement also in their
personal capacity, would ordinarily be personally liable under the said
agreement; but because MICI failed to appeal the decision, it had effectively
waived its right to hold them liable on its claim.[23]
The CA further affirmed the trial courts finding that PNCC was liable under
the indemnity agreement. The appellate court noted that UITC was a subsidiary
company of PNCC because the latter holds almost 78% of UITCs stocks. As
such, UITC would purchase materials from suppliers such as Goodyear, in
behalf of PNCC. Finally, the CA held that the award of attorneys fees was
justified, considering that payment of attorneys fees is specifically stated in the
indemnity agreement.
On June 3, 2004, the CA denied PNCCs motion for reconsideration for lack
of merit.[24] Hence, this petition for review, where the petitioner assigns the
following errors:
I.

THE COURT OF APPEALS GRAVELY ERRED IN FINDING PETITIONER


PNCC, JOINTLY AND SEVERALLY, LIABLE WITH ULTRA FOR THE
INDEMNIFICATION AMOUNT REIMBURSABLE TO RESPONDENT
MALAYAN AND IN EXEMPTING RESPONDENT RODOLFO CUENCA FROM
ANY LIABILITY THEREFOR.

II.

THE COURT OF APPEALS GRAVELY ERRED IN FINDING PETITIONER


PNCC, JOINTLY AND SEVERALLY, LIABLE WITH ULTRA FOR THE
PAYMENT OF ATTORNEYS FEES AND COSTS OF SUIT.[25]

The sole issue in this petition is 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.
The petitioner maintains that it cannot be held liable under the indemnity
agreement primarily because it was not a party to it. Likewise, it cannot answer
for UITCs liability under the indemnity agreement merely because it is the
majority stockholder of UITC. It maintains that it has a personality separate and
distinct from that of UITC; hence, it cannot be held liable for the latters
obligations. The mere fact that the materials purchased from Goodyear were
delivered to it does not warrant the piercing of the corporate veil so as to treat
the two corporations as one entity, absent sufficient and clear showing that it
was purposely used as a shield to defraud creditors.[26]
Further, the petitioner asserts that respondent Cuencas claim that it has
assumed his personal liability under the indemnity agreement is unfounded. It
assails the reliability of Exhibit 5, the certification attesting to the existence of
the board resolution, wherein the petitioner allegedly assumed the personal
guarantee of respondent Cuenca. The petitioner avers that the certification is a
mere excerpt of the alleged board resolution. It points out that even the CA did
not rely on this certification when it held that the Cuencas should be liable, but
were absolved of their liabilities because MICI had waived the cause of action
against them.[27] Assuming that it has assumed the liability of respondent
Cuenca, such liability is now extinguished after MICI waived its claim against
the said respondent.[28]
Finally, the petitioner asserts that there is no basis for the payment of
attorneys fees and costs of suit. It was not a party to the indemnity agreement
and the case does not fall under the instances enumerated under Article 2208
of the Civil Code when attorneys fees are proper.[29]
For his part, respondent Cuenca reiterates that he is not liable because the
petitioner has already assumed his personal liability under the indemnity
agreement, as evidenced by a certification issued by the Assistant Corporate
Secretary attesting that CDCP Board Resolution No. BD-59-77/78 exists. He
points out that the petitioner has already admitted the due execution and
authenticity of the certification; hence, it cannot now impugn the existence of
the board resolution referred to therein.
Respondent Cuenca further argues that PNCC should be liable because it
was the one which benefited from the transaction, having received the materials
purchased from Goodyear; he did not derive any benefit from it. He emphasizes
that the petitioners liability arose out of its voluntary assumption of the liabilities
of the guarantors under the indemnity agreement, and not from the fact that it
is the majority stockholder of UITC. Finally, he asserts that the CAs decision
holding UITC and the petitioner solidarily liable for the payment of attorneys
fees had factual and legal basis.[30]
On the other hand, respondent MICI avers that the petition is fatally
defective for failure to implead as co-respondent, UITC, an indispensable party
to the case. It, likewise, asserts that the petition raises no new issues of law,
and that the CA and the trial court have amply ruled upon the issues raised in
the petition. Further, MICI contends that, since the petitioner has assumed the
liability of the UITC officers, it cannot now invoke the doctrine of separate
personality.[31]
The petition is impressed with merit.
At the outset, we note that the petitioner became a party to this case only
when respondent Cuenca, as defendant, filed a third-party complaint against it
on the allegation that it had assumed his liability. Section 11, Rule 6 of the Rules
of Court defines a third-party complaint as follows:

SEC. 11. Third (fourth, etc.)-party complaint. A third (fourth, etc.)-party complaint is
a claim that a defending party may, with leave of court, file against a person not a
party to the action, called the third (fourth, etc.)-party defendant, for contribution,
indemnity, subrogation or any other relief, in respect of his opponents claim.

In Firestone Tire and Rubber Company of the Philippines v.


Tempongko,[32] we emphasized the nature of a third-party complaint,
particularly its independence from the main case:

The third-party complaint is, therefore, a procedural device whereby a third party who
is neither a party nor privy to the act or deed complained of by the plaintiff, may be
brought into the case with leave of court, by the defendant, who acts as third-party
plaintiff to enforce against such third-party defendant a right for contribution,
indemnity, subrogation or any other relief, in respect of the plaintiffs claim. The third-
party complaint is actually independent of and separate and distinct from the
plaintiffs complaint. Were it not for this provision of the Rules of Court, it would have
to be filed independently and separately from the original complaint by the defendant
against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of plaintiffs
claim against a third party in the original and principal case with the object of
avoiding circuitry of action and unnecessary proliferation of lawsuits and of disposing
expeditiously in one litigation the entire subject matter arising from one particular set
of facts. When leave to file the third-party complaint is properly granted, the Court
renders in effect two judgments in the same case, one on the plaintiffs complaint and
the other on the third-party complaint. When he finds favorably on both complaints,
as in this case, he renders judgment on the principal complaint in favor of plaintiff
against defendant and renders another judgment on the third-party complaint in favor
of defendant as third-party plaintiff, ordering the third-party defendant to reimburse
the defendant whatever amount said defendant is ordered to pay plaintiff in the
case. Failure of any of said parties in such a case to appeal the judgment as against
him makes such judgment final and executory.[33]

It follows then that the plaintiff in the main action may not be regarded as a
party to the third-party complaint;[34] nor may the third-party defendant be
regarded as a party to the main action. As for the defendant, he is party to both
the main action and the third-party complaint but in different capacities in the
main action, he is the defendant; in the third-party complaint, he is the plaintiff.
In the present case, the petitioner PNCC which was the third-party
defendant appealed before this Court from the decision of the CA. Case law is
that if only the third-party defendant files an appeal, the decision in the main
case becomes final.[35] Therefore, the CAs decision in the main action, holding
UITC liable to MICI and dismissing the case as against the Cuencas, became
final and executory when none of the said parties filed an appeal with this Court.
We do not agree with the CA ruling that the petitioner is liable under the
indemnity agreement. On this point, the CA ratiocinated that the petitioner is
liable, considering that it is the majority stockholder of UITC and the materials
from Goodyear were purchased by UITC for and in its behalf.
This is clearly erroneous. The petitioner cannot be made directly liable to
MICI under the indemnity agreement on the ground that it is UITCs majority
stockholder. It bears stressing that the petitioner was not a party defendant in
the main action. MICI did not assert any claim against the petitioner, nor was
the petitioner impleaded in the third-party complaint on the ground of its direct
liability to MICI. In the latter case, it would be as if the third-party defendant was
itself directly impleaded by the plaintiff as a defendant.[36] In the present case,
petitioner PNCC was brought into the action by respondent Cuenca simply for
a remedy over.[37] No cause of action was asserted by MICI against it. The
petitioners liability could only be based on its alleged assumption of respondent
Cuencas liability under the indemnity agreement.
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:

It is not indispensable in the premises that the defendant be first adjudged liable to the
plaintiff before the third-party defendant may be held liable to the plaintiff, as
precisely, the theory of defendant is that it is the third party defendant, and not he,
who is directly liable to plaintiff. The situation contemplated by appellants would
properly pertain to situation (a) above wherein the third party defendant is being sued
for contribution, indemnity or subrogation, or simply stated, for a defendants remedy
over.[43]

WHEREFORE, premises considered, the petition is GRANTED. The


decision of the Court of Appeals is MODIFIED in that petitioner PNCC is
absolved from any liability under the indemnity agreement. The third-party
complaint against the petitioner is DISMISSED for lack of merit.
SO ORDERED.
[G.R. No. 153886. January 14, 2004]

MEL V. VELARDE, petitioner, vs. LOPEZ, INC., respondent.

DECISION
CARPIO-MORALES, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court,
which seeks to review the decision and resolution of the Court of Appeals,
[1] [2]

raises the issue of whether the defendant in a complaint for collection of sum of
money can raise a counterclaim for retirement benefits, unpaid salaries and
incentives, and other benefits arising from services rendered by him in a
subsidiary of the plaintiff corporation.
On January 6, 1997, Eugenio Lopez Jr., then President of respondent
Lopez, Inc., as LENDER, and petitioner Mel Velarde, then General Manager of
Sky Vision Corporation (Sky Vision), a subsidiary of respondent, as
BORROWER, forged a notarized loan agreement covering the amount of ten
million (P10,000,000.00) pesos. The agreement expressly provided for, among
other things, the manner of payment and the circumstances constituting default
which would give the lender the right to declare the loan together with accrued
interest immediately due and payable. [3]

Sec. 6 of the agreement detailed what constituted an event of default as


follows:

Section 6

Each of the following events and occurrences shall constitute an Event of Default
(Event of Default) under this Agreement:

a) the BORROWER fails to make payment when due and payable of any amount he is
obligated to pay under this Agreement;

b) the BORROWER fails to mortgage in favor of the LENDER real property


sufficient to cover the amount of the LOAN. [4]

As petitioner failed to pay the installments as they became due, respondent,


apparently in answer to a proposal of petitioner respecting the settlement of the
loan, advised him by letter dated July 15, 1998 that he may use his retirement
benefits in Sky Vision in partial settlement of his loan after he settles his
accountabilities to the latter and gives his written instructions to it (Sky Vision). [5]

Petitioner protested the computation indicated in the July 15, 1998 letter, he
asserting that the imputed unliquidated advances from Sky Vision had already
been properly liquidated. [6]

On August 18, 1998, respondent filed a complaint for collection of sum of


money with damages at the Regional Trial Court (RTC) of Pasig City against
petitioner, alleging that petitioner violated the above-quoted Section 6 of the
loan agreement as he failed to put up the needed collateral for the loan and pay
the installments as they became due, and that despite his receipt of letters of
demand dated December 1, 1997 and January 13, 1998, he refused to pay.
[7] [8]

In his answer, petitioner alleged that the loan agreement did not reflect his
true agreement with respondent, it being merely a cover document to evidence
the reward to him of ten million pesos (P10,000,000.00) for his loyalty and
excellent performance as General Manager of Sky Vision and that the payment,
if any was expected, was in the form of continued service; and that it was when
he was compelled by respondent to retire that the form of payment agreed upon
was rendered impossible, prompting the late Eugenio Lopez, Jr. to agree that
his retirement benefits from Sky Vision would instead be applied to the loan. [9]

By way of compulsory counterclaim, petitioner claimed that he was entitled


to retirement benefits from Sky Vision in the amount of P98,280,000.00, unpaid
salaries in the amount of P2,740,000.00, unpaid incentives in the amount of
P500,000, unpaid share from the net income of Plaintiff corporation, equity in
his service vehicle in the amount of P1,500,000, reasonable return on the stock
ownership plan for services rendered as General Manager, and moral damages
and attorneys fees. [10]

Petitioner thus prayed for the dismissal of the complaint and the award of
the following sums of money in the form of compulsory counterclaims:

1. P103,020,000.00, PLUS the value of Defendants stock options and unpaid


share from the net income with Plaintiff corporation (to be computed) as
actual damages;

2. P15,000,000.00, as moral damages; and

3. P1,500,000.00, as attorneys fees plus appearance fees and the costs of


suit.[11]
Respondent filed a manifestation and a motion to dismiss the
counterclaim for want of jurisdiction, which drew petitioner to assert in his
comment and opposition thereto that the veil of corporate fiction must be
pierced to hold respondent liable for his counterclaims.
By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied
respondents motion to dismiss the counterclaim on the following premises: A
counterclaim being essentially a complaint, the principle that a motion to
dismiss hypothetically admits the allegations of the complaint is applicable; the
counterclaim is compulsory, hence, within its jurisdiction; and there is identity
of interest between respondent and Sky Vision to merit the piercing of the veil
of corporate fiction.
[12]

Respondents motion for reconsideration of the trial courts Order of January


3, 2000 having been denied, it filed a Petition for Certiorari at the Court of
Appeals which held that respondent is not the real party-in-interest on the
counterclaim and that there was failure to show the presence of any of the
circumstances to justify the application of the principle of piercing the veil of
corporate fiction. The Orders of the trial court were thus set aside and the
counterclaims of petitioner were accordingly dismissed. [13]

The Court of Appeals having denied petitioners motion for reconsideration,


the instant Petition for Review was filed which assigns the following errors:
I.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RTC


BRANCH 155 ALLEGEDLY ACTED WITH GRAVE ABUSE OF DISCRETION
IN ISSUING THE ORDERS DATED JANUARY 3, 2000 AND OCTOBER 9, 2000
CONSIDERING THAT THE GROUNDS RAISED BY RESPONDENT LOPEZ,
INC. IN ITS PETITION FOR CERTIORARI INVOLVED MERE ERRORS OF
JUDGMENT AND NOT ERRORS OF JURISDICTION.

II.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT


RESPONDENT LOPEZ, INC. IS NOT THE REAL PARTY-IN-INTEREST AS
PARTY-DEFENDANT ON THE COUNTERCLAIMS OF PETITIONER
VELARDE CONSIDERING THAT THE FILING OF RESPONDENT LOPEZ,
INC.S MANIFESTATION AND MOTION TO DISMISS COUNTERCLAIM HAD
THE EFFECT OF HYPOTHETICALLY ADMITTING THE TRUTH OF THE
MATERIAL AVERMENTS OF THE ANSWER, WHICH MATERIAL
AVERMENTS SUFFICIENTLY ALLEGED THAT RESPONDENT LOPEZ, INC.
COMMITTED ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY VISION,
WAS A MERE BUSINESS CONDUIT OR ALTER EGO OF THE FORMER,
THUS, JUSTIFYING THE PIERCING OF THE VEIL OF CORPORATE FICTION.

III.

THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE


COUNTERCLAIMS OF PETITIONER VELARDE ARE NOT COMPULSORY. [14]

While petitioner correctly invokes the ruling in Atienza v. Court of


Appeals to postulate that not every denial of a motion to dismiss can be
[15]

corrected by certiorari under Rule 65 and that, as a general rule, the remedy
from such denial is to appeal in due course after a decision has been rendered
on the merits, there are exceptions thereto, as when the court in denying the
motion to dismiss acted without or in excess of jurisdiction or with patent grave
abuse of discretion, or when the assailed interlocutory order is patently
[16]

erroneous and the remedy of appeal would not afford adequate and expeditious
relief, or when the ground for the motion to dismiss is improper venue, res
[17] [18]

judicata, or lack of jurisdiction as in the case at bar.


[19] [20]

Early on, it bears noting, when the case was still with the trial court,
respondent filed a motion to dismiss the counterclaims to assail
its jurisdiction, respondent asserting that the counterclaims, being money
claims arising from a labor relationship, are within the exclusive competence of
the National Labor Relations Commission. On the other hand, petitioner
[21]

alleged that due to the tortuous manner he was coerced into retirement, it is the
Regional Trial Courts (RTCs) and not the National Labor Relations Commission
which has exclusive jurisdiction over his counterclaims.
In determining which has jurisdiction over a case, the averments of the
complaint/counterclaim, taken as a whole, are considered. In his [22]

counterclaim, petitioner alleged that:


xxx

29. It was only on July 15, 1998 that Lopez, Inc. submitted a computation of the
retirement benefit due to the Defendant. (Copy attached as ANNEX 4). Immediately
after receiving this computation, Defendant immediately informed Plaintiff of the
erroneous figure used as salary in the computation of benefits. This was done in a
telephone conversation with a certain Atty. Amina Amado of Lopez, Inc.

