G.R. No.

167530 March 13, 2013

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

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

G.R. No. 167561

ASSET PRIVATIZATION TRUST, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

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

G.R. No. 167603

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.
HYDRO RESOURCES CONTRACTORS CORPORATION, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

These petitions for review on certiorari1 assail the Decision2 dated November 30, 2004 and the
Resolution3 dated March 22, 2005 of the Court of Appeals in CA-G.R. CV No. 57553. The said
Decision affirmed the Decision4 dated November 6, 1995 of the Regional Trial Court (RTC) of Makati
City, Branch 62, granting a judgment award of ₱8,370,934.74, plus legal interest, in favor of
respondent Hydro Resources Contractors Corporation (HRCC) with the modification that the
Privatization and Management Office (PMO), successor of petitioner Asset Privatization Trust
(APT),5 has been held solidarily liable with Nonoc Mining and Industrial Corporation (NMIC)6 and
petitioners Philippine National Bank (PNB) and Development Bank of the Philippines (DBP), while
the Resolution denied reconsideration separately prayed for by PNB, DBP, and APT.

Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the
properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the foreclosure,
DBP and PNB acquired substantially all the assets of MMIC and resumed the business operations of
the defunct MMIC by organizing NMIC.7 DBP and PNB owned 57% and 43% of the shares of NMIC,
respectively, except for five qualifying shares.8As of September 1984, the members of the Board of
Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and
Faustino Agbada, were either from DBP or PNB.9

Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road
Construction Program in 1985 for a total contract price of ₱35,770,120. After computing the
payments already made by NMIC under the program and crediting the NMIC’s receivables from

Hercon, Inc., the latter found that NMIC still has an unpaid balance of ₱8,370,934.74.10 Hercon, Inc.
made several demands on NMIC, including a letter of final demand dated August 12, 1986, and
when these were not heeded, a complaint for sum of money was filed in the RTC of Makati, Branch
136 seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount owing Hercon,
Inc.11 The case was docketed as Civil Case No. 15375.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger. This
prompted the amendment of the complaint to substitute HRCC for Hercon, Inc.12

Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No. 50
creating the APT for the expeditious disposition and privatization of certain government corporations
and/or the assets thereof. Pursuant to the said Proclamation, on February 27, 1987, DBP and PNB
executed their respective deeds of transfer in favor of the National Government assigning,
transferring and conveying certain assets and liabilities, including their respective stakes in
NMIC.13 In turn and on even date, the National Government transferred the said assets and liabilities
to the APT as trustee under a Trust Agreement.14 Thus, the complaint was amended for the second
time to implead and include the APT as a defendant.

In its answer,15 NMIC claimed that HRCC had no cause of action. It also asserted that its contract
with HRCC was entered into by its then President without any authority. Moreover, the said contract
allegedly failed to comply with laws, rules and regulations concerning government contracts. NMIC
further claimed that the contract amount was manifestly excessive and grossly disadvantageous to
the government. NMIC made counterclaims for the amounts already paid to Hercon, Inc. and
attorney’s fees, as well as payment for equipment rental for four trucks, replacement of parts and
other services, and damage to some of NMIC’s properties.16

For its part, DBP’s answer17 raised the defense that HRCC had no cause of action against it because
DBP was not privy to HRCC’s contract with NMIC. Moreover, NMIC’s juridical personality is separate
from that of DBP. DBP further interposed a counterclaim for attorney’s fees.18

PNB’s answer19 also invoked lack of cause of action against it. It also raised estoppel on HRCC’s
part and laches as defenses, claiming that the inclusion of PNB in the complaint was the first time a
demand for payment was made on it by HRCC. PNB also invoked the separate juridical personality
of NMIC and made counterclaims for moral damages and attorney’s fees.20

APT set up the following defenses in its answer21: lack of cause of action against it, lack of privity
between Hercon, Inc. and APT, and the National Government’s preferred lien over the assets of
NMIC.22

After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in favor of HRCC. It
pierced the corporate veil of NMIC and held DBP and PNB solidarily liable with NMIC:

On the issue of whether or not there is sufficient ground to pierce the veil of corporate fiction, this
Court likewise finds for the plaintiff.

From the documentary evidence adduced by the plaintiff, some of which were even adopted by
defendants and DBP and PNB as their own evidence (Exhibits "I", "I-1", "I-2", "I-3", "I-4", "I-5", "I5-A",
"I-5-B", "I-5-C", "I-5-D" and submarkings, inclusive), it had been established that except for five (5)
qualifying shares, NMIC is owned by defendants DBP and PNB, with the former owning 57%
thereof, and the latter 43%. As of September 24, 1984, all the members of NMIC’s Board of
Directors, namely, Messrs. Jose Tengco, Jr., Rolando M. Zosa, Ruben Ancheta, Geraldo Agulto,
and Faustino Agbada are either from DBP or PNB (Exhibits "I-5", "I-5-C", "I-5-D").
The business of NMIC was then also being conducted and controlled by both DBP and PNB. In fact,
it was Rolando M. Zosa, then Governor of DBP, who was signing and entering into contracts with
third persons, on behalf of NMIC.

In this jurisdiction, it is well-settled that "where it appears that the business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when necessary to protect
the rights of third persons, disregard legal fiction that two (2) corporations are distinct entities, and
treat them as identical." (Phil. Veterans Investment Development Corp. vs. CA, 181 SCRA 669).

From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both
DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s
unpaid obligations to plaintiff.23

Having found DBP and PNB solidarily liable with NMIC, the dispositive portion of the Decision of the
trial court reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff HYDRO
RESOURCES CONTRACTORS CORPORATION and against the defendants NONOC

MINING AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK OF THE PHILIPPINES and

PHILIPPINE NATIONAL BANK, ordering the aforenamed defendants, to pay the plaintiff jointly and
severally, the sum of ₱8,370,934.74 plus legal interest thereon from date of demand, and attorney’s
fees equivalent to 25% of the judgment award.

The complaint against APT is hereby dismissed. However, APT, as trustee of NONOC MINING AND
INDUSTRIAL CORPORATION is directed to ensure compliance with this Decision.24

DBP and PNB filed their respective appeals in the Court of Appeals. Both insisted that it was wrong
for the RTC to pierce the veil of NMIC’s corporate personality and hold DBP and PNB solidarily liable
with NMIC.25

The Court of Appeals rendered the Decision dated November 30, 2004, affirmed the piercing of the
veil of the corporate personality of NMIC and held DBP, PNB, and APT solidarily liable with NMIC. In
particular, the Court of Appeals made the following findings:

In the case before Us, it is indubitable that [NMIC] was owned by appellants DBP and PNB to the
extent of 57% and 43% respectively; that said two (2) appellants are the only stockholders, with the
qualifying stockholders of five (5) consisting of its own officers and included in its charter merely to
comply with the requirement of the law as to number of incorporators; and that the directorates of
DBP, PNB and [NMIC] are interlocked.

xxxx

We find it therefore correct for the lower court to have ruled that:

"From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of both
DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the latter’s
unpaid obligation to plaintiff."26(Citation omitted.)

The Court of Appeals then concluded that, "in keeping with the concept of justice and fair play," the
corporate veil of NMIC should be pierced, ratiocinating:
For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing
beneficial contracts, and then using such separate entity to evade the payment of a just debt, would
be the height of injustice and iniquity. Surely that could not have been the intendment of the law with
respect to corporations. x x x.27

The dispositive portion of the Decision of the Court of Appeals reads:

WHEREFORE, premises considered, the Decision appealed from is hereby MODIFIED. The
judgment in favor of appellee Hydro Resources Contractors Corporation in the amount of
₱8,370,934.74 with legal interest from date of demand is hereby AFFIRMED, but the dismissal of the
case as against Assets Privatization Trust is REVERSED, and its successor the Privatization and
Management Office is INCLUDED as one of those jointly and severally liable for such indebtedness.
The award of attorney’s fees is DELETED.

All other claims and counter-claims are hereby DISMISSED.

Costs against appellants.28

The respective motions for reconsideration of DBP, PNB, and APT were denied.29

Hence, these consolidated petitions.30

All three petitioners assert that NMIC is a corporate entity with a juridical personality separate and
distinct from both PNB and DBP. They insist that the majority ownership by DBP and PNB of NMIC
is not a sufficient ground for disregarding the separate corporate personality of NMIC because NMIC
was not a mere adjunct, business conduit or alter ego of DBP and PNB. According to them, the
application of the doctrine of piercing the corporate veil is unwarranted as nothing in the records
would show that the ownership and control of the shareholdings of NMIC by DBP and PNB were
used to commit fraud, illegality or injustice. In the absence of evidence that the stock control by DBP
and PNB over NMIC was used to commit some fraud or a wrong and that said control was the
proximate cause of the injury sustained by HRCC, resort to the doctrine of "piercing the veil of
corporate entity" is misplaced.31

DBP and PNB further argue that, assuming they may be held solidarily liable with NMIC to pay
NMIC’s exclusive and separate corporate indebtedness to HRCC, such liability of the two banks was
transferred to and assumed by the National Government through the APT, now the PMO, under the
respective deeds of transfer both dated February 27, 1997 executed by DBP and PNB pursuant to
Proclamation No. 50 dated December 8, 1986 and Administrative Order No. 14 dated February 3,
1987.32

For its part, the APT contends that, in the absence of an unqualified assumption by the National
Government of all liabilities incurred by NMIC, the National Government through the APT could not
be held liable for NMIC’s contractual liability. The APT asserts that HRCC had not sufficiently shown
that the APT is the successor-in-interest of all the liabilities of NMIC, or of DBP and PNB as
transferors, and that the adjudged liability is included among the liabilities assigned and transferred
by DBP and PNB in favor of the National Government.33