29.1 The Defendant also informed her that the so called unliquidated advances
amounting to P422,922.87 since 1995 had all been properly liquidated as reflected in
all the reports of the company. The Defendant reminded Atty. Amado of
unpaid incentives and salaries for 1997.
29.2 Defendant likewise informed Plaintiff that the one month for every
year of service as a basis for the computation of the Defendants retirement benefit is
erroneous. This computation is even less than what the rank and file employees get.
That CEOs, COOs and senior executives of the level of ABS-CBN, Sky Vision,
Benpres, Meralco and other Lopez companies had and have received a lot more than
the regular rank and file employees. All these retired executives and records can be
summoned for verification.

29.3 The circumstances of the retirement of the Defendant are not those for a simple
and ordinary rank and file employee. Mr. Lopez, III admitted that he and the
Defendant have had problems which accumulated through time and that they chose to
part ways in a manner that was dignified for both of them. Treating the Defendant as a
rank and file employee is hardly dignified not just to the Defendant but also to the
Lopezes whose existing executives serving them will draw lessons from the
Defendants experience.

29.4 These circumstances hardly reflect a simple retirement. The Defendant, who is
known in the local and international media community, is hardly considered a rank
and file employee. Defendant was a stockholder of the Corporation and a duly-elected
member of the Board of Directors. Certain government officials can attest to the
sensitivity of issues and matters the Defendant had represented for the Lopezes that
are hardly issues handled by a simple rank and file employee. Respectable individuals
in government and industry are willing to testify to this regard.x x x (Underscoring
[23]

and italics supplied).

At the heart of petitioners counterclaim is his alleged forced retirement


which is also the basis of his claim for, among other things, unpaid salaries,
unpaid incentives, reasonable return on the stock ownership plan, and other
benefits from a subsidiary company of the respondent.
Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities
Regulation Code) applies to a corporate officers dismissal. For a corporate
officers dismissal is always a corporate act and/or an intra-corporate
controversy and that its nature is not altered by the reason or wisdom which the
Board of Directors may have in taking such action. [24]

With regard to petitioners claim for unpaid salaries, unpaid share in net
income, reasonable return on the stock ownership plan and other benefits for
services rendered to Sky Vision, jurisdiction thereon pertains to the Securities
Exchange Commission even if the complaint by a corporate officer includes
money claims since such claims are actually part of the prerequisite of his
position and, therefore, interlinked with his relations with the corporation. The[25]

question of remuneration involving a person who is not a mere employee but a


stockholder and officer of the corporation is not a simple labor problem but a
matter that comes within the area of corporate affairs and management, and is
in fact a corporate controversy in contemplation of the Corporation Code. [26]

While petitioners counterclaims were filed on December 1, 1998, the second


challenged order of the trial court denying respondents motion for
reconsideration of the denial of its motion to dismiss was issued on October 9,
2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved on
July 19, 2000) which mandated the transfer of jurisdiction over intra-corporate
controversies, subject of the counterclaims, to RTCs.
But even if the subject matter of the counterclaims is now cognizable by
RTCs, the filing thereof against respondent is improper, it not being the real
party-in-interest, for it is petitioners employer Sky Vision, respondents
subsidiary.
It cannot be gainsaid that a subsidiary has an independent and separate
juridical personality, distinct from that of its parent company, hence, any claim
or suit against the latter does not bind the former and vice versa.
Petitioner argues nevertheless that jurisdiction over the subsidiary is
justified by piercing the veil of corporate fiction. Piercing the veil of corporate
fiction is warranted, however, only in cases when the separate legal entity is
used to defeat public convenience, justify wrong, protect fraud, or defend crime,
such that in the case of two corporations, the law will regard the corporations
as merged into one. The rationale behind piercing a corporations identity is to
[27]

remove the barrier between the corporation from the persons comprising it to
thwart the fraudulent and illegal schemes of those who use the corporate
personality as a shield for undertaking certain proscribed activities. [28]

In applying the doctrine of piercing the veil of corporate fiction, the following
requisites must be established: (1) control, not merely majority or complete
stock control; (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 acts 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. [29]

Nowhere, however, in the pleadings and other records of the case can it be
gathered that respondent has complete control over Sky Vision, not only of
finances but of policy and business practice in respect to the transaction
attacked, so that Sky Vision had at the time of the transaction no separate mind,
will or existence of its own. The existence of interlocking directors, corporate
officers and shareholders is not enough justification to pierce the veil of
corporate fiction in the absence of fraud or other public policy considerations.
This Court is thus not convinced that the real party-in-interest with regard to
the counterclaim for damages arising from the alleged tortuous manner by
which petitioner was forced to retire as General Manager of Sky Vision is
respondent.
Petitioner muddles the issues by arguing that respondent fraudulently took
advantage of the control over the matter of compensation and benefits of an
employee of Sky Vision to deceive petitioner into signing the loan agreement
on the misleading assurance that it was merely for the purpose of documenting
the reward to him of ten million pesos. This argument does not persuade.
Petitioner, being a lawyer, is presumed to know the legal and binding effects of
loan agreements.
It bears emphasis that Sky Visions involvement in the transaction subject of
the case sprang only after a proposal was apparently proffered by petitioner
that his retirement benefits from Sky Vision be used in partial payment of his
loan from respondent as gathered from the July 15, 1998 letter of Rommel [30]

Duran, Vice-President and General Manager of respondent, to petitioner


reading:

Dear Mr. Velarde:

As requested, we have made computations on the outstanding amount of your loan


with Lopez, Inc. should your retirement benefits from Sky Vision Corporation/Central
CATV, Inc. Sky/Central) be applied to the partial payment of your loan. Please note
that in order to effect the application of your retirement benefits to the partial payment
of your loan, you will need to give Sky/Central written instructions onthe same in the
soonest possible time.

As you will see in the attached computation, the amount of P4,077,077.13 will be
applied to the payment of your loan to retroact on January 1, 1998. The amount of
P422,922.87, representing unliquidated advances made by Sky/Central to you (see
attached listing), has been deducted from your retirement pay of P4.5 million. Should
you be able to liquidate the advances as requested by Sky/Central, the said amount
will be applied to the partial payment of your loan and we shall adjust the amount of
principal and interest due from you accordingly. After the application of the amount
of P4,077,077.13 to the partial payment of your loan, the amount of P7,585,912.86
will be immediately due and demandable. The amount of P7,585,912.86 represents
the outstanding principal and interest due as of July 15, 1998.
Without the application of your retirement benefits to the partial payment of your
loan, the amount of P11,850,000.00 is due as of July 15, 1998. We reiterate our
demand for full payment of your outstanding obligation immediately. (Underscoring
supplied)

As for the trial courts ruling that the agreement to set-off is an amendment
of the loan agreement resulting to an identity of interest between respondent
and Sky Vision and, therefore, sufficient to pierce the veil of corporate fiction, it
is untenable. The abovequoted letter is clear that, to effect a set-off, it is a
condition sine qua non that the approval thereof by Sky/Central must be
obtained, and that petitioner liquidate his advances from Sky Vision. These
conditions hardly manifest that respondent possessed that degree of control
over Sky Vision as to make the latter its mere instrumentality, agency or adjunct.
WHEREFORE, the instant petition for review on certiorari is hereby
DENIED.
SO ORDERED.
[G.R. No. 131673. September 10, 2004]

RUBEN MARTINEZ, substituted by his heirs, MENA CONSTANTINO


*

MARTINEZ, WILFRIDO C. MARTINEZ, EMMA M. NAVA, and EDNA


M. SAKHRANI, petitioners, vs. COURT OF APPEALS and BPI
INTERNATIONAL FINANCE, respondents.

DECISION
CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision of the Court


[1]

of Appeals, in CA-G.R. CV No. 43985, modifying the Decision of the Regional


[2]

Trial Court of Kalookan City, Branch 122, in Civil Case No. C-10811.
The antecedents are as follows:
Respondent BPI International Finance is a foreign corporation not doing
[3]

business in the Philippines, with office address at the Bank of America Tower,
12 Harcourt Road, Central Hongkong. It was a deposit-taking company
organized and existing under and by virtue of the laws of Hongkong, and was
also engaged in investment banking operations therein.
Cintas Largas, Ltd. (CLL) was also a foreign corporation, established in
Hongkong, with a paid-up capital of HK$10,000. The registered shareholders
of the CLL in Hongkong were the Overseas Nominee, Ltd. and Shares
Nominee, Ltd., which were mainly nominee shareholders. In Hongkong, the
nominee shareholder of CLL was Baker & McKenzie Nominees, Ltd., a leading
solicitor firm. However, beneficially, the company was equally owned by
Messrs. Ramon Siy, Ricardo Lopa, Wilfrido C. Martinez, and Miguel J.
Lacson. The registered office address of CLL in Hongkong was 22/F, Princes
[4]

Building, also the office address of Price Waterhouse & Co., a large accounting
firm in Hongkong.
The bulk of the business of the CLL was the importation of molasses from
the Philippines, principally from the Mar Tierra Corporation, and the resale
thereof in the international market. However, Mar Tierra Corporation also sold
[5]

molasses to its customers. Wilfrido C. Martinez was the president of Mar Tierra
[6]

Corporation, while its executive vice-president was Blamar Gonzales. The


business operations of both the CLL and Mar Tierra Corporation were run by
Wilfrido Martinez and Gonzales.
About 42% of the capital stock of Mar Tierra Corporation was owned by RJL
Martinez Fishing Corporation (RJL), the leading tuna fishing outfit in the
Philippines. Petitioner Ruben Martinez was the president of RJL and a member
of the board of directors thereof. The majority stockholders of RJL were Ruben
Martinez and his brothers, Jose and Luis Martinez. Sixty-eight (68) percent of
the total assets of Ruben Martinez were in the RJL.
In 1979, respondent BPI International Finance (then AIFL) granted CLL a
letter of credit in the amount of US$3,000,000. Wilfrido Martinez signed the
letter agreement with the respondent for the CLL. The respondent and the CLL
had made the following arrangements:

Cintas Largas, Ltd. will purchase molasses from the Philippines, mainly from Mar
Tierra Corporation, and then sell the molasses to foreign countries. Both the purchase
of the molasses from the Philippines and the subsequent sale thereof to foreign
customers were effected by means of Letters of Credit. A Letter of Credit would be
opened by Cintas Largas, Ltd. in favour of Mar Tierra Corporation or any other seller
in the Philippines. Upon the sale of the molasses to foreign buyers, a Letter of Credit
would then be opened by such buyers, in favour of Cintas Largas, Ltd. The Letters of
Credit were effected through the Letter of Credit Facility of Cintas Largas, Ltd. in
plaintiff. The profits of Cintas Largas, Ltd. from these transactions were then
deposited in either the deposit account of Cintas Largas, Ltd. with plaintiff or the
Money Market Placement Account Nos. 063 and 084, depending upon the instructions
of Wilfrido C. Martinez and Blamar C. Gonzales, principally. [7]

On January 24, 1979, the CLL opened a money market placement with the
respondent bearing MMP No. 063, with an initial placement of
US$390,000. The CLL also opened and maintained a foreign currency account
[8]

and a deposit account with the respondent. The authorized signatory in both
accounts of CLL was Wilfrido C. Martinez. Some instructions also came from
Gonzales, to be confirmed by Wilfrido Martinez. On March 21, 1980, petitioner
[9]

Ruben Martinez and/or his son Wilfrido C. Martinez and/or Miguel J. Lacson
affixed their signatures on the two signature cards furnished by the respondent
which became MMP No. 063 and MMP No. 084. On the face of the cards, the
signatories became joint account holders of the said money market
placements. [10]

On March 25, 1980, the CLL opened a money market placement account
with the respondent bearing MMP No. 084 with an initial placement of
US$68,768.60, transferred from MMP No. 063. At times, funds in MMP Nos.
[11]

063 and 084 were transferred to the CLLs deposit account, and vice versa.
On May 19, 1980, the CLL, through Wilfrido Martinez, and the respondent,
through Senen L. Matoto and Michael Sung, Senior Manager of the Money
Management Division of the respondent, executed a letter-agreement in which
the existing back-to-back credit facility granted to the CLL way back in 1979
was extended up to July 1980, and increased to US$5,000,000. The credit
facility was to be secured as follows:
SECURITY: (i) Back-to-Back L/C to be secured by an L/C issued, by a
bank acceptable to AFHK, in favor of Cintas Largas.
(ii) AFHK L/C issued prior to receipt of Backing L/C to be
secured by a 10% margin by way of a hold out on cash
deposit with AFHK with interest at LIBOR. The
Backing L/C, however, shall be opened not later than
120 days after the issuance of AFHKs L/C.
(iii) JSS of Messrs. Ramon Siy, Wilfrido C. Martinez,
Ricardo Lopa and Miguel J. Lacson for both of the
above cases.

DOCUMENTATION: Standard AFHK L/C documentation. [12]

The facility was designed to finance the purchases of molasses made by


the CLL from the Philippines for re-export.[13]

In compliance with the letter-agreement, Wilfrido C. Martinez, Miguel J.


Lacson, Ricardo Lopa, and Ramon Siy executed a continuing suretyship
agreement in which they bound and obliged themselves, jointly and severally,
with the CLL to pay the latters obligation under the said credit facility.[14]

As of September 26, 1980, the balance of the deposit account of the CLL
with the respondent was US$1,025,052.06. On the other hand, the balance of
[15]

the money placement in MMP No. 063, as of September 25, 1980 was
US$312,708.43, while the balance of the money market placement in MMP
[16]

No. 084 as of September 8, 1980 stood at US$768,258.24. [17]

On October 10, 1980, Blamar Gonzales, acting for Mar Tierra Corporation,
sent to the respondent a telex confirming his telephone conversation with
Michael Sung/Bing Matoto requesting the respondent to transfer US$340,000
to Account No. FCD SA 18402-7, registered in the name of Mar Tierra
Corporation, Philippine Banking Corporation, Union Cement Building, Port
Area, Manila, as payee, with the following specific instructions: (a) there should
be no mention of Wilfrido Martinez or Mar Tierra Corporation; (b) the telex
instruction should be signed only by Wilfrido Martinez and sent only through the
telex machine of Mar Tierra Corporation; and, (c) the final confirmation of the
transfer should be made by telephone call. Gonzales requested the
[18]
respondent, in the same telex, to confirm its total available account so that
instructions on the transfer of the funds to FCD SA 18402-7 could be
formalized. [19]

On October 13, 1980, Sung sent a telex to Gonzales informing the latter of
the balances of the MMP Nos. 063 and 084 and in the CLL account deposit,
with the corresponding maturity dates thereof, thus:

1. DETAIL OF PLACEMENT IN VARIOUS A/C.

MMP 063
VALUE DATE MATURITY DATE DATE AMOUNT MATURITY VALUE

25/9/80 28/11/80 12-1/4 USD306,043.48 USD 312,708.43

MMP 084
25/09/80 28/11/80 12-1/4 USD751,883.88 USD 768,258.24

-------------------------

USD1080,966.67
============

CINTAS LARGAS

VALUE DATE MATURITY DATE DATE AMOUNT MATURITY VALUE

15/9/80 1 DAY CALL 10-7/8 USD 46,131.26

25/9/80 1 DAY CALL 11-1/4 USD500,000.00

(RATE ADJ: TO 12-1/4 VALUE 7/10/80)

26/9/80 31/10/80 12-1/4 USD420,831.45 USD 425,843.44

2. ACCORDING TO AIDC, O/S OF PESO LOAN IS 10,930,000.00, AND THE


HOLDOUT REQUIRED IS 120 PCT

COMPUTATION: PESO 10,930,000.00

7.89 (EXCHANGE RATE)


1.20 (120 PCT)
--------------------
1,662,357.00
=============
3. ACCORDINGLY, THE FUND AVAILABLE IS APPROX. USD340,000.00.
PLS REVERT. [20]

Sung informed Gonzales that the account available was approximately


US$340,000, considering the CLL deposit account and the money market
placements. On October 14, 1980, the respondent received a telex from
[21]

Wilfrido C. Martinez requesting that the transfer of US$340,000 from the deposit
account of the CLL or any deposit available be effected by telegraphic transfer
as soon as possible to their account, payee FCD SA 18402-7, Philippine
Banking Corporation, Port Area, Manila. On October 21, 1980, Wilfrido
[22]

Martinez wrote the respondent confirming his request for the transfer of
US$340,000 to their account, FCD SA 18402-7, with the Philippine Banking
Corporation, through Wells Fargo Bank of New York, Philippine Banking
Corporation Account No. FCDU SA No. 003-019205. [23]

The respondent complied with the request of the CLL, through Wilfrido
Martinez and Gonzales, and remitted US$340,000 as instructed. However, [24]

instead of deducting the amount from the funds in the CLL foreign currency or
deposit accounts and/or MMP Nos. 063 and 084, the respondent merely posted
the US$340,000 as an account receivable of the CLL since, at that time, the
money market placements had not yet matured. When the money market
[25]

placements matured, however, the respondent did not collect the US$340,000
therefrom. Instead, the respondent allowed the CLL and/or Wilfrido C. Martinez
to withdraw, up to July 3, 1981, the bulk of the CLL deposit account and MMP
Nos. 084 and 063; hence, it failed to secure reimbursement for the
[26]

US$340,000 from the said deposit account and/or money market placements.
In the meantime, problems ensued in the reconciliation of the transactions
involving the funds of the CLL, including the MMP Nos. 063 and 084 with the
respondent, as well as the receivables of Mar Tierra Corporation. There was
also a need to audit the said funds. Sometime in July 1982, conferences were
held between the executive committee of Mar Tierra Corporation and some of
its officers, including Miguel J. Lacson, where the means to reduce the
administrative expenses and accountants fees, and the possibility of placing the
CLL on an inactive status were discussed. The respondent pressured the CLL,
[27]

Wilfrido Martinez, and Gonzales to pay the US$340,000 it remitted to Account


No. FCD SA 18402-7. Eventually, Wilfrido C. Martinez and Blamar Gonzales
[28]

engaged the services of the auditing firm, the Jacinto, Belano, Castro & Co., to
review the flow of the CLLs funds and the receivables of Mar Tierra Corporation.
On August 16, 1982, the CLL, through its certified public accountant, wrote
the respondent requesting the latter to furnish its accountant with a copy of the
financial report prepared by its auditors. An audit was, thereafter, conducted
[29]
by the Jacinto, Belano, Castro & Co., certified public accountants of the CLL
and Mar Tierra Corporation. Based on their report, the auditors found that the
CLL owed the respondent US$340,000. [30]

In the meantime, the respondent demanded from the CLL, Wilfrido Martinez,
Lacson, Gonzales, and petitioner Ruben Martinez, the payment of the
US$340,000 remitted by it to FCD SA 18402-7, per instructions of Gonzales
and Wilfrido Martinez. No remittance was made to the respondent. Petitioner
Ruben Martinez denied knowledge of any such remittance, as well as any
liability for the amount thereof.
On June 17, 1983, the respondent filed a complaint against the CLL, Wilfrido
Martinez, Lacson, Gonzales, and petitioner Ruben Martinez, with the RTC of
Kaloocan City for the collection of the principal amount of US$340,000, with a
plea for a writ of preliminary attachment. Two alternative causes of action
against the defendants were alleged therein, viz:

FIRST ALTERNATIVE CAUSE OF ACTION

2.1 The allegations contained in the foregoing paragraphs are repleaded herein by
reference.

2.2 The remittance by plaintiff of the sum of US$340,000.00 as previously explained


in the foregoing paragraphs was made upon the express instructions of defendants
GONZALES and WILFRIDO C. MARTINEZ acting for and in behalf of the
defendant CINTAS, defendants GONZALES and WILFRIDO C. MARTINEZ being
the duly authorized representatives of defendant CINTAS to transact any and all of its
business with plaintiff.

2.3 The remittance of US$340,000.00 was made under an agreement for plaintiff to
advance the said amount and for defendants GONZALES, WILFRIDO C.
MARTINEZ and CINTAS to repay plaintiff all such monies so advanced to said
defendants or to their order.

2.4 In making said remittance, plaintiff acted as the agent of the foregoing defendants
in meeting the latters liability to the recipient/s of the amount so remitted.

2.5 The remittance of US$340,000.00 which remains unsettled to date is a just,


binding and lawful obligation of the defendants GONZALES, WILFRIDO C.
MARTINEZ and CINTAS.
2.6 Defendant CINTAS is a reinvoicing or paper company with nominee shareholders
in Hongkong. The real and beneficial shareholders of the foregoing defendants are the
defendants LACSON and WILFRIDO C. MARTINEZ.

2.7 Defendant CINTAS is being used by the foregoing defendants as an alter ego or
business conduit for their sole benefit and/or to defeat public convenience.

2.8 Defendant CINTAS, being a mere alter ego or business conduit for the foregoing
defendants, has no corporate personality distinct and separate from that of its
beneficial shareholders and, likewise, has no substantial assets in its own name.

2.9 The remittance of US$340,000.00 as referred to previously, although made upon


the instructions of defendants GONZALES, WILFRIDO C. MARTINEZ and
CINTAS, was in fact a remittance made for the benefit of the beneficial shareholders
of defendant CINTAS.

2.10 Any and all obligations of defendant CINTAS are the obligations of its beneficial
shareholders since the former is being used by the latter as an alter ego or business
conduit for their sole benefit and/or to defeat public convenience.

SECOND ALTERNATIVE CAUSE OF ACTION

3.1 The allegations contained in the foregoing paragraphs are incorporated herein by
reference.

3.2 Defendants RUBEN MARTINEZ, WILFRIDO C. MARTINEZ and LACSON are


joint account holders of Money Market Placement Account Nos. 063 and 084
(hereinafter referred to as MMP 063 and 084 for brevity) opened and maintained by
said defendants with the plaintiff.

3.3 Said money market placement accounts, although nominally opened and
maintained by said defendants, were in reality for the account and benefit of all the
defendants.

3.4 Defendant CINTAS likewise opened and maintained a deposit account with
plaintiff.

3.5 Defendants W.C. Martinez and Gonzales upon giving instructions to plaintiff to
remit the amount of US$340,000.00 as previously discussed also instructed plaintiff to
reimburse itself from available funds in MMP Account Nos. 063 and 084 and the
defendant CINTAS deposit account.
3.6 Due to excusable mistake, plaintiff was unable to obtain reimbursement for the
remittance it made from MMP Account Nos. 063, 084 and from the deposit account of
defendant CINTAS.

3.7 As a consequence of said mistake, plaintiff delivered to the foregoing defendants


and/or to third parties upon orders of the defendants substantially all the funds in
MMP Account Nos. 063, 084 and the deposit account of defendant CINTAS.

3.8 The amount of US$340,000.00 delivered by plaintiff to the foregoing defendants


constituted an overpayment and/or erroneous payment as defendants had no right to
demand the same; further, said amount having been unduly delivered by mistake, the
foregoing defendants were obliged to return it.

3.9 Since the foregoing defendants had no legal right to the overpayment or erroneous
payment of US$340,000.00 they, therefore, hold said money in trust for the plaintiff.

3.10 Despite numerous demands to the defendants WILFRIDO C. MARTINEZ,


RUBEN MARTINEZ, LACSON and CINTAS for restitution of the funds erroneously
paid or overpaid to said defendants, they have failed and continue to fail to make any
restitution.
[31]

The respondent prayed therein that, after due proceedings, judgment be


rendered in its favor, viz:

ON THE
FIRST ALTERNATIVE CAUSE OF ACTION

4.1 Ordering defendants GONZALES, WILFRIDO C. MARTINEZ and CINTAS,


jointly and severally, liable to pay plaintiff the amount of US$340,000.00 with
interests thereon from February 20, 1982 until fully paid.

4.2 Declaring that defendant CINTAS is a mere alter ego or business conduit of
defendants LACSON and WILFRIDO C. MARTINEZ; hence, the foregoing
defendants are, jointly and severally, liable to pay plaintiff the amount of
US$340,000.00 with interests thereon.

4.3 Ordering the foregoing defendants to be, jointly and severally, liable for the
amount of P100,000.00 as and for attorneys fees; and

4.4 Ordering the foregoing defendants to be, jointly and severally, liable to plaintiff
for actual damages in an amount to be proved at the trial. Or -
ON THE
SECOND ALTERNATIVE CAUSE OF ACTION

5.1 Declaring that plaintiff made an erroneous payment in the amount of


US$340,000.00 to defendants LACSON, WILFRIDO C. MARTINEZ, RUBEN
MARTINEZ and CINTAS.

5.2 Declaring the foregoing defendants to be, jointly and severally, liable to reimburse
plaintiff the amount of US$340,000.00 with interest thereon from February 20, 1982
until fully paid.

5.3 Ordering defendants to be, jointly and severally, liable for the amount
of P100,000.00 as and for attorneys fees; and

5.4 Ordering defendants to be, jointly and severally, liable to plaintiff for actual
damages in an amount to be proved at the trial.

5.5 A writ of preliminary attachment be issued against the properties of the defendants
WILFRIDO C. MARTINEZ, RUBEN MARTINEZ, LACSON and CINTAS as a
security for the satisfaction of any judgment that may be recovered.

Plaintiff further prays for such other relief as may be deemed just and equitable in the
premises. [32]

In his answer to the complaint, petitioner Ruben Martinez interposed the


following special and affirmative defenses:

BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES, answering defendant


respectfully states:

2. Defendant is not the holder, owner, depositor, trustee and has no interest
whatsoever in the account in Philippine Banking Corporation (FCD SA 18402-7)
where the plaintiff remitted the amount sought to be recovered. Hence, he did not
benefit directly or indirectly from the said remittance;

3. Defendant did not participate in any manner whatsoever in the remittance of funds
from the plaintiff to the alleged FCD Account in the Philippine Banking Corporation;

4. Defendant has not received nor benefited from the alleged remittance, payment,
overpayment or erroneous payment allegedly made by plaintiff; hence, insofar as he is
concerned, there is nothing to return to or to hold in trust for the plaintiff;
5. Plaintiffs alleged remittance of the amount by mere telex or telephone instruction
was highly irregular and questionable considering that the undertaking was that no
remittance or transfer could be done without the prior signature of the authorized
signatories;

6. The alleged telex instructions to the plaintiff was for it to confirm the amounts that
are free and available which it did;

7. Plaintiff is guilty of estoppel or laches by making it appear that the funds so


remitted are free and available and by not acting within reasonable time to correct the
alleged mistake;

8. The alleged remittance, overpayment and erroneous payment was manipulated by


plaintiffs own employees, officers or representatives without connivance or collusion
on the part of the answering defendant; hence, plaintiff has only itself to blame for the
same; likewise, its recourse is not against answering defendant;

9. Plaintiffs Complaint is defective in that it has failed to state the facts constituting
the mistake regarding its failure to obtain reimbursement from MMP 063 and 084;

10. Plaintiff is guilty of gross negligence and it only has itself to blame for its alleged
loss;

11. Sometime on or about 1980, defendant was made to sign blank forms concerning
opening of money market placements and perhaps, this is how he became a joint
account holder of MMP 063 and 084; defendant at that time did not realize the import
or significance of his act; afterwards, defendant did not do any act or omission by
which he could be implicated in this case;

12. Assuming that defendant is a joint account holder of said MMP 063 and 084,
plaintiff has failed to plead defendants obligations, if any, by being said joint account
holder; likewise, the Complaint fails to attach the corresponding documents showing
defendants being a joint account holder. [33]

The CLL was declared in default for its failure to file an answer to the
complaint.
After trial, the RTC rendered its decision, the dispositive portion of which
reads as follows:

PREMISES CONSIDERED, judgment is hereby rendered as follows:


1. Ordering all the defendants, jointly and severally, to pay plaintiff the amount of
US$340,000.00 or its equivalent in Philippine currency measured at the Central Bank
prevailing rate of exchange in October 1980 and with legal interest thereon computed
from the filing of plaintiffs complaint on June 17, 1983 until fully paid;

2. Declaring that defendant Cintas Largas Ltd. is a mere business conduit and alter
ego of the individual defendants, thereby holding the individual defendants, jointly
and severally, liable to pay plaintiff the aforesaid amount of US$340,000.00 or its
equivalent in Philippine Currency measured at the Central Bank prevailing rate of
exchange in October 1980, with interest thereon as above-stated;

3. Ordering all defendants to, jointly and severally, pay unto plaintiff the amount
of P50,000.00 as and for attorneys fees, plus costs.

All counterclaims and cross-claims are dismissed for lack of merit.

SO ORDERED. [34]

The trial court ruled that the CLL was a mere paper company with nominee
shareholders in Hongkong. It ruled that the principle of piercing the veil of
corporate entity was applicable in this case, and held the defendants liable,
jointly and severally, for the claim of the respondent, on its finding that the
defendants merely used the CLL as their business conduit. The trial court
declared that the majority shareholder of Mar Tierra Corporation was the RJL,
controlled by petitioner Ruben Martinez and his brothers, Jose and Luis
Martinez, as majority shareholders thereof. Moreover, petitioner Ruben
Martinez was a joint account holder of MMP Nos. 063 and 084. The trial court,
likewise, found that the auditors of Mar Tierra Corporation and the CLL
confirmed that the defendants owed US$340,000. The trial court concluded that
the respondent had established its causes of action against Wilfrido Martinez,
Lacson, Gonzales, and petitioner Ruben Martinez; hence, held all of them liable
for the claim of the respondent.
The decision was appealed to the CA. On June 27, 1997, the CA rendered
its decision, the dispositive portion of which reads:

WHEREFORE, the decision of the Court a quo dated December [19], 1991 is
hereby MODIFIED, by exonerating appellant Blamar Gonzales from any liability to
appellee and the complaint against him is DISMISSED. The decision appealed from
is AFFIRMED in all other respect.

SO ORDERED. [35]
The appellate court exonerated Gonzales of any liability, reasoning that he
was not a stockholder of the CLL nor of Mar Tierra Corporation, but was a mere
employee of the latter corporation. Petitioner Ruben Martinez sought a
[36]

reconsideration of the decision of the CA, to no avail.


[37]

Dissatisfied with the decision and resolution of the appellate court, the
petitioner, filed the petition at bar, on the following grounds:
I

RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT HEREIN


PETITIONER RUBEN MARTINEZ IS LIABLE TO RESPONDENT BPI
INTERNATIONAL FINANCE FOR REIMBURSEMENT OF THE US$340,000.00
REMITTED BY SAID RESPONDENT BPI INTERNATIONAL FINANCE TO FCD
SA ACCOUNT NO. 18402-7 AT THE PHILIPPINE BANKING CORPORATION,
PORT AREA BRANCH.

II

RESPONDENT COURT OF APPEALS ERRED IN NOT GRANTING THE


COUNTER-CLAIM OF PETITIONER RUBEN MARTINEZ CONSIDERING THE
EVIDENCE ON RECORD THAT PROVES THE SAME. [38]

The paramount issue posed for resolution is whether or not the petitioner is
obliged to reimburse to the respondent the principal amount of US$340,000.
The petitioner asserts that the trial and appellate courts erred when they
held him liable for the reimbursement of US$340,000 to the respondent. He
contends that he is not in actuality a stockholder of Mar Tierra Corporation, nor
a stockholder of the CLL. He was not involved in any way in the operations of
the said corporations. He added that while he may have signed the signature
cards of MMP Nos. 063 and 084 in blank, he never had any involvement in the
management and disposition of the said accounts, nor of any deposits in or
withdrawals from either or both accounts. He was not aware of any transactions
between the respondent, Wilfrido Martinez, and Gonzales, with reference to the
remittance of the US$340,000 to FCD SA 18402-7; nor did he oblige himself to
pay the said amount to the respondent. According to the petitioner, there is no
evidence that he had benefited from any of the following: (a) the remittance by
the respondent of the US$340,000 to Account No. FCD SA 18402-7 owned by
Mar Tierra Corporation; (b) the money market placements in MMP Nos. 063
and 084, or, (c) from any deposits in or withdrawals from the said account and
money market placements.
On the other hand, the appellate court found the petitioner and his co-
defendants, jointly and severally, liable to the respondent for the payment of the
US$340,000 based on the following findings of the trial court:

The Court finds that defendant Cintas Largas (Ltd.) with capitalization of $10,000.00
divided into 1,000 shares at HK$10 per share, is a mere paper company with nominee
shareholders in Hongkong, namely: Overseas Nominees Ltd. and Shares Nominees
Ltd., with defendants Wilfrido and Miguel J. Lacson as the sole directors (Exh. A).
Since the said shareholders are mere nominee companies, it would appear that the said
defendants Wilfrido and Miguel J. Lacson who are the sole directors are the real and
beneficial shareholders (t.s.n., 9-1-87, p. 5). Further, defendant Cintas Largas Ltd. has
no real office in Hongkong as it is merely being accommodated by Price Waterhouse,
a large accounting office in Hongkong (t.s.n., 9-1-87, pp. 7-8).