HRCC counters that both the RTC and the CA correctly applied the doctrine of "piercing the veil of
corporate fiction." It claims that NMIC was the alter ego of DBP and PNB which owned, conducted
and controlled the business of NMIC as shown by the following circumstances: NMIC was owned by
DBP and PNB, the officers of DBP and PNB were also the officers of NMIC, and DBP and PNB
financed the operations of NMIC. HRCC further argues that a parent corporation may be held liable
for the contracts or obligations of its subsidiary corporation where the latter is a mere agency,
instrumentality or adjunct of the parent corporation.34

Moreover, HRCC asserts that the APT was properly held solidarily liable with DBP, PNB, and NMIC
because the APT assumed the obligations of DBP and PNB as the successor-in-interest of the said
banks with respect to the assets and liabilities of NMIC.35 As trustee of the Republic of the
Philippines, the APT also assumed the responsibility of the Republic pursuant to the following
provision of Section 2.02 of the respective deeds of transfer executed by DBP and PNB in favor of
the Republic:

SECTION 2. TRANSFER OF BANK’S LIABILITIES

xxxx

2.02 With respect to the Bank’s liabilities which are contingent and those liabilities where the Bank’s
creditors consent to the transfer thereof is not obtained, said liabilities shall remain in the books of
the BANK with the GOVERNMENT funding the payment thereof.36

After a careful review of the case, this Court finds the petitions impressed with merit.

A corporation is an artificial entity created by operation of law. It possesses the right of succession
and such powers, attributes, and properties expressly authorized by law or incident to its
existence.37 It has a personality separate and distinct from that of its stockholders and from that of
other corporations to which it may be connected.38 As a consequence of its status as a distinct legal
entity and as a result of a conscious policy decision to promote capital formation,39 a corporation
incurs its own liabilities and is legally responsible for payment of its obligations.40 In other words, by
virtue of the separate juridical personality of a corporation, the corporate debt or credit is not the debt
or credit of the stockholder.41 This protection from liability for shareholders is the principle of limited
liability.42

Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or of another corporation. For reasons
of public policy and in the interest of justice, the corporate veil will justifiably be impaled only when it
becomes a shield for fraud, illegality or inequity committed against third persons.43

However, the rule is that a court should be careful in assessing the milieu where the doctrine of the
corporate veil may be applied. Otherwise an injustice, although unintended, may result from its
erroneous application.44 Thus, cutting through the corporate cover requires an approach
characterized by due care and caution:

Hence, any 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. x x x.45 (Emphases supplied; citations omitted.)

Sarona v. National Labor Relations Commission46 has defined the scope of application of the
doctrine of piercing the corporate veil:

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to justify a wrong, protect fraud, or
defend a crime; or 3) alter ego cases, where a corporation is merely a farce since it is a mere alter
ego or business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation. (Citation omitted.)

Here, HRCC has alleged from the inception of this case that DBP and PNB (and the APT as
assignee of DBP and PNB) should be held solidarily liable for using NMIC as alter ego.47 The RTC
sustained the allegation of HRCC and pierced the corporate veil of NMIC pursuant to the alter ego
theory when it concluded that NMIC "is a mere adjunct, business conduit or alter ego of both DBP
and PNB."48 The Court of Appeals upheld such conclusion of the trial court.49 In other words, both the
trial and appellate courts relied on the alter ego theory when they disregarded the separate
corporate personality of NMIC.

In this connection, case law lays down a three-pronged test to determine the application of the alter
ego theory, which is also known as the instrumentality theory, namely:

(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 plaintiff’s legal right; and

(3) The aforesaid control and breach of duty must have proximately caused the injury or
unjust loss complained of.50 (Emphases omitted.)

The first prong is the "instrumentality" or "control" test. This test requires that the subsidiary be
completely under the control and domination of the parent.51 It examines the parent corporation’s
relationship with the subsidiary.52 It inquires whether a subsidiary corporation is so organized and
controlled and its affairs are so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be ignored.53 It seeks to
establish whether the subsidiary corporation has no autonomy and the parent corporation, though
acting through the subsidiary in form and appearance, "is operating the business directly for itself."54

The second prong is the "fraud" test. This test requires that the parent corporation’s conduct in using
the subsidiary corporation be unjust, fraudulent or wrongful.55 It examines the relationship of the
plaintiff to the corporation.56 It recognizes that piercing is appropriate only if the parent corporation
uses the subsidiary in a way that harms the plaintiff creditor.57 As such, it requires a showing of "an
element of injustice or fundamental unfairness."58

The third prong is the "harm" test. This test requires the plaintiff to show that the defendant’s control,
exerted in a fraudulent, illegal or otherwise unfair manner toward it, caused the harm suffered.59 A
causal connection between the fraudulent conduct committed through the instrumentality of the
subsidiary and the injury suffered or the damage incurred by the plaintiff should be established. The
plaintiff must prove that, unless the corporate veil is pierced, it will have been treated unjustly by the
defendant’s exercise of control and improper use of the corporate form and, thereby, suffer
damages.60
To summarize, piercing the corporate veil based on the alter ego theory requires the concurrence of
three elements: control of the corporation by the stockholder or parent corporation, fraud or
fundamental unfairness imposed on the plaintiff, and harm or damage caused to the plaintiff by the
fraudulent or unfair act of the corporation. The absence of any of these elements prevents piercing
the corporate veil.61

This Court finds that none of the tests has been satisfactorily met in this case.

In applying the alter ego doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation.62 With respect to
the control element, it refers not to paper or formal control by majority or even complete stock control
but actual control which amounts to "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."63 In addition, the control must be shown to have been exercised at the time
the acts complained of took place.64

Both the RTC and the Court of Appeals applied the alter ego theory and penetrated the corporate
cover of NMIC based on two factors: (1) the ownership by DBP and PNB of effectively all the stocks
of NMIC, and (2) the alleged interlocking directorates of DBP, PNB and NMIC.65 Unfortunately, the
conclusion of the trial and appellate courts that the DBP and PNB fit the alter ego theory with respect
to NMIC’s transaction with HRCC on the premise of complete stock ownership and interlocking
directorates involved a quantum leap in logic and law exposing a gap in reason and fact.

While ownership by one corporation of all or a great majority of stocks of another corporation and
their interlocking directorates may serve as indicia of control, by themselves and without more,
however, these circumstances are insufficient to establish an alter ego relationship or connection
between DBP and PNB on the one hand and NMIC on the other hand, that will justify the puncturing
of the latter’s corporate cover. This Court has declared 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."66 This Court has likewise ruled
that 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."67

True, the findings of fact of the Court of Appeals are conclusive and cannot be reviewed on appeal
to this Court, provided they are borne out of the record or are based on substantial evidence.68 It is
equally true that the question of whether one corporation is merely an alter ego of another is purely
one of fact. So is the question of whether a corporation is a paper company, a sham or subterfuge or
whether the requisite quantum of evidence has been adduced warranting the piercing of the veil of
corporate personality.69 Nevertheless, it has been held in Sarona v. National Labor Relations
Commission70 that this Court has the power to resolve a question of fact, such as whether a
corporation is a mere alter ego of another entity or whether the corporate fiction was invoked for
fraudulent or malevolent ends, if the findings in the assailed decision are either not supported by the
evidence on record or based on a misapprehension of facts.

In this case, nothing in the records shows that the corporate finances, policies and practices of NMIC
were dominated by DBP and PNB in such a way that NMIC could be considered to have no separate
mind, will or existence of its own but a mere conduit for DBP and PNB. On the contrary, the
evidence establishes that HRCC knew and acted on the knowledge that it was dealing with NMIC,
not with NMIC’s stockholders. The letter proposal of Hercon, Inc., HRCC’s predecessor-in-interest,
regarding the contract for NMIC’s mine stripping and road construction program was addressed to
and accepted by NMIC.71 The various billing reports, progress reports, statements of accounts and
communications of Hercon, Inc./HRCC regarding NMIC’s mine stripping and road construction
program in 1985 concerned NMIC and NMIC’s officers, without any indication of or reference to the
control exercised by DBP and/or PNB over NMIC’s affairs, policies and practices.72

HRCC has presented nothing to show that DBP and PNB had a hand in the act complained of, the
alleged undue disregard by NMIC of the demands of HRCC to satisfy the unpaid claims for services
rendered by HRCC in connection with NMIC’s mine stripping and road construction program in 1985.
On the contrary, the overall picture painted by the evidence offered by HRCC is one where HRCC
was dealing with NMIC as a distinct juridical person acting through its own corporate officers.73

Moreover, the finding that the respective boards of directors of NMIC, DBP, and PNB were
interlocking has no basis. HRCC’s Exhibit "I-5,"74 the initial General Information Sheet submitted by
NMIC to the Securities and Exchange Commission, relied upon by the trial court and the Court of
Appeals may have proven that DBP and PNB owned the stocks of NMIC to the extent of 57% and
43%, respectively. However, nothing in it supports a finding that NMIC, DBP, and PNB had
interlocking directors as it only indicates that, of the five members of NMIC’s board of directors, four
were nominees of either DBP or PNB and only one was a nominee of both DBP and PNB.75 Only two
members of the board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, were established to
be members of the board of governors of DBP and none was proved to be a member of the board of
directors of PNB.76 No director of NMIC was shown to be also sitting simultaneously in the board of
governors/directors of both DBP and PNB.