Defendant Cintas Largas Ltd., being a mere alter ego or business conduit for the
individual defendants with no corporate personality distinct and separate from that of
its beneficial shareholders and with no substantial assets in its own name, it is safe to
conclude that the remittance of US$340,000.00 was, in fact, a remittance made for the
benefit of the individual defendants. Plaintiff was supposed to deduct the
US$340,000.00 remitted to the foreign currency deposit account from Cintas Largas
(Ltd.) funds or from money market placement account Nos. 063 and 084 as well as
Cintas Largas Ltd. deposit account (Exh. FF-24).

Defendant Cintas Largas Ltd. was established only for financing (t.s.n., 12-19-88, pp.
25-26) and the active owners of Cintas are defendants Miguel Lacson and Wilfrido C.
Martinez (t.s.n., 12-19-88, p. 22). Mar Tierra Corporation of which defendant
Wilfrido Martinez is the President and one of its owners and defendant Blamar
Gonzales as the Vice President, sells molasses to defendant Cintas Largas Ltd.
Defendant Miguel J. Lacson is a business partner in purchasing molasses for Mar
Tierra Corporation. Mar Tierra Corporation was selling molasses to Cintas Largas
Ltd. which were purchased by Miguel Lacson and Wilfrido C. Martinez (t.s.n., 12-19-
88, pp. 23-24). The majority owner of Mar Tierra Corporation is RJL Martinez
Fishing Corporation which is owned by brothers Ruben Martinez, Jose Martinez and
Luis Martinez (t.s.n., 12-19-88, pp. 24-25; t.s.n., 6-20-88, pp. 11-12). The FCD SA-
18402-7 account at Philippine Banking Corporation, Port Area Branch, where the
US$340,000.00 was remitted by the plaintiff is the account of Mar Tierra Corporation,
and with the interlapping connection of the defendants to each other, these could be
the reason why the funds of Cintas Largas Ltd. were being co-mingled and controlled
by defendants more particularly defendants Blamar Gonzales and Wilfrido C.
Martinez (Exhs. D, E, F, G, H, I, J, L, M, N, O, P, R, S, and T).
On the basis of the evidence, the Court finds and so holds that the cause of action of
the plaintiff against the defendants has been established. [39]

We do not agree with the trial court and appellate court.


We note that the question of whether or not a corporation is merely an alter
ego is purely one of fact. So is the question of whether or not a corporation is
[40]

a paper company or a sham or subterfuge or whether the respondent adduced


the requisite quantum of evidence warranting the piercing of the veil of
corporate entity of the CLL. The Court is not a trier of facts. Hence, the factual
[41]

findings of the trial court, as affirmed by the appellate court, are generally
conclusive upon this Court. However, the rule is subject to the following
[42]

exceptions: (a) where the conclusion is a finding grounded entirely on


speculation, surmise and conjectures; (b) where the information made is
manifestly mistaken; (c) where there is grave abuse of discretion; (d) where the
judgment is based on a misapplication of facts, and the findings of facts of the
trial court and the appellate court are contradicted by the evidence on record;
and (e) when certain material facts and circumstances had been overlooked by
the trial court which, if taken into account, would alter the result of the case.
We have reviewed the records and find that some substantial factual
findings of the trial court and the appellate court and, consequently, their
conclusions based on the said findings, are not supported by the evidence on
record.
The general rule is that a corporation is clothed with a personality separate
and distinct from the persons composing it. Such corporation may not be held
liable for the obligation of the persons composing it; and neither can its
stockholders be held liable for such obligation. A corporation has a separate
[43]

personality distinct from its stockholders and from other corporation to which it
may be connected. This separate and distinct personality of a corporation is a
[44]

fiction created by law for convenience and to prevent injustice. [45]

Nevertheless, being a mere fiction of law, peculiar situations or valid


grounds can exist to warrant, albeit sparingly, the disregard of its independent
being and the piercing of the corporate veil. Thus, the veil of separate
[46]

corporate personality may be lifted when such personality is used to defeat


public convenience, justify wrong, protect fraud or defend crime; or used as a
shield to confuse the legitimate issues; or when the corporation is merely an
adjunct, a business conduit or an alter ego of another corporation or where the
corporation is so organized and controlled and its affairs are so conducted as
to make it merely an instrumentality, agency, conduit or adjunct of another
corporation; or when the corporation is used as a cloak or cover for fraud or
[47]
illegality, or to work injustice, or where necessary to achieve equity or for the
protection of the creditors. In such cases where valid grounds exist for piercing
[48]

the veil of corporate entity, the corporation will be considered as a mere


association of persons. The liability will directly attach to them.
[49] [50]

However, mere ownership by a single stockholder or by another corporation


of all or nearly all of the capital stocks of a corporation is not by itself a sufficient
ground to disregard the separate corporate personality. The substantial identity
of the incorporators of two or more corporations does not warrantly imply that
there was fraud so as to justify the piercing of the writ of corporate fiction. To [51]

disregard the said separate juridical personality of a corporation, the


wrongdoing must be proven clearly and convincingly. [52]

The test in determining the application of the instrumentality or alter ego


doctrine is as follows:

1. Control, not mere majority or complete stock 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 defendants
relationship to that operation. [53]

In this case, the respondent failed to adduce the quantum of evidence


necessary to prove any valid ground for the piercing of the veil of corporate
entity of Mar Tierra Corporation, or of RJL for that matter, and render the
petitioner liable for the respondents claim, jointly and severally, with Wilfrido
Martinez and Lacson. The mere fact that the majority stockholder of Mar Tierra
Corporation is the RJL, and that the petitioner, along with Jose and Luis
Martinez, owned about 42% of the capital stock of RJL, do not constitute
sufficient evidence that the latter corporation, and/or the petitioner and his
brothers, had complete domination of Mar Tierra Corporation. It does not
automatically follow that the said corporation was used by the petitioner for the
purpose of committing fraud or wrong, or to perpetrate an injustice on the
respondent. There is no evidence on record that the petitioner had any
involvement in the purchases of molasses by Wilfrido Martinez, Gonzales and
Lacson, and the subsequent sale thereof to the CLL, through Mar Tierra
Corporation. On the contrary, the evidence on record shows that the CLL
purchased molasses from Mar Tierra Corporation and paid for the same
through the credit facility granted by the respondent to the CLL. The CLL,
thereafter, made remittances to Mar Tierra Corporation from its deposit account
and MMP Nos. 063 and 084 with the respondent. The close business
relationship of the two corporations does not warrant a finding that Mar Tierra
Corporation was but a conduit of the CLL.
Likewise, the respondent failed to adduce preponderant evidence to prove
that the Mar Tierra Corporation and the RJL were so organized and controlled,
its affairs so conducted as to make the latter corporation merely an
instrumentality, agency, conduit or adjunct of the former or of Wilfrido Martinez,
Gonzales, and Lacson for that matter, or that such corporations were organized
to defraud their creditors, including the respondent. The mere fact, therefore,
that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, absent sufficient
showing that the corporate entity was purposely used as a shield to defraud
creditors and third persons of their rights.
[54]

Also, the mere fact that part of the proceeds of the sale of molasses made
by Mar Tierra Corporation to the CLL may have been used by the latter as
deposits in its deposit account with the respondent or in the money market
placements in MMP Nos. 063 and 084, or that the funds of Mar Tierra
Corporation and the CLL with the respondent were mingled, and their
disposition controlled by Wilfrido Martinez, does not constitute preponderant
evidence that the petitioner, Wilfrido Martinez and Lacson used the Mar Tierra
Corporation and the RJL to defraud the respondent. The respondent treated the
CLL and Mar Tierra Corporation as separate entities and considered them as
one and the same entity only when Wilfrido C. Martinez and/or Blamar
Gonzales failed to pay the US$340,000 remitted by the respondent to FCD SA
18402-7. This being the case, there is no factual and legal basis to hold the
petitioner liable to the respondent for the said amount.
Contrary to the ruling of the trial court and the appellate court, the auditors
of the CLL and the Mar Tierra Corporation, in their report, did not find the
petitioner liable for the respondents claim in their report. The auditors, in fact,
found the CLL alone liable for the said amount. Even a cursory reading of the
[55]

report will show that the name of the petitioner was not mentioned therein.
The respondent failed to adduce evidence that the petitioner had any
involvement in the transactions between the CLL, through Wilfrido Martinez and
Gonzales, and the respondent, with reference to the remittance of the
US$340,000 to FCD SA 18402-7. In fact, the said transaction was so
confidential that Gonzales even suggested to the respondent that the name of
Wilfrido Martinez or Mar Tierra Corporation be not made of record, and to
authorize only Wilfrido Martinez to sign the telex instruction:
OCT. 10, 1980
TO: AYALA FINANCE
ATTN: MICHAEL SUNG/BING MATOTO
FR: B. GONZALES
RE: TRANSFER OF FUNDS

THIS IS TO CONFRM OUR TELEPHONE CONVERSATION THAT WE WLD


LIKE TO SUGGEST THE FF PROCEDURES FOR FUND TRANSFER.

1. TLX INSTRUCTION THAT FUNDS BE TRANSFERRED TO OUR FCD ACCT


BY TELEGRAPHIC TRANSFER.
2. WE WILL ONLY USE ONE ACCT W/C IS FCD SA 18402-7 OF
PHILBANKING CORPORATION, PORT AREA BRANCH, UNION
CEMENT BLDG, BONIFACIO DRIVE, PORT AREA, METRO MANILA,
PHILS.
3. PAYEE SHLD BE FCD SA 18402-7 AND NO MENTION OF W.C.
MARTINEZ OR MAR TIERRA CORP. TLX INSTRUCTION SHLD BE
SIGNED BY W.C. MARTINEZ AND WILL BE SENT ONLY THRU TLX
MACHINE OF MAR TIERRA CORP.
4. FINAL CONFIRMATION OF THE TRANSFER BY TELEPHONE CALL.

PLS CONFRM TODAY TOTAL AMT. THAT IS FREE AND AVAILABLE SO WE


CAN FORMALIZE INSTRUCTION OF TRANSFER IF THE ABOVE
PROCEDURE IS APPROVED BY YOU. PLS CONFRM ALSO LIST OF
CORRESPONDENT BANK IN HK.

IN CASE OF WELLS FARGO HK, WE WLD LIKE TO SUGGEST THE FF


PROCEDURE:

1. WELLS FARGO HK WIL SEND A TLX TO MANILA INSTRUCTING PHIL


BANKING CORP TO CREDIT FCD SA 18402-7.
2. REIMBURSEMENT INSTRUCTION, AT THE SAME TIME WELLS FARGO
HK WIL REQUEST WELLS FARGO NEW YORK TO CREDIT FCDU NO. 003-
019205 FOR THE ACCT OF PHIL BANKING CORP. [56]

Even the respondent admitted, in its complaint, that the CLL, Gonzales, and
Wilfrido Martinez, bound and obliged themselves to repay the US$340,000, viz:

2.2 The remittance by plaintiff of the sum of US$340,000.00 as previously explained


in the foregoing paragraphs was made upon the express instructions of defendants
GONZALES and WILFRIDO C. MARTINEZ acting for and in behalf of the
defendant CINTAS, defendants GONZALES and WILFRIDO C. MARTINEZ being
the duly authorized representatives of defendant CINTAS to transact any and all of its
business with plaintiff.

2.3 The remittance of US$340,000.00 was made under an agreement for plaintiff to
advance the said amount and for defendants GONZALES, WILFRIDO C.
MARTINEZ and CINTAS to repay plaintiff all such monies so advanced to said
defendants or to their order.

2.4 In making said remittance, plaintiff acted as the agent of the foregoing defendants
in meeting the latters liability to the recipient/s of the amount so remitted.

2.5 The remittance of US$340,000.00 which remains unsettled to date is a just,


binding and lawful obligation of the defendants GONZALES, WILFRIDO C.
MARTINEZ and CINTAS.

2.6 Defendant CINTAS is a reinvoicing or paper company with nominee shareholders


in Hongkong. The real and beneficial shareholders of the foregoing defendants are the
defendants LACSON, and WILFRIDO C. MARTINEZ.

2.7 Defendant CINTAS is being used by the foregoing defendants as an alter ego or
business conduit for their sole benefit and/or to defeat public convenience.

2.8 Defendant CINTAS, being a mere alter ego or business conduit for the foregoing
defendants, has no corporate personality distinct and separate from that of its
beneficial shareholders and likewise has no substantial assets in its own name.

2.9 The remittance of US$340,000.00 as referred to previously, although made upon


the instructions of defendants GONZALES, WILFRIDO C. MARTINEZ and
CINTAS, was in fact a remittance made for the benefit of the beneficial shareholders
of defendant CINTAS. [57]
The admissions made by the respondent in its complaint are judicial
admissions which cannot be contradicted unless there is a showing that it was
made through palpable mistake or that no such admission was made. [58]

The respondent impleaded the petitioner only in its second alternative cause
of action, on its allegation that the latter was a joint account holder of MMP Nos.
063 and 084, simply because he signed the signature cards with Wilfrido
Martinez and/or Lacson in blank. The trial court found the submission of the
respondent duly established, based on Wilfrido Martinezs answer to the
complaint, and held the petitioner liable for the said amount based on the
signature cards in this language:

Defendants Ruben Martinez, Wilfrido C. Martinez and Miguel Lacson are joint
account holders of the money market placement account Nos. 063 and 084 (par. 17
page 4 Answer of defendant Wilfrido C. Martinez; par. 2, page 5, Amended Answer
of defendant Lacson; t.s.n., 4-18-88, p. 7).
[59]

The appellate court affirmed the ruling of the trial court without making any
specific reference to the aforequoted ruling of the trial court.
[60]

We do not agree. The judicial admissions made by Wilfrido Martinez in his


answer to the complaint are not binding on the petitioner. The evidence on
[61]

record shows that the petitioner affixed his signatures on the signature cards
merely upon the request of his son, Wilfrido Martinez. The signature cards were
printed forms of the respondent with the names of the signatories and the
supposed account holders typewritten thereon and, except for the account
number, were similarly worded, viz:

SIGNATURE CARD

Account Name: Mr. Ruben Martinez and/or Account Number: MMP-063


Mr. Wilfrido C. Martinez
and/or Mr. Miguel J. Lacson

I.D. Card/Passport No.:________________________________________

Residence Address: __________________________________________


_____________________________________Tel.___________________
Office Address:_______________________________________________
_____________________________________Tel. ___________________
Number of signature required to withdraw funds:_____________________
Confirmation/Correspondence to be mailed to: _____Office
_____Residence
_____Others:___________
_______________________
Other Instructions:______________________________________________
_____________________________________________________________
_____________________________________________________________
Specimen of signature:
1. Sgd. (Ruben Martinez) 3. Sgd. (Wilfrido Martinez)
SIGNATURE NAME SIGNATURE NAME
2. Sgd. (Ruben Martinez) 4. Sgd. (Miguel J. Lacson)
SIGNATURE NAME SIGNATURE NAME [62]

The respondent failed to adduce any evidence, testimonial or documentary,


including the relevant laws of Hongkong where the placements were made to
[63]

hold the petitioner liable for the respondents claims. Other than the signature
cards, the respondent failed to adduce a shred of evidence to prove (a) the
terms and conditions of the money market placements of the CLL in MMP Nos.
063 and 084; and, (b) the rights and obligations of the petitioner, Wilfrido
Martinez and Lacson, over the money market placements. In light of the
evidence on record, the CLL and/or Wilfrido Martinez never surrendered their
ownership over the funds in favor of the petitioner when the latter co-signed the
signature cards. The CLL and/or Wilfrido Martinez retained complete control
and dominion over the funds.
By merely affixing his signatures on the signature cards, the petitioner did
not necessarily become a joint and solidary creditor of the respondent over the
said placements. Neither did the petitioner bind himself to pay to the respondent
the US$340,000 which was borrowed by the CLL and/or Wilfrido Martinez, and
later remitted to FCD SA 18402-7.
The respondent has no one but itself to blame for its failure to deduct the
US$340,000 from the foreign currency and deposit accounts and money market
placements of the CLL. The evidence on record shows that the respondent was
supposed to deduct the said amount from the money market placements of the
CLL in MMP Nos. 063 and 084, but failed to do so. The respondent remitted the
amount from its own funds and, by its negligence, merely posted the amount in
the account of the CLL. Worse, the respondent allowed the CLL and Wilfrido
Martinez to withdraw the entirety of the deposits in the said accounts, without
first deducting the US$340,000. By the time the respondent realized its
mistakes, the funds in the said accounts had already been withdrawn solely by
the CLL and/or Wilfrido Martinez. This was the testimony of Michael Sung, the
witness for the respondent.
Q: Do you know whether this US$340,000 was really transferred to Foreign Currency
Deposit Account No. 18402-7 of the Philippine Banking Corporation in Manila?
A: Yes.
Q: Pursuant to the procedure for fund transfer as contained in Exhs. B, C, D and E,
after having made such remittance of US$340,000.00, what was plaintiff supposed
to do, if any, in order to get reimbursement for such transfer?
A: Plaintiff was supposed to deduct the US$340,000.00 remitted to the foreign currency
deposit account from the Cintas Largas funds or from Money Market Placement
Account Nos. 063 and 084 as well as the Cintas Largas, Ltd. deposit account.
Q: Do you know if plaintiff was able to obtain reimbursement of the US$340,000
remitted to the Philippine Banking Corporation in Manila?
A: No, because instead of deducting the remittance of US$340,000 from the funds in
the money market placement accounts and/or the Cintas Largas Deposit Account,
we posted the US$340,000 remittance as an account receivable of Cintas Largas,
Ltd. since at that time the money market placement deposits have not yet
matured. Subsequently, we failed to charge the deposit and MMP accounts when
they matured and Cintas Largas, Ltd. and/or Wilfrido C. Martinez had already
withdrawn the bulk of the funds contained in Money Market Placement Account
No. 063 and the Cintas Largas, Ltd. Deposit Account thus, we were unable to
obtain reimbursement therefrom.[64]
It cannot even be argued that if the petitioner would not be adjudged liable
for the respondents claim, he would thereby be enriching himself at the expense
of the respondent. There is no evidence on record that the petitioner withdrew
a single centavo from or was personally benefited by the funds in MMP Nos.
063 and 084. The testimonial and documentary evidence of the respondent
clearly shows that the CLL and/or Wilfrido Martinez used and disposed of the
said funds without the knowledge, involvement, and consent of the petitioner.
Furthermore, the documentary evidence of the respondent shows the following:
MMP 063
Statement of Accounts (Deposit)

Funds In Funds Out Remarks


Value Date

28/11/80 6,664.95
Interests earned
29/12/80 4,779.66 ""
21/01/81 4,024.83 ""
21/01/81 119,478.51 Purchase HK$632,041.33
@5.29 & transferred to its
statement A/C
13/02/81 2,321.99 Interests earned
" 100,015.00 Transfer to Cintas Largas
A/C Receivable.
17/02/81 55.07 Interests earned
18/03/81 1,317.27 ""
100,000.00 Purchase HK$525,000.00
@5.25 cheque made payable
to Grand Solid Enterprises
Co., Ltd.
5,713.74 Transfer to A/C Receivable
(MMP-063)
____________ ____________

US$443,975.85 US$443,975.85[65]

=========== ============

MMP 084
Statement of Accounts (Deposit)

Value Date Funds In Funds Out Remarks

28/11/80 16,374.36 Interests earned


01/12/80 488.16 ""
04/12/80 1,089.06 ""
" US$250,000.00 Transfer to A/C of
Cintas Largas
09/12/80 1,290.56 Interests earned
" 200,000.00 Transfer to Cintas
Largas A/R.
18/12/80 1,545.42 Interests earned
200,000.00 T/T to Chase Manhattan
NY for Credit A/C
Allied Capital F/O Frank
Chan B/O Grand Solid.
02/03/81 4,608.27 Interests earned
" 20,470.74 Transfer to A/C of
Grand Solid
09/03/81 321.91 Interests earned
" 60,000.00 Transfer to A/C of
Trinisia Ltd.
20/03/81 213.40 Interests earned
" 45,286.26 T/T to Nitto Trading &
Josho Ind. Co., Ltd.,
Japan.
" 2,028.02 Transfer to A/C
Receivable (MMP-084)
" 30.00 Cable Charges
____________ _____________
US$777,815.02 US$777,815.02[66]
=========== ============

CINTAS LARGAS
Statement of Accounts (Deposit)

Value Date Funds In Funds Out Remarks

31/10/80 5,011.99 Interests earned


17/11/80 8,067.70 ""
" 350,000.00 Transfer to A/C of
Grand Solid
09/11/80 3,062.23 Interests earned
" 350,000.00 Purchase
HK$1,789,200.00
@5.112, Cheque made
payable to Grand Solid.
26/11/80 3,264.34 Interests earned
" 300,000.00 Purchase
HK$1,535,100.00
@5.117, Cheque made
payable to Grand Solid
21/01/81 1,299.80 Interests earned
" 81,415.00 Remittance from C. Itoh
& Co., NY
02/03/81 2,445.49 Interests earned
" 129,529.26 Transfer to Grand Solids
A/C Receivable
02/04/81 143,000.00 Transfer from CLs
Statement A/C
10/04/81 456.81 Interests earned
" 50,000.00 Purchase
HK$267,150.00
@5.343, Cheque made
payable to Grand Solid.
13/04/81 US$ 40.89 Interests earned
21/04/81 311.66 ""
" US$ 50,000.00 Purchase
HK$268,850.00
@5.377, cheque made
payable to Grand Solid.
28/04/81 132.04 Interests earned
" 40,000.00 Purchase
HK$214,480.00
@5.362, cheque made
payable to Grand Solid.
" 52,692.00 Remittance from Dai
Ichi Kangyo Bank NY.
REF. KOMEIMARU
19/05/81 178,465.18 Transfer from CLs A/C
Receivable
22/05/81 46,472.00 Remittance from C. Itoh
& Co., NY Re. Pacific
Geory.
26/05/81 28.40 Interests earned
04/06/81 1,242.80 ""
" 50,000.00 Purchase
HK$275,750.00
@5.515, Cheque made
payable to Grand Solid
11/06/81 2,252.36 Interests earned
" 66,400.00 T/T to Security Pacific
Natl Bank LA for A/C
of Twentieth Century
Fox Intl Corp.
" 15.00 Cable Charge
" 31.65 Purchase HK$175.00
@5.53 for payment of
Business Registration
Fee.
25/06/81 1,192.24 Interests earned
" 60,000.00 Purchase
HK$331,500.00
@5.525, cheque made
payable to Grand Solid.
" 22,656.88 T/T to Daiwa Bank, Los
Angeles for A/C of
OAC Equipment Corp.
" 45,800.00 T/T to Josho Ind. Co.
Ltd., Japan
" 15.00 Cable Charge
03/07/81 165.47 Interests earned
" 11,870.00 T/T to Bank of Tokyo,
Kobe Branch for A/C of
Furuno Electric Co.
Ref.: Mar Tierra
Takashiro Maru, Eatelite
Nav. and Radar.
" 15.00 Cable Charge
06/07/81 17.60 Interests earned
07/07/81 14.83 ""
" 16,000.00 T/T to Dai Ichi Kangyo
Bank, Shimizu Branch
for A/C of Takashiro
Maru.
" 15.00 Cable Charge
15/09/81 US$ 482.29 Interests earned
" US$ 1,250.00 Reimbursement of
expenses paid to Price
Waterhouse & Co.
17/09/81 11.91 Interests earned
" 237.43 Purchase HK$1,421.50
for cheque payment to
Price Waterhouse & Co.
08/01/82 70,360.00 Remittance from C. Itoh
& Co., NY
19/01/82 268.74 Interests earned
" 3,064.81 Transfer to CLs Margin
A/C
" 50,000.00 Purchase
HK$295,100.00, cheque
made payable to Grand
Solid.
" 5,952.38 Transfer to A/C of
Trinisia Ltd.
_____________ _____________
TOTAL : US$1,756,387.32 US$1,732,103.25
- 24,284.07 Outstanding deposits
_____________ _____________
US$1,756,387.32 US$1,756,387.32[67]
============ =============

Clearly from the foregoing, the withdrawals from the deposit and foreign
currency accounts and MMP Nos. 063 and 084 of the CLL, after the respondent
remitted the US$340,000, were for the account of the CLL and/or Wilfrido
Martinez, and not of the petitioner.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
Decision of the Court of Appeals is REVERSED AND SET ASIDE. The
complaint of the respondent against the petitioner in Civil Case No. C-10811 is
DISMISSED. No costs.
SO ORDERED.
G.R. No. 142616 July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner,


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

KAPUNAN, J.:

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

The antecedents of this case are as follows:

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

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

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

On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ
of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati.
The Executive Judge of the Regional Trial Court of Makati issued a 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.

SO ORDERED.
[G. R. No. 120077. October 13, 2000]

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL.


LTD. petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION, ARBITER CEFERINA J. DIOSANA AND MARCELO
G. SANTOS, respondents.

DECISION
PARDO, J.:

The case before the Court is a petition for certiorari[1] to annul the following
orders of the National Labor Relations Commission (hereinafter referred to as
NLRC) for having been issued without or with excess jurisdiction and with grave
abuse of discretion:[2]
(1) Order of May 31, 1993.[3] Reversing and setting aside its earlier
resolution of August 28, 1992.[4] The questioned order declared that the NLRC,
not the Philippine Overseas Employment Administration (hereinafter referred to
as POEA), had jurisdiction over private respondents complaint;
(2) Decision of December 15, 1994.[5] Directing petitioners to jointly and
severally pay private respondent twelve thousand and six hundred dollars
(US$12,600.00) representing salaries for the unexpired portion of his contract;
three thousand six hundred dollars (US$3,600.00) as extra four months salary
for the two (2) year period of his contract, three thousand six hundred dollars
(US$3,600.00) as 14th month pay or a total of nineteen thousand and eight
hundred dollars (US$19,800.00) or its peso equivalent and attorneys fees
amounting to ten percent (10%) of the total award; and
(3) Order of March 30, 1995.[6] Denying the motion for reconsideration of
the petitioners.
In May, 1988, private respondent Marcelo Santos (hereinafter referred to as
Santos) was an overseas worker employed as a printer at the Mazoon Printing
Press, Sultanate of Oman.Subsequently, in June 1988, he was directly hired by
the Palace Hotel, Beijing, Peoples Republic of China and later terminated due
to retrenchment.
Petitioners are the Manila Hotel Corporation (hereinafter referred to as
MHC) and the Manila Hotel International Company, Limited (hereinafter
referred to as MHICL).
When the case was filed in 1990, MHC was still a government-owned and
controlled corporation duly organized and existing under the laws of the
Philippines.
MHICL is a corporation duly organized and existing under the laws of Hong
Kong.[7] MHC is an incorporator of MHICL, owning 50% of its capital stock.[8]
By virtue of a management agreement[9] with the Palace Hotel (Wang Fu
Company Limited), MHICL[10] trained the personnel and staff of the Palace Hotel
at Beijing, China.
Now the facts.
During his employment with the Mazoon Printing Press in the Sultanate of
Oman, respondent Santos received a letter dated May 2, 1988 from Mr.
Gerhard R. Shmidt, General Manager, Palace Hotel, Beijing, China. Mr.
Schmidt informed respondent Santos that he was recommended by one Nestor
Buenio, a friend of his.
Mr. Shmidt offered respondent Santos the same position as printer, but with
a higher monthly salary and increased benefits. The position was slated to open
on October 1, 1988.[11]
On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his
acceptance of the offer.
On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a
ready to sign employment contract to respondent Santos. Mr. Henk advised
respondent Santos that if the contract was acceptable, to return the same to
Mr. Henk in Manila, together with his passport and two additional pictures for
his visa to China.
On May 30, 1988, respondent Santos resigned from the Mazoon Printing
Press, effective June 30, 1988, under the pretext that he was needed at home
to help with the familys piggery and poultry business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and
acknowledged Mr. Henks letter. Respondent Santos enclosed four (4) signed
copies of the employment contract (dated June 4, 1988) and notified them that
he was going to arrive in Manila during the first week of July 1988.
The employment contract of June 4, 1988 stated that his employment would
commence September 1, 1988 for a period of two years.[12] It provided for a
monthly salary of nine hundred dollars (US$900.00) net of taxes, payable
fourteen (14) times a year.[13]
On June 30, 1988, respondent Santos was deemed resigned from the
Mazoon Printing Press.
On July 1, 1988, respondent Santos arrived in Manila.
On November 5, 1988, respondent Santos left for Beijing, China. He started
to work at the Palace Hotel.[14]
Subsequently, respondent Santos signed an amended employment
agreement with the Palace Hotel, effective November 5, 1988. In the contract,
Mr. Shmidt represented the Palace Hotel. The Vice President (Operations and
Development) of petitioner MHICL Miguel D. Cergueda signed the employment
agreement under the word noted.
From June 8 to 29, 1989, respondent Santos was in the Philippines on
vacation leave. He returned to China and reassumed his post on July 17, 1989.
On July 22, 1989, Mr. Shmidts Executive Secretary, a certain Joanna
suggested in a handwritten note that respondent Santos be given one (1) month
notice of his release from employment.
On August 10, 1989, the Palace Hotel informed respondent Santos by letter
signed by Mr. Shmidt that his employment at the Palace Hotel print shop would
be terminated due to business reverses brought about by the political upheaval
in China.[15] We quote the letter:[16]

After the unfortunate happenings in China and especially Beijing (referring to


Tiannamen Square incidents), our business has been severely affected. To reduce
expenses, we will not open/operate printshop for the time being.

We sincerely regret that a decision like this has to be made, but rest assured this does
in no way reflect your past performance which we found up to our expectations.

Should a turnaround in the business happen, we will contact you directly and give you
priority on future assignment.

On September 5, 1989, the Palace Hotel terminated the employment of


respondent Santos and paid all benefits due him, including his plane fare back
to the Philippines.
On October 3, 1989, respondent Santos was repatriated to the Philippines.
On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave
wrote Mr. Shmidt, demanding full compensation pursuant to the employment
agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:[17]

His service with the Palace Hotel, Beijing was not abruptly terminated but we
followed the one-month notice clause and Mr. Santos received all benefits due him.

For your information, the Print Shop at the Palace Hotel is still not operational and
with a low business outlook, retrenchment in various departments of the hotel is going
on which is a normal management practice to control costs.

When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now
shows a better approach.

In closing, when Mr. Santos received the letter of notice, he hardly showed up for
work but still enjoyed free accommodation/laundry/meals up to the day of his
departure.

On February 20, 1990, respondent Santos filed a complaint for illegal


dismissal with the Arbitration Branch, National Capital Region, National Labor
Relations Commission (NLRC). He prayed for an award of nineteen thousand
nine hundred and twenty three dollars (US$19,923.00) as actual damages, forty
thousand pesos (P40,000.00) as exemplary damages and attorneys fees
equivalent to 20% of the damages prayed for. The complaint named MHC,
MHICL, the Palace Hotel and Mr. Shmidt as respondents.
The Palace Hotel and Mr. Shmidt were not served with summons and
neither participated in the proceedings before the Labor Arbiter.[18]
On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case
against petitioners, thus:[19]

WHEREFORE, judgment is hereby rendered:

1. directing all the respondents to pay complainant jointly and severally;

a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries;

b) P50,000.00 as moral damages;

c) P40,000.00 as exemplary damages; and

d) Ten (10) percent of the total award as attorneys fees.


SO ORDERED.

On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA,
not the NLRC had jurisdiction over the case.
On August 28, 1992, the NLRC promulgated a resolution, stating:[20]

WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void
for want of jurisdiction. Complainant is hereby enjoined to file his complaint with the
POEA.

SO ORDERED.