In reaching its conclusion of an alter ego relationship between DBP and PNB on the one hand and
NMIC on the other hand, the Court of Appeals invoked Sibagat Timber Corporation v.
Garcia,77 which it described as "a case under a similar factual milieu."78 However, in Sibagat Timber
Corporation, this Court took care to enumerate the circumstances which led to the piercing of the
corporate veil of Sibagat Timber Corporation for being the alter ego of Del Rosario & Sons Logging
Enterprises, Inc. Those circumstances were as follows: holding office in the same building, practical
identity of the officers and directors of the two corporations and assumption of management and
control of Sibagat Timber Corporation by the directors/officers of Del Rosario & Sons Logging
Enterprises, Inc.

Here, DBP and PNB maintain an address different from that of NMIC.79 As already discussed, there
was insufficient proof of interlocking directorates. There was not even an allegation of similarity of
corporate officers. Instead of evidence that DBP and PNB assumed and controlled the management
of NMIC, HRCC’s evidence shows that NMIC operated as a distinct entity endowed with its own
legal personality. Thus, what obtains in this case is a factual backdrop different from, not similar to,
Sibagat Timber Corporation.

In relation to the second element, to disregard the separate juridical personality of a corporation, the
wrongdoing or unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly
established; it cannot be presumed. Without a demonstration that any of the evils sought to be
prevented by the doctrine is present, it does not apply.80

In this case, the Court of Appeals declared:

We are not saying that PNB and DBP are guilty of fraud in forming NMIC, nor are we implying that
NMIC was used to conceal fraud. x x x.81

Such a declaration clearly negates the possibility that DBP and PNB exercised control over NMIC
which DBP and PNB used "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 plaintiff’s legal rights." It is a
recognition that, even assuming that DBP and PNB exercised control over NMIC, there is no
evidence that the juridical personality of NMIC was used by DBP and PNB to commit a fraud or to do
a wrong against HRCC.

There being a total absence of evidence pointing to a fraudulent, illegal or unfair act committed
against HRCC by DBP and PNB under the guise of NMIC, there is no basis to hold that NMIC was a
mere alter ego of DBP and PNB. As this Court ruled in Ramoso v. Court of Appeals82:

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 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 cannot be presumed.

As regards the third element, in the absence of both control by DBP and PNB of NMIC and fraud or
fundamental unfairness perpetuated by DBP and PNB through the corporate cover of NMIC, no
harm could be said to have been proximately caused by DBP and PNB on HRCC for which HRCC
could hold DBP and PNB solidarily liable with NMIC. 1âw phi1

Considering that, under the deeds of transfer executed by DBP and PNB, the liability of the APT as
transferee of the rights, titles and interests of DBP and PNB in NMIC will attach only if DBP and PNB
are held liable, the APT incurs no liability for the judgment indebtedness of NMIC. Even HRCC
recognizes that "as assignee of DBP and PNB 's loan receivables," the APT simply "stepped into the
shoes of DBP and PNB with respect to the latter's rights and obligations" in NMIC.83 As such
assignee, therefore, the APT incurs no liability with respect to NMIC other than whatever liabilities
may be imputable to its assignors, DBP and PNB.

Even under Section 2.02 of the respective deeds of transfer executed by DBP and PNB which
HRCC invokes, the APT cannot be held liable. The contingent liability for which the National
Government, through the APT, may be held liable under the said provision refers to contingent
liabilities of DBP and PNB. Since DBP and PNB may not be held solidarily liable with NMIC, no
contingent liability may be imputed to the APT as well. Only NMIC as a distinct and separate legal
entity is liable to pay its corporate obligation to HRCC in the amount of ₱8,370,934.74, with legal
interest thereon from date of demand.

As trustee of the. assets of NMIC, however, the APT should ensure compliance by NMIC of the
judgment against it. The APT itself acknowledges this.84

WHEREFORE, the petitions are hereby GRANTED.

The complaint as against Development Bank of the Philippines, the Philippine National Bank, and
the Asset Privatization Trust, now the Privatization and Management Office, is DISMISSED for lack
of merit. The Asset Privatization Trust, now the Privatization and Management Office, as trustee of
Nonoc Mining and Industrial Corporation, now the Philnico Processing Corporation, is DIRECTED to
ensure compliance by the Nonoc Mining and Industrial Corporation, now the Philnico Processing
Corporation, with this Decision.

SO ORDERED.
 PHILIPPINE NATIONAL BANK v. HYDRO RESOURCES CONTRACTORS CORPORATION
G.R. No. 167530, March 13, 2013
Corporation Law Case Digest by John Paul C. Ladiao (15 March 2016)
(Topic: Doctrine of Piercing the Veil of Corporate Fiction)

FACTS:

Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages made on the
properties of Marinduque Mining and Industrial Corporation (MMIC). As a result of the
foreclosure, DBP and PNB acquired substantially all the assets of MMIC and resumed the
business operations of the defunct MMIC by organizing NMIC.7 DBP and PNB owned 57% and
43% of the shares of NMIC, respectively, except for five qualifying shares. As of September
1984, the members of the Board of Directors of NMIC, namely, Jose Tengco, Jr., Rolando Zosa,
Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were either from DBP or PNB.

Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC’s Mine Stripping and Road
Construction Program in 1985 for a total contract price of P35,770,120. After computing the
payments already made by NMIC under the program and crediting the NMIC’s receivables from
Hercon, Inc., the latter found that NMIC still has an unpaid balance of P8,370,934.74.10 Hercon,
Inc. made several demands on NMIC, including a letter of final demand dated August 12, 1986,
and when these were not heeded, a complaint for sum of money was filed in the RTC of Makati,
Branch 136 seeking to hold petitioners NMIC, DBP, and PNB solidarily liable for the amount
owing Hercon, Inc.

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in a merger.

Thereafter, on December 8, 1986, then President Corazon C. Aquino issued Proclamation No.
50 creating the APT for the expeditious disposition and privatization of certain government
corporations and/or the assets thereof. Pursuant to the said Proclamation, on February 27,
1987, DBP and PNB executed their respective deeds of transfer in favor of the National
Government assigning, transferring and conveying certain assets and liabilities, including their
respective stakes in NMIC. In turn and on even date, the National Government transferred the
said assets and liabilities to the APT as trustee under a Trust Agreement.

ISSUE:

Whether or not there is sufficient ground to pierce the veil of corporate fiction of NMIC and held
DBP and PNB solidarily liable with NMIC?

RULING:

No.

From all indications, it appears that NMIC is a mere adjunct, business conduit or alter ego of
both DBP and PNB. Thus, the DBP and PNB are jointly and severally liable with NMIC for the
latter’s unpaid obligations to plaintiff.

Then concluded that, "in keeping with the concept of justice and fair play," the corporate veil of
NMIC should be pierced.
For to treat NMIC as a separate legal entity from DBP and PNB for the purpose of securing
beneficial contracts, and then using such separate entity to evade the payment of a just debt,
would be the height of injustice and iniquity. Surely that could not have been the intendment of
the law with respect to corporations.

The doctrine of piercing the corporate veil applies only in three (3) basic areas, namely: 1)
defeat of public convenience as when the corporate fiction is used as a vehicle for the evasion
of an existing obligation; 2) fraud cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime; or 3) alter ego cases, where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation.

G.R. No. 194578 February 13, 2013

PHILIP SIGFRID A. FORTUN, Petitioner,

vs.
PRIMA JESUSA B. QUINSAYAS, MA. GEMMA OQUENDO, DENNIS AYON, NENITA OQUENDO,
ESMAEL MANGUDADATU, JOSE PAVIA, MELINDA QUINTOS DE JESUS, REYNALDO HULOG,
REDMOND BATARIO, MALOU MANGAHAS, DANILO GOZO, GMA NETWORK INC., through its
new editors Raffy Jimenez and Victor Sollorano, SOPHIA DEDACE, ABS-CBN
CORPORATION, through the Head of its News Group, Maria Ressa, CECILIA VICTORIA
OREÑA-DRILON, PHILIPPINE DAILY INQUIRER, INC. represented by its Editor-in-Chief Letty
Jimenez Magsanoc, TETCH TORRES, PHILIPPINE STAR represented by its Editor-in-Chief
Isaac Belmonte, and EDU PUNAY, Respondents.

DECISION

CARPIO, J.:

The Case

Before the Court is a petition for Contempt filed by Atty. Philip Sigfrid A. Fortun (petitioner) against
Atty. Prima Jesusa B. Quinsayas (Atty. Quinsayas), Ma. Gemma Oquendo (Gemma), Dennis Ayon
(Ayon), Nenita Oquendo (Nenita), Esmael Mangudadatu (Mangudadatu), Jose Pavia (Pavia),
Melinda Quintos De Jesus (De Jesus), Reynaldo Hulog (Hulog), Redmond Batario (Batario), Malou
Mangahas (Mangahas), and Danilo Gozo (Gozo). Atty. Quinsayas and the other respondents, who
are not from the media, are referred to in this case as Atty. Quinsayas, et al. Petitioner also named
as respondents GMA Network, Inc. (GMA Network) through its news editors Raffy Jimenez and
Victor Sollorano, Sophia Dedace (Dedace), ABS-CBN Corporation (ABS-CBN) through the Head of
its News Group Maria Ressa (Ressa), Cecilia Victoria Oreña-Drilon (Drilon), Philippine Daily Inquirer,
Inc. (PDI) represented by its Editor-in-Chief Letty Jimenez Magsanoc, Tetch Torres (Torres),
Philippine Star (PhilStar) represented by its Editor-in-Chief Isaac Belmonte, and Edu Punay (Punay).
Respondents Atty. Quinsayas, et al. and respondent media groups and personalities are collectively
referred to in this case as respondents.