On September 18, 1992, respondent Santos moved for reconsideration of


the afore-quoted resolution. He argued that the case was not cognizable by the
POEA as he was not an overseas contract worker.[21]
On May 31, 1993, the NLRC granted the motion and reversed itself. The
NLRC directed Labor Arbiter Emerson Tumanon to hear the case on the
question of whether private respondent was retrenched or dismissed.[22]
On January 13, 1994, Labor Arbiter Tumanon completed the proceedings
based on the testimonial and documentary evidence presented to and heard by
him.[23]
Subsequently, Labor Arbiter Tumanon was re-assigned as trial arbiter of the
National Capital Region, Arbitration Branch, and the case was transferred to
Labor Arbiter Jose G. de Vera.[24]
On November 25, 1994, Labor Arbiter de Vera submitted his report.[25] He
found that respondent Santos was illegally dismissed from employment and
recommended that he be paid actual damages equivalent to his salaries for the
unexpired portion of his contract.[26]
On December 15, 1994, the NLRC ruled in favor of private respondent, to
wit:[27]

WHEREFORE, finding that the report and recommendations of Arbiter de Vera are
supported by substantial evidence, judgment is hereby rendered, directing the
respondents to jointly and severally pay complainant the following computed
contractual benefits: (1) US$12,600.00 as salaries for the un-expired portion of the
parties contract; (2) US$3,600.00 as extra four (4) months salary for the two (2) years
period (sic) of the parties contract; (3) US$3,600.00 as 14th month pay for the
aforesaid two (2) years contract stipulated by the parties or a total of US$19,800.00 or
its peso equivalent, plus (4) attorneys fees of 10% of complainants total award.
SO ORDERED.

On February 2, 1995, petitioners filed a motion for reconsideration arguing


that Labor Arbiter de Veras recommendation had no basis in law and in fact.[28]
On March 30, 1995, the NLRC denied the motion for reconsideration.[29]
Hence, this petition.[30]
On October 9, 1995, petitioners filed with this Court an urgent motion for the
issuance of a temporary restraining order and/or writ of preliminary injunction
and a motion for the annulment of the entry of judgment of the NLRC dated July
31, 1995.[31]
On November 20, 1995, the Court denied petitioners urgent motion. The
Court required respondents to file their respective comments, without giving due
course to the petition.[32]
On March 8, 1996, the Solicitor General filed a manifestation stating that
after going over the petition and its annexes, they can not defend and sustain
the position taken by the NLRC in its assailed decision and orders. The Solicitor
General prayed that he be excused from filing a comment on behalf of the
NLRC[33]
On April 30,1996, private respondent Santos filed his comment.[34]
On June 26, 1996, the Court granted the manifestation of the Solicitor
General and required the NLRC to file its own comment to the petition.[35]
On January 7, 1997, the NLRC filed its comment.
The petition is meritorious.
I. Forum Non-Conveniens

The NLRC was a seriously inconvenient forum.


We note that the main aspects of the case transpired in two foreign
jurisdictions and the case involves purely foreign elements. The only link that
the Philippines has with the case is that respondent Santos is a Filipino
citizen. The Palace Hotel and MHICL are foreign corporations. Not all cases
involving our citizens can be tried here.
The employment contract.-- Respondent Santos was hired directly by the
Palace Hotel, a foreign employer, through correspondence sent to the Sultanate
of Oman, where respondent Santos was then employed. He was hired without
the intervention of the POEA or any authorized recruitment agency of the
government.[36]
Under the rule of forum non conveniens, a Philippine court or
agency may assume jurisdiction over the case if it chooses to do
so provided: (1) that the Philippine court is one to which the parties may
conveniently resort to; (2) that the Philippine court is in a position to make an
intelligent decision as to the law and the facts; and (3) that the Philippine court
has or is likely to have power to enforce its decision.[37] The conditions are
unavailing in the case at bar.
Not Convenient.-- We fail to see how the NLRC is a convenient forum
given that all the incidents of the case - from the time of recruitment, to
employment to dismissal occurred outside the Philippines. The inconvenience
is compounded by the fact that the proper defendants, the Palace Hotel and
MHICL are not nationals of the Philippines. Neither are they doing business in
the Philippines. Likewise, the main witnesses, Mr. Shmidt and Mr. Henk are
non-residents of the Philippines.
No power to determine applicable law.-- Neither can an intelligent
decision be made as to the law governing the employment contract as such
was perfected in foreign soil. This calls to fore the application of the principle
of lex loci contractus (the law of the place where the contract was made).[38]
The employment contract was not perfected in the Philippines. Respondent
Santos signified his acceptance by writing a letter while he was in the Republic
of Oman. This letter was sent to the Palace Hotel in the Peoples Republic of
China.
No power to determine the facts.-- Neither can the NLRC determine the
facts surrounding the alleged illegal dismissal as all acts complained of took
place in Beijing, Peoples Republic of China. The NLRC was not in a position to
determine whether the Tiannamen Square incident truly adversely affected
operations of the Palace Hotel as to justify respondent Santos retrenchment.
Principle of effectiveness, no power to execute decision.-- Even
assuming that a proper decision could be reached by the NLRC, such would
not have any binding effect against the employer, the Palace Hotel. The Palace
Hotel is a corporation incorporated under the laws of China and was not even
served with summons. Jurisdiction over its person was not acquired.
This is not to say that Philippine courts and agencies have no power to solve
controversies involving foreign employers. Neither are we saying that we do not
have power over an employment contract executed in a foreign country. If
Santos were an overseas contract worker, a Philippine forum, specifically
the POEA, not the NLRC, would protect him.[39] He is not an overseas
contract worker a fact which he admits with conviction.[40]
Even assuming that the NLRC was the proper forum, even on the merits,
the NLRCs decision cannot be sustained.
II. MHC Not Liable

Even if we assume two things: (1) that the NLRC had jurisdiction over the
case, and (2) that MHICL was liable for Santos retrenchment, still MHC, as a
separate and distinct juridical entity cannot be held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its
capital stock. However, this is not enough to pierce the veil of corporate fiction
between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to
when the corporate fiction is used to defeat public convenience, justify wrong,
protect fraud or defend a crime.[41] It is done only when a corporation is a mere
alter ego or business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals,[42] we held that the 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 a sufficient reason for
disregarding the fiction of separate corporate personalities.
The tests in determining whether the corporate veil may be pierced
are: First, the defendant must have control or complete domination of the other
corporations finances, policy and business practices with regard to the
transaction attacked. There must be proof that the other corporation had no
separate mind, will or existence with respect the act complained of.Second,
control must be used by the defendant to commit fraud or wrong. Third, the
aforesaid control or breach of duty must be the proximate cause of the injury or
loss complained of.The absence of any of the elements prevents the piercing
of the corporate veil.[43]
It is basic that a corporation has a personality separate and distinct from
those composing it as well as from that of any other legal entity to which it may
be related.[44] Clear and convincing evidence is needed to pierce the veil of
corporate fiction.[45] In this case, we find no evidence to show that MHICL and
MHC are one and the same entity.
III. MHICL not Liable

Respondent Santos predicates MHICLs liability on the fact that MHICL


signed his employment contract with the Palace Hotel. This fact fails to
persuade us.
First, we note that the Vice President (Operations and Development) of
MHICL, Miguel D. Cergueda signed the employment contract as a mere
witness. He merely signed under the word noted.
When one notes a contract, one is not expressing his agreement or
approval, as a party would.[46] In Sichangco v. Board of Commissioners of
Immigration,[47] the Court recognized that the term noted means that the person
so noting has merely taken cognizance of the existence of an act or declaration,
without exercising a judicious deliberation or rendering a decision on the matter.
Mr. Cergueda merely signed the witnessing part of the document. The
witnessing part of the document is that which, in a deed or other formal
instrument is that part which comes after the recitals, or where there are no
recitals, after the parties (emphasis ours).[48] As opposed to a party to a contract,
a witness is simply one who, being present, personally sees or perceives a
thing; a beholder, a spectator, or eyewitness.[49] One who notes something just
makes a brief written statement[50] a memorandum or observation.
Second, and more importantly, there was no existing employer-employee
relationship between Santos and MHICL. In determining the existence of an
employer-employee relationship, the following elements are considered:[51]

(1) the selection and engagement of the employee;

(2) the payment of wages;

(3) the power to dismiss; and

(4) the power to control employees conduct.

MHICL did not have and did not exercise any of the aforementioned
powers. It did not select respondent Santos as an employee for the Palace
Hotel. He was referred to the Palace Hotel by his friend, Nestor Buenio. MHICL
did not engage respondent Santos to work. The terms of employment were
negotiated and finalized through correspondence between respondent Santos,
Mr. Schmidt and Mr. Henk, who were officers and representatives of the Palace
Hotel and not MHICL. Neither did respondent Santos adduce any proof that
MHICL had the power to control his conduct. Finally, it was the Palace Hotel,
through Mr. Schmidt and not MHICL that terminated respondent Santos
services.
Neither is there evidence to suggest that MHICL was a labor-only
contractor.[52] There is no proof that MHICL supplied respondent Santos or even
referred him for employment to the Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL
are one and the same entity. The fact that the Palace Hotel is a member of the
Manila Hotel Group is notenough to pierce the corporate veil between MHICL
and the Palace Hotel.
IV. Grave Abuse of Discretion

Considering that the NLRC was forum non-conveniens and considering


further that no employer-employee relationship existed between MHICL, MHC
and respondent Santos, Labor Arbiter Ceferina J. Diosana clearly had no
jurisdiction over respondents claim in NLRC NCR Case No. 00-02-01058-90.
Labor Arbiters have exclusive and original jurisdiction only over the
following:[53]

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;

4. Claims for actual, moral, exemplary and other forms of damages arising from
employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions
involving legality of strikes and lockouts; and

6. Except claims for Employees Compensation, Social Security, Medicare and


maternity benefits, all other claims, arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a
claim for reinstatement.

In all these cases, an employer-employee relationship is an indispensable


jurisdictional requirement.
The jurisdiction of labor arbiters and the NLRC under Article 217 of the
Labor Code is limited to disputes arising from an employer-employee
relationship which can be resolved by reference to the Labor Code, or other
labor statutes, or their collective bargaining agreements.[54]
To determine which body has jurisdiction over the present controversy, we
rely on the sound judicial principle that jurisdiction over the subject matter is
conferred by law and is determined by the allegations of the complaint
irrespective of whether the plaintiff is entitled to all or some of the claims
asserted therein.[55]
The lack of jurisdiction of the Labor Arbiter was obvious from the allegations
of the complaint. His failure to dismiss the case amounts to grave abuse of
discretion.[56]
V. The Fallo

WHEREFORE, the Court hereby GRANTS the petition for certiorari and
ANNULS the orders and resolutions of the National Labor Relations
Commission dated May 31, 1993, December 15, 1994 and March 30, 1995 in
NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90).
No costs.
SO ORDERED.
[G.R. No. 142435. April 30, 2003]

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.

DECISION
QUISUMBING, J.:

This petition for review on certiorari seeks the reversal of the


Decision dated October 21, 1999 of the Court of Appeals in CA-G.R. CV No.
[1]

41536 which dismissed herein petitioners appeal from the Decision dated [2]

February 10, 1993 of the Regional Trial Court (RTC) of Quezon City, Branch
84, in Civil Case No. Q-89-4152. The trial court had dismissed petitioners
complaint for annulment of real estate mortgage and the extra-judicial
foreclosure thereof. Likewise brought for our review is the Resolution dated
[3]

February 23, 2000 of the Court of Appeals which denied petitioners motion for
reconsideration.
The facts, as culled from records, are as follows:
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
on December 14, 1978, 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 and [5]

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. Estelita Lipat was
[6]

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.
On November 28, 1989, the spouses 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, which was docketed as Civil Case No. Q-
89-4152, 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 corporations 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.
After trial on the merits, the RTC dismissed the complaint, thus:

WHEREFORE, this Court holds that in view of the facts contained in the record, the
complaint filed in this case must be, as is hereby, dismissed. Plaintiffs however has
five (5) months and seventeen (17) days reckoned from the finality of this decision
within which to exercise their right of redemption. The writ of injunction issued is
automatically dissolved if no redemption is effected within that period.

The counterclaims and cross-claim are likewise dismissed for lack of legal and factual
basis.

No costs.

IT IS SO ORDERED. [7]

The trial court ruled that there was convincing and conclusive evidence
proving that BEC was a family corporation of the Lipats. As such, it was a mere
extension of petitioners personality and business and a mere alter ego or
business conduit of the Lipats established for their own benefit. Hence, to allow
petitioners to invoke the theory of separate corporate personality would
sanction its use as a shield to further an end subversive of justice. Thus, the
[8]

trial court pierced the veil of corporate fiction and held that Belas Export
Corporation and petitioners (Lipats) are one and the same. Pacific Bank had
transacted business with both BET and BEC on the supposition that both are
one and the same. Hence, the Lipats were estopped from disclaiming any
obligations on the theory of separate personality of corporations, which is
contrary to principles of reason and good faith.
The Lipats timely appealed the RTC decision to the Court of Appeals in CA-
G.R. CV No. 41536. Said appeal, however, was dismissed by the appellate
court for lack of merit. The Court of Appeals found that there was ample
evidence on record to support the application of the doctrine of piercing the veil
of corporate fiction. In affirming the findings of the RTC, the appellate court
noted that Mrs. Lipat had full control over the activities of the corporation and
used the same to further her business interests. In fact, she had benefited from
[9]

the loans obtained by the corporation to finance her business. It also found
unnecessary a board resolution authorizing Teresita Lipat to secure loans from
Pacific Bank on behalf of BEC because the corporations by-laws allowed such
conduct even without a board resolution. Finally, the Court of Appeals ruled that
the mortgage property was not only liable for the original loan of P583,854.00
but likewise for the value of the promissory notes, trust receipt, and export bills
as the mortgage contract equally applies to additional or new loans, discounting
lines, overdrafts, and credit accommodations which petitioners subsequently
obtained from Pacific Bank.
The Lipats then moved for reconsideration, but this was denied by the
appellate court in its Resolution of February 23, 2000. [10]

Hence, this petition, with petitioners submitting that the court a quo erred
1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE
FICTION APPLIES IN THIS CASE.
2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD LIABLE UNDER
THE REAL ESTATE MORTGAGE NOT ONLY FOR THE AMOUNT OF P583,854.00
BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST RECEIPTS
AND EXPORT BILLS OF BELAS EXPORT CORPORATION.
3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES IN THE EXTRA-
JUDICIAL FORECLOSURE IS BEYOND THIS COURTS JURISDICTION FOR IT IS
BEING RAISED FOR THE FIRST TIME IN THIS APPEAL.
4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED
PROMISSORY NOTES, THE DOLLAR ACCOMMODATIONS AND TRUST
RECEIPTS DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY
HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.
5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION AND IN
HOLDING THAT SAID MOTION FOR RECONSIDERATION IS AN UNAUTHORIZED
MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND NOR BE OF
ANY CONSEQUENCE TO APPELLANTS.[11]
In sum, the following are the relevant issues for our resolution:
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 ego doctrine 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. This is commonly referred to as the
[12]

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 and were two of the incorporators and majority stockholders of
[14]

BEC. It is also undisputed that Estelita Lipat executed a special power of


[15]

attorney in favor of her daughter, Teresita, to obtain loans and credit lines from
Pacific Bank on her behalf. Incidentally, Teresita was designated as
[16]

executive-vice president and general manager of both BET and BEC,


respectively. We note further that: (1) Estelita and Alfredo Lipat are the owners
[17]

and majority shareholders of BET and BEC, respectively; (2) both firms were
[18]

managed by their daughter, Teresita; (3) both firms were engaged in the
[19]

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; (5) BEC is a family corporation with the Lipats as its
[20]

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; (9) Estelita had full control over the activities of and
[21]

decided business matters of the corporation; and that (10) Estelita Lipat had
[22]

benefited from the loans secured from Pacific Bank to finance her business
abroad and from the export bills secured by BEC for the account of Mystical
[23]

Fashion. It could not have been coincidental that BET and BEC are so
[24]

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. As noted [26]

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; and (b) that things have happened according to the ordinary course
[27]

of nature and the ordinary habits of life. Here, if the original loan had indeed
[28]

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 and it was
[29]

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. Apparent authority, is derived not merely from
[31]

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. Hence, Pacific Bank cannot be faulted for
[33]

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. A close perusal of the complaint yields no allegations disputing the
[35]

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.
WHEREFORE, the petition is DENIED. The Decision dated October 21,
1999 and the Resolution dated February 23, 2000 of the Court of Appeals in
CA-G.R. CV No. 41536 are AFFIRMED. Costs against petitioners.
SO ORDERED.
[G.R. No. 155214. February 13, 2004]

R & E TRANSPORT, INC., and HONORIO ENRIQUEZ, petitioners,


vs. AVELINA P. LATAG, representing her deceased husband,
PEDRO M. LATAG, respondents.

DECISION
PANGANIBAN, J.:

Factual issues may be reviewed by the Court of Appeals (CA) when the
findings of fact of the National Labor Relations Commission (NLRC) conflict with
those of the labor arbiter. By the same token, this Court may review factual
conclusions of the CA when they are contrary to those of the NLRC or of the
labor arbiter.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court,


[1]

seeking to nullify the June 3, 2002 Decision and the August 28, 2002
[2]

Resolution of the Court of Appeals in CA-GR SP No. 67998. The appellate


[3]

court disposed as follows:

WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed


Order of public respondent NLRC is SET ASIDE. The March 14, 2001 [D]ecision of
[4]

the Labor Arbiter a quo is REINSTATED. [5]

The challenged Resolution denied petitioners Motion for Reconsideration.

The Factual Antecedents

The antecedents of the case are narrated by the CA as follows:

Pedro Latag was a regular employee x x x of La Mallorca Taxi since March 1, 1961.
When La Mallorca ceased from business operations, [Latag] x x x transferred to
[petitioner] R & E Transport, Inc. x x x. He was receiving an average daily salary of
five hundred pesos (P500.00) as a taxi driver.
[Latag] got sick in January 1995 and was forced to apply for partial disability with the
SSS, which was granted. When he recovered, he reported for work in September 1998
but was no longer allowed to continue working on account of his old age.

Latag thus asked Felix Fabros, the administrative officer of [petitioners], for his
retirement pay pursuant to Republic Act 7641 but he was ignored. Thus, on December
21, 1998, [Latag] filed a case for payment of his retirement pay before the NLRC.

Latag however died on April 30, 1999. Subsequently, his wife, Avelina Latag,
substituted him. On January 10, 2000, the Labor Arbiter rendered a decision in favor
of [Latag], the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered ordering x x x LA MALLORCA TAXI,


R & E TRANSPORT, INC. and their owner/chief executive officer HONORIO
ENRIQUEZ to jointly and severally pay MRS. AVELINA P. LATAG the sum
of P277,500.00 by way of retirement pay for her deceased husband, PEDRO M.
LATAG.

SO ORDERED.

On January 21, 2000, [Respondent Avelina Latag,] with her then counsel[,] was
invited to the office of [petitioners] counsel and was offered the amount
of P38,500.00[,] which she accepted. [Respondent] was also asked to sign an already
prepared quitclaim and release and a joint motion to dismiss the case.

After a day or two, [respondent] received a copy of the January 10, 2000 [D]ecision of
the Labor Arbiter.

On January 24, 2000, [petitioners] filed the quitclaim and motion to dismiss.
Thereafter, on May 23, 2000, the Labor Arbiter issued an order, the relevant portion
of which states:

WHEREFORE, the decision stands and the Labor Arbitration Associate of this Office
is directed to prepare the Writ of Execution in due course.

SO ORDERED.

On January 21, 2000, [petitioners] interposed an appeal before the NLRC. On March
14, 2001, the latter handed down a [D]ecision[,] the decretal portion of which
provides:
WHEREFORE, in view of the foregoing, respondents Appeal is hereby DISMISSED
for failure to post a cash or surety bond, as mandated by law.

SO ORDERED.

On April 10, 2001, [petitioners] filed a motion for reconsideration of the above
resolution. On September 28, 2001, the NLRC came out with the assailed [D]ecision,
which gave due course to the motion for reconsideration. (Citations omitted)
[6]

Respondent appealed to the CA, contending that under Article 223 of the
Labor Code and Section 3, Rule VI of the New Rules of Procedure of the NLRC,
an employers appeal of a decision involving monetary awards may be perfected
only upon the posting of an adequate cash or surety bond.

Ruling of the Court of Appeals

The CA held that the labor arbiters May 23, 2000 Order had referred to the
earlier January 10, 2000 Decision awarding respondent P277,500 as retirement
benefit.
According to the appellate court, because petitioners appeal before the
NLRC was not accompanied by an appropriate cash or surety bond, such
appeal was not perfected. The CA thus ruled that the labor arbiters January 10,
2000 Decision and May 23, 2000 Order had already become final and
executory.
Hence, this Petition. [7]

Issues

Petitioners submit the following issues for our consideration:


I

Whether or not the Court should respect the findings of fact [of] the NLRC as against
[those] of the labor arbiter.

II

Whether or not, in rendering judgment in favor of petitioners, the NLRC committed


grave abuse of discretion.
III

Whether or not private respondent violated the rule on forum-shopping.

IV

Whether or not the appeal of petitioners from the Order of the labor arbiter to the
NLRC involves [a] monetary award. [8]

In short, petitioners raise these issues: (1) whether the CA acted properly
when it overturned the NLRCs factual findings; (2) whether the rule on forum
shopping was violated; and (3) whether the labor arbiters Order of May 23, 2000
involved a monetary award.

The Courts Ruling

The Petition is partly meritorious.

First Issue:
Factual Findings of the NLRC

Petitioners maintain that the CA erred in disregarding the factual findings of


the NLRC and in deciding to affirm those of the labor arbiter. Allegedly, the
NLRC findings were based on substantial evidence, while those of the labor
arbiter were groundless. Petitioners add that the appellate court should have
refrained from tackling issues of fact and, instead, limited itself to those of
jurisdiction or grave abuse of discretion on the part of the NLRC.
The power of the CA to review NLRC decisions via a Rule 65 petition is now
a settled issue. As early as St. Martin Funeral Homes v. NLRC, we have [9]

definitively ruled that the proper remedy to ask for the review of a decision of
the NLRC is a special civil action for certiorari under Rule 65 of the Rules of
Court, and that such petition should be filed with the CA in strict observance
[10]

of the doctrine on the hierarchy of courts. Moreover, it has already been


[11]

explained that under Section 9 of Batas Pambansa (BP) 129, as amended by


Republic Act 7902, the CA -- pursuant to the exercise of its original jurisdiction
[12]

over petitions for certiorari -- was specifically given the power to pass upon the
evidence, if and when necessary, to resolve factual issues. [13]

Likewise settled is the rule that when supported by substantial


evidence, factual findings made by quasi-judicial and administrative bodies
[14]
are accorded great respect and even finality by the courts. These findings are
not infallible, though; when there is a showing that they were arrived at
arbitrarily or in disregard of the evidence on record, they may be examined by
the courts. Hence, when factual findings of the NLRC are contrary to those of
[15]

the labor arbiter, the evidentiary facts may be reviewed by the appellate
court. Such is the situation in the present case; thus, the doors to a review are
[16]

open. [17]

The very same reason that behooved the CA to review the factual findings
of the NLRC impels this Court to take its own look at the findings of fact.
Normally, the Supreme Court is not a trier of facts. However, since the findings
[18]

of fact in the present case are conflicting, it waded through the records to find
[19]

out if there was enough basis for the appellate courts reversal of the NLRC
Decision.

Number of Creditable Years


of Service for Retirement Benefits

Petitioners do not dispute the fact that the late Pedro M. Latag is entitled to
retirement benefits. Rather, the bone of contention is the number of years that
he should be credited with in computing those benefits. On the one hand, we
have the findings of the labor arbiter, which the CA affirmed. According to
[20]

those findings, the 23 years of employment of Pedro with La Mallorca Taxi must
be added to his 14 years with R & E Transport, Inc., for a total of 37 years. On
the other, we also have the findings of the NLRC that Pedro must be credited
[21]

only with his service to R & E Transport, Inc., because the evidence shows that
the aforementioned companies are two different entities.
After a careful and painstaking review of the evidence on record, we support
the NLRCs findings. The labor arbiters conclusion -- that Mallorca Taxi and R
& E Transport, Inc., are one and the same entity -- is negated by the
documentary evidence presented by petitioners. Their evidence sufficiently
[22]

shows the following facts: 1) R & E Transport, Inc., was established only in
1978; 2) Honorio Enriquez, its president, was not a stockholder of La Mallorca
Taxi; and 3) none of the stockholders of the latter company hold stocks in the
former. In the face of such evidence, which the NLRC appreciated in its
Decision, it seems that mere surmises and self-serving assertions of
Respondent Avelina Latag formed the bases for the labor arbiters conclusions
as follows:
While [Pedro M. Latag] claims that he worked as taxi driver since March 1961 since
the days of the La Mallorca Taxi, which was later renamed R & E Transport, Inc.,
[petitioners] limit the employment period to 14 years.

Resolving this matter, we note [respondents] ID (Annex A, [Latag] position paper),


which appears to bear the signature of Miguel Enriquez on the front portion and the
date February 27, 1961 when [x x x Latag] started with the company. We also note an
SSS document (Annex C) which shows that the date of initial coverage of Pedro
Latag, with SSS No. 03-0772155, is February 1961.

Viewed against [petitioners] non-disclaimer [sic] that La Mallorca preceded R & E


Taxi, Inc.[;] x x x that both entities were/are owned by the Enriquez family, with
[petitioner] Honorio [Enriquez] as the latters President[; and] x x x that La Mallorca
was a different entity (page 2, [petitioners] position paper), we are of the conclusion
that [Latags] stint with the Enriquez family dated back since February 1961 and thus,
he should be entitled to retirement benefits for 37 years, as of the date of the filing of
this case on December 12, 1998. [23]

Furthermore, basic is the rule that the corporate veil may be pierced only if
it becomes a shield for fraud, illegality or inequity committed against a third
person. We have thus cautioned against the inordinate application of this
[24]

doctrine. In Philippine National Bank v. Andrada Electric & Engineering


Company, we said:
[25]

x x x [A]ny application of the doctrine of piercing the corporate veil should be done
with caution. A court should be mindful of the milieu where it is to be applied. It must
be certain that the corporate fiction was misused to such an extent that injustice, fraud,
or crime was committed against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed. Otherwise, an
injustice that was never unintended may result from an erroneous application.

xxxxxxxxx

The question of whether a corporation is a mere alter ego is one of fact. Piercing the
veil of corporate fiction may be allowed only if the following elements concur: (1)
control -- not mere stock control, but complete domination -- not only of finances, but
of policy and business practice in respect to the transaction attacked, must have been
such 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 a fraud or a wrong to perpetuate the violation of a statutory or other positive
legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right;
and (3) the said control and breach of duty must have proximately caused the injury or
unjust loss complained of. [26]

Respondent has not shown by competent evidence that one taxi company
had stock control and complete domination over the other or vice versa. In fact,
no evidence was presented to show the alleged renaming of La Mallorca Taxi
to R & E Transport, Inc. The seven-year gap between the time the former closed
shop and the date when the latter came into being also casts doubt on any
alleged intention of petitioners to commit a wrong or to violate a statutory duty.
This lacuna in the evidence compels us to reverse the Decision of the CA
affirming the labor arbiters finding of fact that the basis for computing Pedros
retirement pay should be 37 years, instead of only 14 years.

Validity of the Quitclaim


and Waiver

As to the Quitclaim and Waiver signed by Respondent Avelina Latag, the


appellate court committed no error when it ruled that the document was invalid
and could not bar her from demanding the benefits legally due her husband.
This is not say that all quitclaims are invalid per se. Courts, however, are wary
of schemes that frustrate workers rights and benefits, and look with disfavor
upon quitclaims and waivers that bargain these away.
Courts have stepped in to annul questionable transactions, especially where
there is clear proof that a waiver, for instance, was wangled from an
unsuspecting or a gullible person; or where the agreement or settlement was
unconscionable on its face. A quitclaim is ineffective in barring recovery of the full
[27]

measure of a workers rights, and the acceptance of benefits therefrom does not
amount to estoppel. Moreover, a quitclaim in which the consideration is
[28]

scandalously low and inequitable cannot be an obstacle to the pursuit of a


workers legitimate claim. [29]

Undisputably, Pedro M. Latag was credited with 14 years of service with R


& E Transport, Inc. Article 287 of the Labor Code, as amended by Republic Act
No. 7641, provides:
[30]

Art. 287. Retirement. - x x x

xxxxxxxxx
In the absence of a retirement plan or agreement providing for retirement benefits of
employees in the establishment, an employee upon reaching the age of sixty (60)
years or more, but not beyond sixty-five (65) years which is hereby declared the
compulsory retirement age, who has served at least five (5) years in said
establishment, may retire and shall be entitled to retirement pay equivalent to at least
one-half (1/2) month salary for every year of service, a fraction of at least six (6)
months being considered as one whole year.

Unless the parties provide for broader inclusions, the term one half-month salary shall
mean fifteen (15) days plus one-twelfth (1/12) of the 13th month pay and the cash
equivalent of not more than five (5) days of service incentive leaves.

x x x x x x x x x (Italics supplied)
The rules implementing the New Retirement Law similarly provide the
above-mentioned formula for computing the one-half month salary. Since [31]

Pedro was paid according to the boundary system, he is not entitled to the
13th month and the service incentive pay; hence, his retirement pay should
[32] [33]

be computed on the sole basis of his salary.


It is accepted that taxi drivers do not receive fixed wages, but retain only
those sums in excess of the boundary or fee they pay to the owners or operators
of their vehicles. Thus, the basis for computing their benefits should be
[34]

the average daily income. In this case, the CA found that Pedro was earning an
average of five hundred pesos (P500) per day. We thus compute his retirement
pay as follows: P500 x 15 days x 14 years of service equals P105,000.
Compared with this amount, the P38,850 he received, which represented just
over one third of what was legally due him, was unconscionable.

Second Issue:
Was There Forum Shopping?

Also assailed are the twin appeals that two different lawyers filed for
respondent before the CA. Petitioners argue that instead of accepting her
explanation, the appellate court should have dismissed the appeals outright for
violating the rule on forum shopping.
Forum shopping is the institution of two or more actions or proceedings
grounded on the same cause, on the supposition that one or the other court
would render a favorable disposition. Such act is present when there is an
[35]

identity of parties, rights or causes of action, and reliefs sought in two or more
pending cases. It is usually resorted to by a party against whom an adverse
[36]
judgment or order has been issued in one forum, in an attempt to seek and
possibly to get a favorable opinion in another forum, other than by an appeal or
a special civil action for certiorari. [37]

We find, as the CA did, that respondent has adequately explained why she
[38]

had filed two appeals before the appellate court. In the August 5, 2002
Affidavit that she attached as Annex A to her Compliance to Show Cause
[39]

Order with Comment on petitioners Motion for Reconsideration, she averred


[40]

that she had sought the services of another counsel to file her Petition for
certiorari before the CA. She did so after her original counsel had asked for an
extension of time to file the Petition because of time constraints and a
tremendous workload, only to discover later that the original counsel had filed
a similar Petition.
We cannot fault respondent for her tenacity. Besides, to disallow her appeal
would not be in keeping with the policy of labor laws to shun highly technical
[41]

procedural laws in the higher interest of justice.