The Antecedent Facts

On 23 November 2009, a convoy of seven vehicles carrying the relatives of then Maguindanao vice-
mayor Esmael "Toto" Mangudadatu, as well as lawyers and journalists, was on their way to the
Commission on Elections office in Shariff Aguak to file Mangudadatu’s Certificate of
Candidacy1 when they were accosted by a group of about 100 armed men at a checkpoint in Sitio
Malating, Ampatuan town, some four to ten kilometers from their destination.2The group was taken
hostage and brought to a hilly and sparsely-populated part of Sitio Magating, Barangay Salman,
Ampatuan, Maguindanao.3 The gruesome aftermath of the hostage-taking was later discovered and
shocked the world. The hostages were systematically killed by shooting them at close range with
automatic weapons, and their bodies and vehicles were dumped in mass graves and covered with
the use of a backhoe.4 These gruesome killings became known as the Maguindanao Massacre. A
total of 57 victims were killed, 30 of them journalists. Subsequently, criminal cases for Murder were
filed and raffled to the Regional Trial Court of Quezon City, Branch 221, and docketed as Criminal
Cases No. Q-09-162148-172, Q-09-162216-31, Q-10-162652, and Q-10- 163766. Petitioner is the
counsel for Datu Andal Ampatuan, Jr. (Ampatuan, Jr.), the principal accused in the murder cases.

In November 2010, Atty. Quinsayas, et al. filed a disbarment complaint against petitioner before this
Court, docketed as Bar Matter No. A.C. 8827. The disbarment case is still pending.

Petitioner alleged that on 22 November 2010, GMA News TV internet website posted an article,
written by Dedace, entitled "Mangudadatu, others seek disbarment of Ampatuan lawyer," a portion of
which reads:

On Monday, Maguindanao Governor Esmael "Toto" Mangudadatu and four others filed a 33 page
complaint against lawyer Sigrid Fortun whom they accused of "engaging in every conceivable
chichancery or artifice to unduly delay the proceedings by using and abusing legal remedies
available."5

On even date, Inquirer.net, the website of PDI, also published an article, written by Torres, which
according to petitioner also stated details of the disbarment case, as follows:

"Respondent Atty. Fortun had astutely embarked in an untiring quest to obstruct, impede and
degrade the administration of justice by filing countless causes of action, all in the hope of burying
the principal issue of his client’s participation or guilt in the murder of 57 people that ill-fated day of
November 23, 2009," the petitioners said.6

Petitioner further alleged that on 23 November 2010, PhilStar published an article, written by Punay,
which gave details of the disbarment allegations, thus:

"Attorney Fortun used and abused legal remedies available and allowed under under the rules,
muddled the issues and diverted the attention away from the main subject matter of the cases, read
the complaint.

***** ***** *****

"Respondent Attorney Fortun’s act of misleading the prosecution and trial court is a
dishonest/deceitful conduct violative of Code of Professional Responsibility," read the complaint.

"In so doing, he diminished the public confidence in the law and the legal profession, rendering him
unfit to be called a member of the Bar."7

Further, petitioner alleged that on 23 November 2010, Channel 23 aired on national television a
program entitled "ANC Presents: Crying for Justice: the Maguindanao Massacre." Drilon, the
program’s host, asked questions and allowed Atty. Quinsayas to discuss the disbarment case
against petitioner, including its principal points. Petitioner was allegedly singled out and identified in
the program as the lead counsel of the Ampatuan family.
Petitioner alleged that Atty. Quinsayas, et al. actively disseminated the details of the disbarment
complaint against him in violation of Rule 139-B of the Rules of Court on the confidential nature of
disbarment proceedings. Petitioner further alleged that respondent media groups and personalities
conspired with Atty. Quinsayas, et al. by publishing the confidential materials on their respective
media platforms. Petitioner pointed out that Drilon discussed the disbarment complaint with Atty.
Quinsayas in a television program viewed nationwide

Petitioner alleged that the public circulation of the disbarment complaint against him exposed this
Court and its investigators to outside influence and public interference. Petitioner alleged that
opinion writers wrote about and commented on the disbarment complaint which opened his
professional and personal reputation to attack. He alleged that the purpose of respondents in
publishing the disbarment complaint was to malign his personal and professional reputation,
considering the following: (1) the bases of the charges were not new but were based on incidents
that supposedly took place in January 2010; (2) it was timed to coincide with the anniversary of the
Maguindanao Massacre to fuel hatred, contempt and scorn for Ampatuan, Jr. and his counsel and
violated the accused’s right to presumption of innocence and due process; (3) it was published
following articles written about petitioner’s advocacy for the rights of an accused and negated the
impact of these articles on the public; and (4) respondents knew that the charges were baseless as
petitioner always opted for speedy trial and protection of the accused’s rights at trial. Petitioner
further alleged that in announcing their "causes of action" in the disbarment case, respondents were
only seeking the approval and sympathy of the public against him and Ampatuan, Jr.

In its Comment, GMA Network alleged that it has no newspaper or any publication where it could
have printed the article. It alleged that it did not broadcast the disbarment complaint on its television
station. GMA Network alleged that the publication had already been done and completed when Atty.
Quinsayas distributed copies of the disbarment complaint and thus, the members of the media who
reported the news and the media groups that published it on their website, including GMA Network,
did not violate the confidentiality rule. GMA Network further alleged that Dedace, a field reporter for
the judiciary, acted in good faith and without malice when she forwarded the news to the news desk.
GMA News also acted in good faith in posting the news on its website. GMA Network denied that it
conspired with the other respondents in publishing the news. GMA Network alleged that it posted the
disbarment complaint, without any unfair, critical, and untruthful comment, and only after it was
"published" by Atty. Quinsayas, et al. who furnished copies of the disbarment complaint to the media
reporters. GMA Network alleged that it had no intention to malign petitioner’s personal and
professional reputation in posting the news about the disbarment complaint on its website.

In her Comment, Dedace clarified that she is a field news reporter of GMA Network and not a writer
of the GMA News TV website. Her beat includes the Supreme Court, the Court of Appeals, and the
Department of Justice. Dedace alleged that on 22 November 2010, she received an advice from
fellow field reporter Mark Merueñas that the lawyer of Mangudadatu would be filing a disbarment
case against petitioner. She waited at the Supreme Court. At around 5:00 p.m., Atty. Quinsayas
arrived. Atty. Quinsayas gave copies of the petition to news reporters and Dedace received one.
Dedace prepared and sent her news story to GMA Network where it went to the editor. Dedace
alleged that she did not breach the rule on confidentiality of disbarment proceedings against lawyers
when she reported the filing of the disbarment complaint against petitioner. She alleged that she
acted in good faith and without malice in forwarding her news story to the news desk and that she
had no intention to, and could not, influence or interfere in the proceedings of the disbarment case.
She further alleged that she honestly believed that the filing of the disbarment complaint against
petitioner was newsworthy and should be reported as news.

PDI alleged in its Comment that it shares content with the Inquirer.net website through a syndication
but the latter has its own editors and publish materials that are not found on the broadsheet. It
alleged that Philippine Daily Inquirer, Inc. and Inquirer Interactive, Inc. are two different corporations,
with separate legal personalities, and one may not be held responsible for the acts of the other.

Torres8 alleged in her Comment that on 17 November 2010, a private prosecutor told her and
several other reporters that a disbarment case would be filed against petitioner. The disbarment
case was actually filed on 22 November 2010 when Torres received a copy of the complaint. Since
the lead of the story came from a lawyer, Torres did not consider that writing a story about the filing
of the disbarment complaint might amount to contempt of court. Torres alleged that the writing of the
story was an independent act and she did not conspire with any of the other respondents. Torres
maintained that she acted in good faith in writing the news report because the Maguindanao
Massacre was a matter of public concern and the allegations in the disbarment complaint were in
connection with petitioner’s handling of the case. Torres further asserted that petitioner is a public
figure and the public has a legitimate interest in his doings, affairs and character.

In her Comment, Ressa alleged that she was the former head of ABS-CBN’s News and Current
Affairs Group and the former Managing Director of ANC. However, she was on terminal leave
beginning 30 October 2010 in advance to the expiration of her contract on 3 January 2011. Ressa
alleged that she had no participation in the production and showing of the broadcast on 23
November 2010. Ressa adopts the answer of her co-respondents ABS-CBN and Drilon insofar as it
was applicable to her case.

ABS-CBN and Drilon filed a joint Comment. ABS-CBN alleged that ABS-CBN News Channel,
commonly known as ANC, is maintained and operated by Sarimanok Network News (SNN) and not
by ABS-CBN. SNN, which produced the program "ANC Presents: Crying for Justice: the
Maguindanao Massacre," is a subsidiary of ABS-CBN but it has its own juridical personality although
SNN and ABS-CBN have interlocking directors. ABS-CBN and Drilon alleged that the presentation
and hosting of the program were not malicious as there was no criminal intent to violate the
confidentiality rule in disbarment proceedings. They alleged that the program was a commemoration
of the Maguindanao Massacre and was not a report solely on the disbarment complaint against
petitioner which took only a few minutes of the one-hour program. They alleged that the program
was not a publication intended to embarrass petitioner who was not even identified as the
respondent in the disbarment complaint. Drilon even cautioned against the revelation of petitioner’s
name in the program. ABS-CBN and Drilon further alleged that prior to the broadcast of the program
on 23 November 2010, the filing of the disbarment complaint against petitioner was already the
subject of widespread news and already of public knowledge. They denied petitioner’s allegation that
they conspired with the other respondents in violating the confidentiality rule in disbarment
proceedings. Finally, they alleged that the contempt charge violates their right to equal protection
because there were other reports and publications of the disbarment complaint but the publishers
were not included in the charge. They also assailed the penalty of imprisonment prayed for by
petitioner as too harsh.

In their joint Comment, respondents Mangudadatu, Ayon, Nenita, and Gemma alleged that petitioner
failed to prove that they actively participated in disseminating details of the disbarment complaint
against him. They alleged that while they were the ones who filed the disbarment complaint against
petitioner, it does not follow that they were also the ones who caused the publication of the
complaint. They alleged that petitioner did not provide the name of any particular person, dates,
days or places to show the alleged confederation in the dissemination of the disbarment complaint.

Respondents De Jesus, Hulog, Batario, and Mangahas, in their capacity as members of the Board of
Trustees of the Freedom Fund for Filipino Journalists, Inc. (FFFJ) and Atty. Quinsayas, former
counsel for FFFJ, also filed a joint Comment claiming that the alleged posting and publication of the
articles were not established as a fact. Respondents alleged that petitioner did not submit certified
true copies of the articles and he only offered to submit a digital video disk (DVD) copy of the
televised program where Atty. Quinsayas was allegedly interviewed by Drilon. Respondents alleged
that, assuming the articles were published, petitioner failed to support his allegations that they
actively disseminated the details of the disbarment complaint.

In their joint Comment, PhilStar and Punay alleged that on 22 November 2010, Atty. Quinsayas, et
al. went to this Court to file the disbarment complaint but they were not able to file it on that
day.9 Atty. Quinsayas, et al. were able to file the disbarment complaint the following day, or on 23
November 2010. PhilStar and Punay alleged that their news article, which was about the plan to file
a disbarment complaint against petitioner, was published on 23 November 2010. It came out before
the disbarment complaint was actually filed. They alleged that the news article on the disbarment
complaint is a qualified privileged communication. They alleged that the article was a true, fair, and
accurate report on the disbarment complaint. The article was straightforward, truthful, and accurate,
without any comments from the author. They alleged that Punay reported the plan of Mangudadatu,
et al. to file the disbarment complaint against petitioner as it involved public interest and he
perceived it to be a newsworthy subject. They further alleged that assuming the news article is not a
privileged communication, it is covered by the protection of the freedom of expression, speech, and
of the press under the Constitution. They also alleged that the case is a criminal contempt
proceeding and intent to commit contempt of court must be shown by proof beyond reasonable
doubt. They further alleged that they did not commit any contemptible act. They maintained that the
news article did not impede, interfere with, or embarrass the administration of justice. They further
claimed that it is improbable, if not impossible, for the article to influence the outcome of the case or
sway this Court in making its decision. The article also did not violate petitioner’s right to privacy
because petitioner is a public figure and the public has a legitimate interest in his doings, affairs, and
character.

Pavia died during the pendency of this case10 and was no longer included in the Comment filed for
the FFFJ Trustees. Gozo resigned as member of the FFFJ Trustees and was no longer represented
by the FFFJ counsel in filing its comment.11 Gozo did not file a separate comment.

The Issue

The only issue in this case is whether respondents violated the confidentiality rule in disbarment
proceedings, warranting a finding of guilt for indirect contempt of court.

The Ruling of this Court

First, the contempt charge filed by petitioner is in the nature of a criminal contempt. In People v.
Godoy,12 this Court made a distinction between criminal and civil contempt. The Court declared:

A criminal contempt is conduct that is directed against the dignity and authority of the court or a
judge acting judicially; it is an act obstructing the administration of justice which tends to bring the
court into disrepute or disrespect. On the other hand, civil contempt consists in failing to do
something ordered to be done by a court in a civil action for the benefit of the opposing party therein
and is, therefore, an offense against the party in whose behalf the violated order is made.

A criminal contempt, being directed against the dignity and authority of the court, is an offense
against organized society and, in addition, is also held to be an offense against public justice which
raises an issue between the public and the accused, and the proceedings to punish it are punitive.
On the other hand, the proceedings to punish a civil contempt are remedial and for the purpose of
the preservation of the right of private persons. It has been held that civil contempt is neither a felony
nor a misdemeanor, but a power of the court.
It has further been stated that intent is a necessary element in criminal contempt, and that no one
can be punished for a criminal contempt unless the evidence makes it clear that he intended to
commit it. On the contrary, there is authority indicating that since the purpose of civil contempt
proceedings is remedial, the defendant’s intent in committing the contempt is immaterial. Hence,
good faith or the absence of intent to violate the court’s order is not a defense in civil contempt.13

The records of this case showed that the filing of the disbarment complaint against petitioner had
been published and was the subject of a televised broadcast by respondent media groups and
personalities.

We shall discuss the defenses and arguments raised by respondents.

GMA Network, Inc.

GMA Network’s defense is that it has no newspaper or any publication where the article could be
printed; it did not broadcast the disbarment complaint in its television station; and that the publication
was already completed when Atty. Quinsayas distributed copies of the disbarment complaint to the
media.

GMA Network did not deny that it posted the details of the disbarment complaint on its website. It
merely said that it has no publication where the article could be printed and that the news was not
televised. Online posting, however, is already publication considering that it was done on GMA
Network’s online news website.

Philippine Daily Inquirer, Inc.

PDI averred that it only shares its contents with Inquirer.net through a syndication. PDI attached a
photocopy of the syndication page stating that "[d]ue to syndication agreements between PDI and
Inquirer.net, some articles published in PDI may not appear in Inquirer.net."14

A visit to the website describes Inquirer.net as "the official news website of the Philippine Daily
Inquirer, the Philippines’ most widely circulated broadsheet, and a member of the Inquirer Group of
Companies."15 PDI was not able to fully establish that it has a separate personality from Inquirer.net.

ABS-CBN Corporation

ABS-CBN alleged that SNN is its subsidiary and although they have interlocking directors, SNN has
its own juridical personality separate from its parent company. ABS-CBN alleged that SNN controls
the line-up of shows of ANC.

We agree with ABS-CBN on this issue. We have ruled that a subsidiary has an independent and
separate juridical personality distinct from that of its parent company and that any suit against the
the latter does not bind the former and vice-versa.16 A corporation is an artificial being invested by
law with a personality separate and distinct from that of other corporations to which it may be
connected.17 Hence, SNN, not ABS-CBN, should have been made respondent in this case.

Maria Ressa

Respondent Ressa alleged that she was on terminal leave when the program about the
Maguindanao Massacre was aired on ANC and that she had no hand in its production. Ressa’s
defense was supported by a certification from the Human Resource Account Head of ABS-CBN,
stating that Ressa went on terminal leave beginning 30 October 2010.18 This was not disputed by
petitioner.

Sophia Dedace, Tetch Torres, Cecilia Victoria Oreña-Drilon,

and Edu Punay

Basically, the defense of respondents Dedace, Torres, Drilon, and Punay was that the disbarment
complaint was published without any comment, in good faith and without malice; that petitioner is a
public figure; that the Maguindanao Massacre is a matter of public interest; and that there was no
conspiracy on their part in publishing the disbarment complaint. They also argued that the news
reports were part of privileged communication.

In Drilon’s case, she further alleged that the television program was a commemoration of the
Maguindanao Massacre and not solely about the filing of the disbarment case against petitioner.
Even as the disbarment complaint was briefly discussed in her program, petitioner’s name was not
mentioned at all in the program.

Violation of Confidentiality Rule by Respondent Media Groups and Personalities

Section 18, Rule 139-B of the Rules of Court provides:

Section 18. Confidentiality. - Proceedings against attorneys shall be private and confidential.
However, the final order of the Supreme Court shall be published like its decisions in other cases.

The Court explained the purpose of the rule, as follows:

x x x. The purpose of the rule is not only to enable this Court to make its investigations free from any
extraneous influence or interference, but also to protect the personal and professional reputation of
attorneys and judges from the baseless charges of disgruntled, vindictive, and irresponsible clients
and litigants; it is also to deter the press from publishing administrative cases or portions thereto
without authority. We have ruled that malicious and unauthorized publication or verbatim
reproduction of administrative complaints against lawyers in newspapers by editors and/or reporters
may be actionable. Such premature publication constitutes a contempt of court, punishable by either
a fine or imprisonment or both at the discretion of the Court. x x x19

In People v. Castelo,20 the Court ruled that contempt is akin to libel and that the principle of
privileged communication may be invoked in a contempt proceeding. The Court ruled:

While the present case involves an incident of contempt the same is akin to a case of libel for both
constitute limitations upon freedom of the press or freedom of expression guaranteed by our
Constitution. So what is considered a privilege in one may likewise be considered in the other. The
same safeguard should be extended to one whether anchored in freedom of the press or freedom of
expression. Therefore, this principle regarding privileged communications can also be invoked in
favor of appellant.21

The Court recognizes that "publications which are privileged for reasons of public policy are
protected by the constitutional guaranty of freedom of speech."22 As a general rule, disbarment
proceedings are confidential in nature until their final resolution and the final decision of this Court. In
this case, however, the filing of a disbarment complaint against petitioner is itself a matter of public
concern considering that it arose from the Maguindanao Massacre case. The interest of the public is
not on petitioner himself but primarily on his involvement and participation as defense counsel in the
Maguindanao Massacre case. Indeed, the allegations in the disbarment complaint relate to
petitioners supposed actions involving the Maguindanao Massacre case.