Third Issue:
Monetary Award

Petitioners contention is that the labor arbiters January 10, 2000 Decision
was supplanted by the Compromise Agreement that had preceded the formers
official release to, and receipt by, the parties. It appears from the records that
[42] [43]

they had entered into an Amicable Settlement on January 21, 2000; that based
on that settlement, respondent filed a Motion to Dismiss on January 24, 2000,
before the labor arbiter who officially released on the same day his Decision
dated January 10, 2000; that upon receipt of a copy thereof, respondent filed a
Manifestation and Motion to Set Aside the Motion to Dismiss; and that the labor
arbiter subsequently calendared the case for conference, held hearings
thereon, and required the parties to exchange positions -- by way of comments,
replies and rejoinders -- after which he handed down his May 23, 2000 Order.
Under the circumstances, the case was in effect reopened by the
proceedings held after respondent had filed her Manifestation and Motion to
Set Aside the Motion to Dismiss. This ruling is in accordance with the fourth
paragraph of Section 2, Rule V of the New Rules of Procedure of the
NLRC, which therefore correctly held as follows:
[44]

x x x Thus, the further hearings conducted thereafter, to determine the validity of


complainants manifestation and motion are but mute confirmation that indeed the 10
January 2000 decision in this case has not as yet attained finality. Finally, the
appealed order of 23 May 2000 itself declaring [that] the decision stands and the
Labor Arbitration Associate of this office is directed to prepare the Writ of Execution
in due course, obviously, is a conclusion that the decision in this case has been
supplanted and rendered functus officio by the herein parties acts. Thus, when the
Labor Arbiter a quo found in his appealed order that the amount of P38,850.00 is
unconscionable viewed against the amount awarded in the decision, the same became
appealable independently of the 10 January 2000 decision, which has not attained
finality, in the first place.[45]

We cannot concur, however, in petitioners other contention that the May 23,
2000 Order did not involve a monetary award. If the amicable settlement
between the parties had rendered the January 10, 2000 Decision functus oficio,
then it follows that the monetary award stated therein was reinstated -- by
reference -- by the aforementioned Order. The appeal from the latter should
perforce have followed the procedural requirements under Article 223 of the
Labor Code.
As amended, this provision explicitly provides that an appeal from the labor
arbiters decision, award or order must be made within ten (10) calendar days
from receipt of a copy thereof by the party intending to appeal it; and, if the
judgment involves a monetary award, an appeal by the employer may be
perfected only upon the posting of a cash or surety bond. Such cash or bond
must have been issued by a reputable bonding company duly accredited by the
NLRC in the amount equivalent to the monetary award stated in the judgment.
Sections 1, 3 and 6 of Rule VI of the New Rules of Procedure of the NLRC
implement this Article.
Indeed, this Court has repeatedly ruled that the perfection of an appeal in
the manner and within the period prescribed by law is not only mandatory but
jurisdictional, and the failure to perfect an appeal has the effect of rendering the
judgment final and executory. Nonetheless, procedural lapses may be
[46]

disregarded because of fundamental considerations of substantial justice; or [47]

because of the special circumstances of the case combined with its legal merits
or the amount and the issue involved. [48]

The requirement to post a bond to perfect an appeal has also been relaxed
in cases when the amount of the award has not been included in the decision
of the labor arbiter. Besides, substantial justice will be better served in the
[49]

present case by allowing petitioners appeal to be threshed out on the


merits, especially because of serious errors in the factual conclusions of the
[50]

labor arbiter as to the award of retirement benefits.


WHEREFORE, this Petition is partly GRANTED. The Decision of the Court
of Appeals is MODIFIED by crediting Pedro M. Latag with 14 years of service.
Consequently, he is entitled to retirement pay, which is hereby computed
at P105,000 less the P38,850 which has already been received by respondent,
plus six (6) percent interest thereon from December 21, 1998 until its full
payment. No costs.
SO ORDERED.
CHILD LEARNING CENTER, INC. G.R. No. 150920
and SPOUSES EDGARDO L. LIMON
and SYLVIA S. LIMON, Present:
Petitioners,
DAVIDE, JR., C.J. (Chairman),
- versus - QUISUMBING,
YNARES-SANTIAGO,
CARPIO, and
AZCUNA, JJ.
TIMOTHY TAGARIO, assisted by
his parents BASILIO TAGORIO and Promulgated:
HERMINIA TAGORIO,
Respondents. November 25, 2005
x-------------------------------------------------------------------------------------------x

DECISION

AZCUNA, J.:

This petition started with a tort case filed with the Regional Trial Court of
Makati by Timothy Tagorio and his parents, Basilio R. Tagorio and Herminia
Tagorio, docketed as Civil Case No. 91-1389. The complaint[1] alleged that
during the school year 1990-1991, Timothy was a Grade IV student at
Marymount School, an academic institution operated and maintained by
Child Learning Center, Inc. (CLC). In the afternoon of March 5, 1991,
between 1 and 2 p.m., Timothy entered the boys comfort room at the third
floor of the Marymount building to answer the call of nature. He, however,
found himself locked inside and unable to get out. Timothy started to panic
and so he banged and kicked the door and yelled several times for help.
When no help arrived he decided to open the window to call for help. In the
process of opening the window, Timothy went right through and fell down
three stories. Timothy was hospitalized and given medical treatment for
serious multiple physical injuries.
An action under Article 2176 of the Civil Code was filed by respondents
against the CLC, the members of its Board of Directors, namely Spouses
Edgardo and Sylvia Limon, Alfonso Cruz, Carmelo Narciso and Luningning
Salvador, and the Administrative Officer of Marymount School, Ricardo
Pilao. In its defense,[2]CLC maintained that there was nothing defective
about the locking mechanism of the door and that the fall of Timothy was
not due to its fault or negligence. CLC further maintained that it had
exercised the due care and diligence of a good father of a family to ensure
the safety, well-being and convenience of its students.
After trial, the court a quo found in favor of respondents and ordered
petitioners CLC and Spouses Limon to pay respondents, jointly and
severally, P200,253.12 as actual and compensatory damages, P200,000 as
moral damages, P50,000 as exemplary damages, P100,000 as attorneys fees
and the costs of the suit. The trial court disregarded the corporate fiction of
CLC and held the Spouses Limon personally liable because they were the
ones who actually managed the affairs of the CLC.

Petitioners CLC and the Spouses Limon appealed the decision to the Court
of Appeals.

On September 28, 2001, the Court of Appeals[3] affirmed the decision in


toto. Petitioners elevated the case to this Court under Rule 45 of the Rules of
Court, after their motion for reconsideration was denied by Resolution of
November 23, 2001.[4]

Petitioners question several factual findings of the trial court, which were
affirmed by the Court of Appeals, namely:[5]

1. That respondent was allegedly trapped inside the


boys comfort room located at the third floor of the school building
on March 5, 1991;

2. That respondent allegedly banged and kicked the


door of said comfort room several times to attract attention and that
he allegedly yelled thereat for help which never came;
3. That respondent was allegedly forced to open the
window of said comfort room to seek help;

4. That the lock set installed at the boys comfort room


located in the third floor of the school building on March 5, 1991
was allegedly defective and that the same lock set was involved in
previous incidents of alleged malfunctioning;

5. That petitioner Child Learning Center, Inc. allegedly


failed to install iron grills in the window of the boys comfort room
at the third floor of the school building;

6. That petitioner Child Learning Center, Inc. allegedly


failed to exercise the due care of a good father of a family in the
selection and supervision of its employees;

7. That the proximate cause of respondents accident was


allegedly not due to his own contributory negligence;

8. That there was an alleged basis to apply the legal


principle of piercing the veil of corporate entity in resolving the
issue of alleged liability of petitioners Edgardo L. Limon and Sylvia
S. Limon;

9. That there was alleged basis for petitioners to pay


respondent actual, moral and exemplary damages, plus attorneys
fees;

10. That there was an alleged basis in not awarding


petitioners prayer for moral and exemplary damages, including
attorneys fees.

Generally, factual findings of the trial court, affirmed by the Court of


Appeals, are final and conclusive and may not be reviewed on appeal. The
established exceptions are: (1) when the inference made is manifestly
mistaken, absurd or impossible; (2) when there is grave abuse of discretion;
(3) when the findings are grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings of fact are conclusions without citation of
specific evidence on which they are based; (8) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and (9)
when the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on record.[6]

On the basis of the records of this case, this Court finds no justification
to reverse the factual findings and consider this case as an exception to the
general rule.

In every tort case filed under Article 2176 of the Civil Code, plaintiff
has to prove by a preponderance of evidence: (1) the damages suffered by
the plaintiff; (2) the fault or negligence of the defendant or some other person
for whose act he must respond; and (3) the connection of cause and effect
between the fault or negligence and the damages incurred.[7]

Fault, in general, signifies a voluntary act or omission which causes


damage to the right of another giving rise to an obligation on the part of the
actor to repair such damage. Negligence is the failure to observe for the
protection of the interest of another person that degree of care, precaution
and vigilance which the circumstances justly demand. Fault requires the
execution of a positive act which causes damage to another while negligence
consists of the omission to do acts which result in damage to another.[8]

In this tort case, respondents contend that CLC failed to provide


precautionary measures to avoid harm and injury to its students in two
instances: (1) failure to fix a defective door knob despite having been notified
of the problem; and (2) failure to install safety grills on the window where
Timothy fell from.

The trial court found that the lock was defective on March 5, 1991:[9]
The door knob was defective. After the incident of March 5,
1991, said door knob was taken off the door of the toilet where
Timothy was in. The architect who testified during the trial
declared that although there were standard specifications for door
knobs for comfort room[s], and he designed them according to that
requirement, he did not investigate whether the door knob
specified in his plans during the construction [was] actually put in
place. This is so because he did not verify whether the door knob
he specified w[as] actually put in place at the particular comfort
room where Timothy was barred from getting outside. (TSN, pp.
19-20, December 8, 1994).

The Court of Appeals held that there was no reason to disturb the
factual assessment:[10]

After having perused the records, We fail to see any


indication of whim or arbitrariness on the part of the trial
magistrate in his assessment of the facts of the case. That said, We
deem it not to be within Our business to recast the factual
conclusions reached by the court below.

Petitioners would make much of the point that no direct evidence was
presented to prove that the door knob was indeed defective on the date in
question.

The fact, however, that Timothy fell out through the window shows
that the door could not be opened from the inside. That sufficiently points
to the fact that something was wrong with the door, if not the door knob,
under the principle of res ipsa loquitor. The doctrine of res ipsa loquitor applies
where (1) the accident was of such character as to warrant an inference that
it would not have happened except for the defendants negligence; (2) the
accident must have been caused by an agency or instrumentality within the
exclusive management or control of the person charged with the negligence
complained of; and (3) the accident must not have been due to any voluntary
action or contribution on the part of the person injured.[11] Petitioners are
clearly answerable for failure to see to it that the doors of their school toilets
are at all times in working condition. The fact that a student had to go
through the window, instead of the door, shows that something was wrong
with the door.

As to the absence of grills on the window, petitioners contend that


there was no such requirement under the Building Code. Nevertheless, the
fact is that such window, as petitioners themselves point out, was
approximately 1.5 meters from the floor, so that it was within reach of a
student who finds the regular exit, the door, not functioning. Petitioners,
with the due diligence of a good father of the family, should have anticipated
that a student, locked in the toilet by a non-working door, would attempt to
use the window to call for help or even to get out. Considering all the
circumstances, therefore, there is sufficient basis to sustain a finding of
liability on petitioners part.

Petitioners argument that CLC exercised the due diligence of a good


father of a family in the selection and supervision of its employees is not
decisive. Due diligence in the selection and supervision of employees is
applicable where the employer is being held responsible for the acts or
omissions of others under Article 2180 of the Civil Code.[12] In this case, CLCs
liability is under Article 2176 of the Civil Code, premised on the fact of its
own negligence in not ensuring that all its doors are properly maintained.

Our pronouncement that Timothy climbed out of the window because


he could not get out using the door, negates petitioners other contention that
the proximate cause of the accident was Timothys own negligence. The
injuries he sustained from the fall were the product of a natural and
continuous sequence, unbroken by any intervening cause, that originated
from CLCs own negligence.

We, however, agree with petitioners that there was no basis to pierce
CLCs separate corporate personality. To disregard the corporate existence,
the plaintiff must prove: (1) Control by the individual owners, not mere
majority or complete stock ownership, resulting in complete domination not
only of finances but of policy and business practice in respect to a transaction
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 a dishonest and unjust act in
contravention of the plaintiffs legal right; and (3) the control and breach of
duty must proximately cause the injury or unjust loss complained of. The
absence of these elements prevents piercing the corporate veil.[13] The
evidence on record fails to show that these elements are present, especially
given the fact that plaintiffs complaint had pleaded that CLC is a corporation
duly organized and existing under the laws of the Philippines.

On 9th and 10th points raised concerning the award of damages, the
resolution would rest on factual determinations by the trial court, affirmed
by the Court of Appeals, and no legal issue warrants our intervention.

WHEREFORE, the petition is partly granted and the Decision and


Resolution of the Court of Appeals in CA-G.R. CV No. 50961 dated
September 28, 2001 and November 23, 2001, respectively, are MODIFIED in
that petitioners Spouses Edgardo and Sylvia Limon are absolved from
personal liability. The Decision and Resolution are AFFIRMED in all other
respects. No pronouncement as to costs.

SO ORDERED.
G. R. No. 136374 - February 9, 2000

FRANCISCA S. BALUYOT, Petitioner, v. PAUL E. HOLGANZA and the OFFICE OF THE


OMBUDSMAN (VISAYAS) represented by its Deputy Ombudsman for the Visayas ARTURO C.
MOJICA, Director VIRGINIA PALANCA-SANTIAGO, and Graft Investigation Officer I ANNA
MARIE P. MILITANTE, Respondents.

DE LEON, JR., J.:

Before us is a special civil action for certiorari, seeking the reversal of the Orders dated August 21,
1998 and October 28, 1998 issued by the Office of the Ombudsman, which denied petitioner's motion
to dismiss and motion for reconsideration, respectively.

The facts are:

During a spot audit conducted on March 21, 1977 by a team of auditors from the Philippine National
Red Cross (PNRC) headquarters, a cash shortage of P154,350.13 was discovered in the funds of its
Bohol chapter. The chapter administrator, petitioner Francisca S. Baluyot, was held accountable for
the shortage. Thereafter, on January 8, 1998, private respondent Paul E. Holganza, in his capacity as
a member of the board of directors of the Bohol chapter, filed an affidavit-complaint1 before the Office
of the Ombudsman charging petitioner of malversation under Article 217 of the Revised Penal Code.
The complaint was docketed as OMB-VIS-CRIM-98-0022. However, upon recommendation by
respondent Anna Marie P. Militante, Graft Investigation Officer I, an administrative docket for
dishonesty was also opened against petitioner; hence, OMB-VIS-ADM-98-0063.2

On February 6, 1998, public respondent issued an Order3 requiring petitioner to file her counter-
affidavit to the charges of malversation and dishonesty within ten days from notice, with a warning
that her failure to comply would be construed as a waiver on her part to refute the charges, and that
the case would be resolved based on the evidence on record. On March 14, 1998, petitioner filed her
counter-affidavit,4 raising principally the defense that public respondent had no jurisdiction over the
controversy. She argued that the Ombudsman had authority only over government-owned or
controlled corporations, which the PNRC was not, or so she claimed.

On August 21, 1998, public respondent issued the first assailed Order5 denying petitioner's motion to
dismiss. It further scheduled a clarificatory hearing on the criminal aspect of the complaint and a
preliminary conference on its administrative aspect on September 2, 1998. Petitioner received the
order on August 26, 1998 and she filed a motion for reconsideration6 the next day.

On October 28, 1998, public respondent issued the second assailed Order7 denying petitioner's motion
for reconsideration. Hence, this recourse.

We dismiss the petition.

Petitioner contends that the Ombudsman has no jurisdiction over the subject matter of the
controversy since the PNRC is allegedly a private voluntary organization. The following circumstances,
she insists, are indicative of the private character of the organization: (1) the PNRC does not receive
any budgetary support from the government, and that all money given to it by the latter and its
instrumentalities become private funds of the organization; (2) funds for the payment of personnel's
salaries and other emoluments come from yearly fund campaigns, private contributions and rentals
from its properties; and (3) it is not audited by the Commission on Audit. Petitioner states that the
PNRC falls under the International Federation of Red Cross, a Switzerland-based organization, and that
the power to discipline employees accused of misconduct, malfeasance, or immorality belongs to the
PNRC Secretary General by virtue of Section "G", Article IX of its by-laws.8 She threatens that "to
classify the PNRC as a government-owned or controlled corporation would create a dangerous
precedent as it would lose its neutrality, independence and impartiality . . . .9
Practically the same issue was addressed in Camporedondo v. National Labor Relations
Commission, et. al.,10 where an almost identical set of facts obtained. Petitioner therein was the
administrator of the Surigao del Norte chapter of the PNRC. An audit conducted by a field auditor
revealed a shortage in the chapter funds in the sum of P109,000.00. When required to restitute the
amount of P135,927.78, petitioner therein instead applied for early retirement, which was denied by
the Secretary General of the PNRC. Subsequently, the petitioner filed a complaint for illegal dismissal
and damages against P