The Maguindanao Massacre is a very high-profile case. Of the 57 victims of the massacre, 30 were
journalists. It is understandable that any matter related to the Maguindanao Massacre is considered
a matter of public interest and that the personalities involved, including petitioner, are considered as
public figure. The Court explained it, thus:

But even assuming a person would not qualify as a public figure, it would not necessarily follow that
he could not validly be the subject of a public comment. For he could; for instance, if and when he
would be involved in a public issue. If a matter is a subject of public or general interest, it cannot
suddenly become less so merely because a private individual is involved or because in some sense
the individual did not voluntarily choose to become involved. The public’s primary interest is in
the event; the public focus is on the conduct of the participant and the content, effect and
significance of the conduct, not the participant’s prior anonymity or notoriety.23(Boldface in
the original)

Since the disbarment complaint is a matter of public interest, legitimate media had a right to publish
such fact under freedom of the press. The Court also recognizes that respondent media groups and
personalities merely acted on a news lead they received when they reported the filing of the
disbarment complaint.

The distribution by Atty. Quinsayas to the media of the disbarment complaint, by itself, is not
sufficient to absolve the media from responsibility for violating the confidentiality rule. However, since
petitioner is a public figure or has become a public figure because he is representing a matter of
public concern, and because the event itself that led to the filing of the disbarment case against
petitioner is a matter of public concern, the media has the right to report the filing of the disbarment
case as legitimate news. It would have been different if the disbarment case against petitioner was
about a private matter as the media would then be bound to respect the confidentiality provision of
disbarment proceedings under Section 18, Rule 139-B of the Rules of Court.

Section 18, Rule 139-B of the Rules of Court is not a restriction on the freedom of the press. If there
1âwphi 1

is a legitimate public interest, media is not prohibited from making a fair, true, and accurate news
report of a disbarment complaint. In the absence of a legitimate public interest in a disbarment
complaint, members of the media must preserve the confidentiality of disbarment proceedings during
its pendency. Disciplinary proceedings against lawyers must still remain private and confidential until
their final determination.24 Only the final order of this Court shall be published like its decisions in
other cases.25

Petitioner also failed to substantiate his claim that respondent media groups and personalities acted
in bad faith and that they conspired with one another in their postings and publications of the filing of
a disbarment complaint against him. Respondent media groups and personalities reported the filing
of the disbarment complaint without any comments or remarks but merely as it was – a news item.
Petitioner failed to prove that respondent media groups and personalities acted with malicious intent.
Respondent media groups and personalities made a fair and true news report and appeared to have
acted in good faith in publishing and posting the details of the disbarment complaint. In the televised
broadcast of the commemoration of the Maguindanao Massacre over ANC, the disbarment case
was briefly discussed but petitioner was not named. There was also no proof that respondent media
groups and personalities posted and published the news to influence this Court on its action on the
disbarment case or to deliberately destroy petitioner’s reputation. It should also be remembered that
the filing of the disbarment case against petitioner entered the public domain without any act on the
part of the media. As we will discuss later, the members of the media were given copies of the
disbarment complaint by one of the complainants.

Esmael Mangudadatu, Dennis Ayon, Nenita and Ma. Gemma Oquendo

Respondents, while admitting that they were some of the complainants in the disbarment complaint
against petitioner, alleged that there was no proof that they were the ones who disseminated the
disbarment complaint. Indeed, petitioner failed to substantiate his allegation that Mangudadatu,
Ayon, Nenita, and Gemma were the ones who caused the publication of the disbarment complaint
against him. There was nothing in the records that would show that Mangudadatu, Ayon, Nenita, and
Gemma distributed or had a hand in the distribution of the disbarment complaint against petitioner.

Melinda Quintos De Jesus, Reynaldo Hulog, Redmond Batario, Malou Mangahas, and Atty.
Prima Jesusa B. Quinsayas

Respondents De Jesus, Hulog, Batario, Mangahas, and Atty. Quinsayas alleged that petitioner was
not able to establish the posting and publication of the articles about the disbarment complaint, and
that assuming the posting and publication had been established, petitioner failed to support his
allegation that they actively disseminated the details of the disbarment complaint. They further
alleged that they did not cause the publication of the news articles and thus, they did not violate the
rule on privacy and confidentiality of disbarment proceedings.

Indeed, petitioner failed to prove that, except for Atty. Quinsayas, the other respondents, namely De
Jesus, Hulog, Batario, Mangahas, and even Gozo, who did not file his separate comment, had a
hand in the dissemination and publication of the disbarment complaint against him. It would appear
that only Atty. Quinsayas was responsible for the distribution of copies of the disbarment complaint.
In its Comment, GMA Network stated that the publication "had already been done and completed
when copies of the complaint for disbarment were distributed by one of the disbarment
complainants, Atty. Prima Quinsayas x x x."26 Dedace also stated in her Comment that "Atty.
Quinsayas gave copies of the disbarment complaint against Atty. Fortun and she received one."27

Atty. Quinsayas is bound by Section 18, Rule 139-B of the Rules of Court both as a complainant in
the disbarment case against petitioner and as a lawyer. As a lawyer and an officer of the Court, Atty.
Quinsayas is familiar with the confidential nature of disbarment proceedings. However, instead of
preserving its confidentiality, Atty. Quinsayas disseminated copies of the disbarment complaint
against petitioner to members of the media which act constitutes contempt of court. In Relativo v. De
Leon,28 the Court ruled that the premature disclosure by publication of the filing and pendency of
disbarment proceedings is a violation of the confidentiality rule.29 In that case, Atty. Relativo, the
complainant in a disbarment case, caused the publication in newspapers of statements regarding
the filing and pendency of the disbarment proceedings. The Court found him guilty of contempt.

Indirect contempt against a Regional Trial Court or a court of equivalent or higher rank is punishable
by a fine not exceeding P30,000 or imprisonment not exceeding six months or both.30 Atty.
Quinsayas acted wrongly in setting aside the confidentiality rule which every lawyer and member of
the legal profession should know. Hence, we deem it proper to impose on her a fine of Twenty
Thousand Pesos (P20,000).

WHEREFORE, we find Atty. Prima Jesusa B. Quinsayas GUILTY of indirect contempt for distributing
copies of the disbarment complaint against Atty. Philip Sigfrid A. Fortun to members of the media
and we order her to pay a FINE of Twenty Thousand Pesos (P20,000).

SO ORDERED.
CEBU BIONIC BUILDERS G.R. No. 154366
SUPPLY, INC. and LYDIA
SIA, Present:
Petitioners,
CORONA, C.J.,
Chairperson,
- versus - VELASCO, JR.,
LEONARDO-DE CASTRO,
PERALTA,* and
DEVELOPMENT BANK OF PEREZ, JJ.
THE PHILIPPINES, JOSE TO
CHIP, PATRICIO YAP and Promulgated:
ROGER BALILA,
Respondents. November 17, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

LEONARDO DE CASTRO, J.:

This Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court
assails the Resolution[2] dated February 5, 2002 and the Amended Decision[3] dated
July 5, 2002 of the Court of Appeals in CA-G.R. CV No. 57216. In the Resolution
dated February 5, 2002, the Court of Appeals admitted the Motion for
Reconsideration[4] of herein respondents Development Bank of the Philippines
(DBP), Jose To Chip, Patricio Yap and Roger Balila, notwithstanding the fact that
the same was filed more than six months beyond the reglementary period.Said
motion prayed for the reversal of the Court of Appeals Decision[5] dated February
14, 2001, which affirmed the Decision[6] dated April 25, 1997 of the Regional Trial
Court (RTC) of Cebu, Branch 8, in Civil Case No. CEB-10104 that ruled in favor
of petitioners. In the Amended Decision of July 5, 2002, the Court of Appeals
reversed its previous Decision dated February 14, 2001 and dismissed the
petitioners complaint for lack of merit.
The facts leading to the instant petition are as follows:

On June 2, 1981, the spouses Rudy R. Robles, Jr. and Elizabeth R. Robles entered
into a mortgage contract[7] with DBP in order to secure a loan from the said bank
in the amount of P500,000.00. The properties mortgaged were a parcel of land
situated in Tabunoc, Talisay, Cebu, which was then covered by Transfer
Certificate of Title (TCT) No. T- 47783 of the Register of Deeds of Cebu, together
with all the existing improvements, and the commercial building to be constructed
thereon[8] (subject properties). Upon completion, the commercial building was
named the State Theatre Building.

On October 28, 1981, Rudy Robles executed a contract of lease in favor of

petitioner Cebu Bionic Builders Supply, Inc. (Cebu Bionic), a domestic
corporation engaged in the construction business, as well as the sale of hardware
materials. The contract pertinently provides:

CONTRACT OF LEASE

KNOW ALL MEN BY THESE PRESENTS:

This Lease Contract made and entered into, by and between:

RUDY ROBLES, JR., Filipino, of legal age, married and resident of 173 Maria
Cristina Ext., Cebu City, hereinafter referred to as the LESSOR,

- and -

CEBU BIONIC BUILDER SUPPLY, represented by LYDIA SIA, Filipino, of

legal age, married and with address at 240 Magallanes St., Cebu City hereinafter
known as the LESSEE;

WITNESSETH:

The LESSOR is the owner of a commercial building along Tabunok, Talisay,

Cebu, known as the State Theatre Building.
 The LESSOR agrees to lease unto the LESSEE and the LESSEE accepts the lease
from the LESSOR, a portion of the ground floor thereof, consisting of one (1)
unit/store space under the following terms and conditions:

1. The LESSEE shall pay a monthly rental of One Thousand (P1,000.00)

Pesos, Philippine Currency. The rental is payable in advance within the first five
(5) days of the month, without need of demand;

2. That the term of this agreement shall start on November 1, 1981

and shall terminate on the last day of every month thereafter; provided
however that this contract shall be automatically renewed on a month to
month basis if no notice, in writing, is sent to the other party to terminate
this agreement after fifteen (15) days from receipt of said notice;

xxxx

9. Should the LESSOR decide to sell the property during the term of
this lease contract or immediately after the expiration of the lease, the
LESSEE shall have the first option to buy and shall match offers from
outside parties.[9] (Emphases ours.)

The above contract was not registered by the parties thereto with the Registry of
Deeds of Cebu.

Subsequently, the spouses Robles failed to settle their loan obligation with
DBP. The latter was, thus, prompted to effect extrajudicial foreclosure on the
subject properties.[10] On February 6, 1987, DBP was the lone bidder in the
foreclosure sale and thereby acquired ownership of the mortgaged subject
properties.[11] On October 13, 1988, a final Deed of Sale[12] was issued in favor of
DBP.

Meanwhile, on June 18, 1987, DBP sent a letter to Bonifacio Sia, the husband of
petitioner Lydia Sia who was then President of Cebu Bionic, notifying the latter of
DBPs acquisition of the State Theatre Building. Said letter reads:

June 18, 1987

Mr. Bonifacio Sia

Bionic Builders Inc.
State Theatre Bldg.
Tabunok, Talisay, Cebu

Sir:

This refers to the commercial space you are occupying in the acquired property of
the Bank, formerly owned by Rudy Robles, Jr.

Please be informed that said property has been acquired through foreclosure
on February 6, 1987. Considering thereat, we require you to remit the rental
due for June 1987.

If you wish to continue on leasing the property, we request you to come to the
Bank for the execution of a Contract of Lease, the salient conditions of which
are as follows:

1. The lease will be on month to month basis, for a maximum

period of one (1) year;

2. Deposit equivalent to two (2) months rental and advance of one (1)
month rental, and the remaining amount for one year period
(equivalent to 9 months rental) shall be secured by either surety
bond, cash bond or assigned time deposit;

3. That in case there is a better offer or if the property will be subject of a

purchase offer, within the term, the lessor is given an option of first
refusal, otherwise he has to vacate the premises within thirty (30)
days from date of notice.

We consider, temporarily, the current monthly rental based on the six-month

receipts, which we require you to submit, until such time when we will fix the
amount accordingly.

If the contract of lease is not executed within thirty (30) days from date
hereof, it is construed that you are not interested in leasing the premises and
will vacate within the said period.

Please be guided accordingly.

Truly yours,

(SGD)LUCILO S. REVILLAS
Branch Head[13] (Emphases ours.)
On July 7, 1987, the counsel of Bonifacio Sia replied to the above letter, to wit:

July 7, 1987

Mr. Lucilo S. Revillas

Branch Head
Development Bank of the Philippines

Dear Mr. Revillas,

This has reference to your letter of 18 June 1987 which you sent to my client, Mr.
Bonifacio Sia of Cebu Bionic Builders Supply the lessee of a commercial space of
the State Theatre Bldg., located at Tabunok, Talisay, Cebu.

My client is amenable to the terms contained in your letter except the following:

1. In lieu of item no. 2 thereof, my client will deposit with your bank the
amount of P10,000.00, as assigned time deposit;

2. The 30 days notice you mentioned in your letter, (3), is too short. My
client is requesting for at least 60 days notice.

I sincerely hope that you will give due course to this request.

Thank you.

Truly yours,

(SGD) ANASTACIO T. MUNTUERTO, JR.[14]

Thereafter, on November 14, 1989, a Certificate of Time Deposit[15] for P11,395.64

was issued in the name of Bonifacio Sia and the same was allegedly remitted to
DBP as advance rental deposit.

For reasons unclear, however, no written contract of lease was executed between
DBP and Cebu Bionic.

In the meantime, subsequent to the acquisition of the subject properties,

DBP offered the same for sale along with its other assets.Pursuant thereto, DBP
published a series of invitations to bid on such properties, which were scheduled
on January 19, 1989,[16] February 23, 1989,[17] April 13, 1989,[18] and November
15, 1990.[19] As no interested bidder came forward, DBP publicized an Invitation
on Negotiated Sale/Offer, the relevant terms and conditions of which stated:
 INVITATION ON NEGOTIATED SALE/OFFER

The DEVELOPMENT BANK OF THE PHILIPPINES, Cebu Branch, will

receive SEALED NEGOTIATED OFFERS/PURCHASE PROPOSALS tendered
at its Branch Office, DBP Building, Osmea Boulevard, Cebu City for the sale of
its acquired assets mentioned hereinunder within the 15-Day-Acceptance-Period
starting from NOVEMBER 19, 1990 up to 12:00 oclock noon of
DECEMBER 3, 1990. Sealed offers submitted shall be opened by the Committee
on Negotiated Offers at exactly 2:00 oclock in the afternoon of the last day of the
acceptance period in order to determine the highest and/or most advantageous
offer.

Item No. Description/Location Starting Price

xxxx

II Commercial land, Lot No. 3681-C-3,

having an area of 396 sq. m., situated
in Tabunok, Talisay, Cebu and
covered by TCT No. T-65199 (DBP),
including the commercial building
thereon. P1,838,100.00

xxxx

A pre-numbered Acknowledgment Receipt duly signed by at least two (2) of

the Committee members shall be issued to the offeror acknowledging receipt
of such offer.

Negotiated offers may be made in CASH or TERMS, the former requiring a

deposit of 10% and the latter 20% of the starting price, either in the form of
cash or cashiers/managers check to be enclosed in the sealed offer.

xxxx

Interested negotiated offerors are requested to see Atty. Apolinar K. Panal, Jr.,
Acquired Asset in Charge (Tel. No. 9-63-25), in order to secure copies of the
Letter-Offer form and Negotiated Sale Rules and Procedures.

NOTE: If no offer is received during the above stated acceptance period, the
properties described above shall be sold to the first offeror who
submits an acceptable proposal on a First-Come-First-Served basis.

City of Cebu, Philippines, November 16, 1990.

 (SGD.) TIMOTEO P. OLARTE
Branch Head[20] (Emphases ours.)

In the morning of December 3, 1990, the last day for the acceptance of negotiated
offers, petitioners submitted through their representative, Judy Garces, a letter-
offer form, offering to purchase the subject properties for P1,840,000.00. Attached
to the letter-offer was a copy of the Negotiated Sale Rules and Procedures issued
by DBP and a managers check for the amount of P184,000.00, representing 10% of
the offered purchase price. This offer of petitioners was not accepted by DBP,
however, as the corresponding deposit therefor was allegedly insufficient.

After the lapse of the above-mentioned 15-day acceptance period, petitioners

did not submit any other offer/proposal to purchase the subject properties.

On December 17, 1990, respondents To Chip, Yap and Balila presented their
letter-offer[21] to purchase the subject properties on a cash basis
for P1,838,100.00. Said offer was accompanied by a downpayment of 10% of the
offered purchase price, amounting to P183,810.00. On even date, DBP
acknowledged the receipt of and accepted their offer. On December 28, 1990,
respondents To Chip, Yap and Balila paid the balance of the purchase price and
DBP issued a Deed of Sale[22] over the subject properties in their favor.

On January 11, 1991, the counsel of respondents To Chip, Yap and Balila sent a
letter[23] addressed to the proprietor of Cebu Bionic, informing the latter of the
transfer of ownership of the subject properties. Cebu Bionic was ordered to vacate
the premises within thirty (30) days from receipt of the letter and directed to pay
the rentals from January 1, 1991 until the end of the said 30-day period.

The counsel of Cebu Bionic replied[24] that his client received the above letter on
January 11, 1991. He stated that he has instructed Cebu Bionic to verify first the
ownership of the subject properties since it had the preferential right to purchase
the same. He likewise requested that he be furnished a copy of the deed of sale
executed by DBP in favor of respondents To Chip, Yap and Balila.

On February 15, 1991, respondent To Chip wrote a letter[25] to the counsel of Cebu
Bionic, insisting that he and his co-respondents Yap and Balila urgently needed the
subject properties to pursue their business plans. He also reiterated their demand
for Cebu Bionic to vacate the premises.
Shortly thereafter, on February 27, 1991, the counsel of respondents To Chip, Yap
and Balila sent its final demand letter[26] to Cebu Bionic, warning the latter to
vacate the subject properties within seven (7) days from receipt of the letter,
otherwise, a case for ejectment with damages will be filed against it.[27]

Despite the foregoing notice, Cebu Bionic still paid[28] to DBP, on March 22, 1991,
the amount of P5,000.00 as monthly rentals on the unit of the State Theatre
Building it was occupying for period of November 1990 to March 1991.

On April 10, 1991, petitioners filed against respondents DBP, To Chip, Yap and
Balila a complaint[29] for specific performance, cancellation of deed of sale with
damages, injunction with a prayer for the issuance of a writ of preliminary
injunction.[30] The complaint was docketed as Civil Case No. CEB-10104 in the
RTC.

Petitioners alleged, inter alia, that Cebu Bionic was the lessee and occupant
of a commercial space in the State Theatre Building from October 1981 up to the
time of the filing of the complaint. During the latter part of 1990, DBP advertised
for sale the State Theatre Building and the commercial lot on which the same was
situated. In the prior invitation to bid, the bidding was scheduled on November 15,
1990; while in the next, under the 15-day acceptance period, the submission of
proposals was to be made from November 19, 1990 up to 12:00 noon of December
3, 1990. Petitioners claimed that, at about 10:00 a.m. on December 3, 1990, they
duly submitted to Atty. Apolinar Panal, Jr., Chief of the Acquired Assets of DBP,
the following documents, namely:

6.1 Letter-offer form, offering to purchase the property

advertised, for the price of P1,840,000, which was higher than the starting price
of P1,838,100.00 on cash basis. x x x;

6.2 Negotiated Sale Rules and Procedures, duly signed by plaintiff, x

x x;

6.3 Managers check for the amount of P184,000 representing 10% of

the deposit dated December 3, 1990 and issued by Allied Banking Corp. in favor
of the Development Bank of the Philippines. x x x.[31] (Emphasis ours.)

Petitioners asserted that the above documents were initially accepted but
later returned. DBP allegedly advised petitioners that there was no urgent need for
the same x x x, considering that the property will necessarily be sold to [Cebu
Bionic] for the reasons that there was no other interested party and that [Cebu
Bionic] was a preferred party being the lessee and present occupant of the property
subject of the lease[.][32] Petitioners then related that, without their knowledge,
DBP sold the subject properties to respondents To Chip, Yap and Balila. The sale
was claimed to be simulated and fictitious, as DBP still received rentals from
petitioners until March 1991. By acquiring the subject properties, petitioners
contended that DBP was deemed to have assumed the contract of lease executed
between them and Rudy Robles. As such, DBP was bound by the provision of the
lease contract, which stated that:

9. Should the Lessor decide to sell the property during the term of this
lease contract or immediately after the expiration of the lease, the Lessee shall
have the first option to buy and shall match offers from outside parties.[33]

Petitioners sought the rescission of the contract of sale between DBP and
respondents To Chip, Yap and Balila. Petitioners also prayed for the issuance of a
writ of preliminary injunction, restraining respondents To Chip, Yap and Balila
from registering the Deed of Sale in the latters favor and from undertaking the
ejectment of petitioners from the subject properties. Likewise, petitioners entreated
that DBP be ordered to execute a deed of sale covering the subject properties in
their name and to pay damages and attorneys fees.

In its answer,[34] DBP denied the existence of a contract of lease between

itself and petitioners. DBP countered that the letter-offer of petitioners was actually
not accepted as their offer to purchase was on a term basis, which therefore
required a 20% deposit. The 10% deposit accompanying the petitioners letter-offer
was declared insufficient. DBP stated that the letter-offer form was not completely
filled out as the Term and Mode of Payment fields were left blank. DBP then
informed petitioner Lydia Sia of the inadequacy of her offer. After ascertaining
that there was no other offeror as of that time, Lydia Sia allegedly summoned back
her representative who did not leave a copy of the letter-offer and the attached
documents. DBP maintained that petitioners documents did not show that the same
were received and approved by any approving authority of the bank. The letter-
offer attached to the complaint, which indicated that the mode of payment was on a
cash basis, was allegedly not the document shown to DBP. In addition, DBP
argued that there was no assumption of the lease contract between Rudy Robles
and petitioners since it acquired the subject properties through the involuntary
mode of extrajudicial foreclosure and its request to petitioners to sign a new lease
contract was simply ignored. DBP, therefore, insisted that petitioners occupancy of
the unit in the State Theatre Building was merely upon its acquiescence. The
petitioners payment of rentals on March 22, 1991 was supposedly made in bad
faith as they were made to a mere teller who had no knowledge of the sale of the
subject properties to respondents To Chip, Yap and Balila. DBP, thus, prayed for
the dismissal of the complaint and, by way of counterclaim, asked that petitioners
be ordered to pay damages and attorneys fees.

Respondents To Chip, Yap and Balila no longer filed a separate answer,

adopting instead the answer of DBP.[35]

In an Order[36] dated July 31, 1991, the RTC granted the prayer of petitioners
for the issuance of a writ of preliminary injunction.[37]

On April 25, 1997, the RTC rendered judgment in Civil Case No. CEB-
10104, finding meritorious the complaint of the petitioners.Explained the trial
court:

It is a fact on record that [petitioners] complied with the requirements of deposit

and advance rental as conditions for constitution of lease between the
parties. [Petitioners] in complying with the requirements, issued a time deposit in
the amount of P11,395.64 and remitted faithfully its monthly rentals until April,
1991, which monthly rental was no longer accepted by the DBP. Although there
was no formal written contract executed between [respondent] DBP and the
[petitioners], it is very clear that DBP opted to continue the old and previous
contract including the terms thereon by accepting the requirements
contained in paragraph 2 of its letter dated June 18, 1987. It is also a fact on
record that under the lease contract continued by the DBP on the [petitioners], it is
provided in paragraph 9 thereof that the lessee shall have the first option to buy
and shall match offers from outside parties. And yet, [respondent] DBP never
gave [petitioners] the first option to buy or to match offers from outside
parties, more specifically [respondents] To Chip, Balila and Yap. It is also a
fact on record that [respondent] DBP in its letter dated June 18, 1987 to
[petitioners] wrote in paragraph 3 thereof, that in case there is better offer or if a
property will be subject of purchase offer, within the term, the lessee is given the
option of first refusal, otherwise, he has to vacate the premises within thirty (30)
days. Yet, [respondent] DBP never informed [petitioners] that there was an
interested party to buy the property, meaning, [respondents To Chip, Yap
and Balila], thus depriving [petitioners] of the opportunity of first refusal
promised to them in its letter dated June 18, 1987. x x x.[38] (Emphases ours.)

As regards the offer of petitioners to purchase the subject properties from DBP, the
RTC gave more credence to the petitioners version of the facts, to wit:
 It is also a fact on record that when [respondent] DBP offered the property for
negotiated sale under the 15-day acceptance period[, which] ended at noon of
December 3, 1991, [Cebu Bionic] submitted its offer, complete with [the required
documents.] x x x.

xxxx

These requirements, however, were unceremoniously returned by [respondent]

bank with the assurance that since there was no other bidder of the said property,
there was no urgency for the same and that [Cebu Bionic] also, in all events, is
entitled to first option being the present lessee.

The declaration of Atty. Panal to the effect that Cebu Bionic wanted to buy the
property on installment terms, such that the deposit of P184,000.00 was
insufficient being only 10% of the offer, could not be given much credence as it is
refuted by Exh. H which is the negotiated offer to purchase form under the 15-day
acceptance period accomplished by [petitioners] which shows clearly the written
word Cash after the printed words Term and Mode of Payment, Exhibit J, the
Managers check issued by Allied Banking Corporation dated December 3, 1990
in the amount of P184,000.00 representing 10% of the offer showing the mode of
payment is for cash; Exhibit K which is the application for Managers check in the
amount of P184,000.00 dated December 3, 1990 showing the beneficiary as
DBP. If it is true that the offer of [petitioners] was for installment payments,
then in the ordinary course of human behavior, it would not have wasted
effort in securing a Managers check in the amount of P184,000.00 which was
insufficient for 20% deposit as required for installment payments. More
credible is the explanation [given by] witness Judy Garces when she said that
DBP through Atty. Panal returned the documents submitted by her, saying
that there was no urgency for the same as there was no other bidder of [the
said] property and that Cebu Bionic was entitled to a first option to buy
being the present lessee. In the letter also of [respondent] bank dated June 18,
1987, it is important to note that aside from requiring Cebu Bionic to comply with
certain requirements of time deposit and advance rental, as condition for
constitution of lease between the parties and which was complied by Cebu
Bionic[,] said letter further states in paragraph 3 thereof that in case there is [a]
better offer or if the property will be subject of a purchase offer, within the term,
the lessee is given the option of first refusal, otherwise, he has to vacate the
premises within thirty days. In answer to the Courts question, however, Atty.
Panal admitted that he did not tell [petitioners] that there was another party who
was willing to purchase the property, in violation of [petitioners] right of first
refusal.[39](Emphasis ours.)

Likewise, the RTC found that respondents To Chip, Yap and Balila were aware of
the lease contract involving the subject properties before they purchased the same
from DBP. Thus:
 [Respondent] Jose To Chip lamely pretends ignorance that [petitioners] are
lessees of the property, subject matter of this case. He states that he and his
partners, the other [respondents], were given assurances by Atty. Panal of the
DBP that [Lydia Sia] is not a lessee, although he knew that [petitioners] were
presently occupying the property and that it was possessed by [petitioners] even
before it was owned by the DBP. x x x.

xxxx

[Respondent] Roger Balila, in his testimony, likewise pretended ignorance that he

knew that [Lydia Sia] was a lessee of the property. x x x.

xxxx

Upon further questioning by the Court, he admitted that [Lydia Sia] was not
possessing the building freely; that she was a lessee of Rudy Robles, the former
owner, but cleverly insisted in disowning knowledge that [Lydia Sia] was a
lessee, denying knowledge that [Lydia Sia] was paying rentals to [respondent]
bank. His pretended ignorance x x x was a way of evading [Cebu Bionics] right of
first priority to buy the property under the contract of lease. x x x The Court is
convinced that [respondents To Chip, Yap and Balila] knew that [Cebu Bionic]
was the present lessee of the property before they bought the same from
[respondent] bank. Common observation, knowledge and experience dictates that
as a prudent businessman, it was but natural that he ask Lydia Sia what her status
was in occupying the property when he went to talk to her, that he ask her if she
was a lessee. But he said, all he asked her was whether she was interested to buy
the property. x x x.[40]

The trial court, therefore, concluded that:

From the foregoing facts on record, it is thus clear that [petitioner] Cebu Bionic is
the present lessee of the property, the lease contract having been continued by
[respondent] DBP when it received rental payments up to March of 1991 as well
as the advance rental for one year represented by the assigned time deposit which
is still in [respondent] banks possession. The provision, therefore, in the lease
contract, on the right of first option to buy and the right of first refusal contained
in [respondent] banks letter dated June 18, 1987, are still subsisting and binding
up to the present, not only on [respondent] bank but also on [respondents To Chip,
Yap and Balila]. x x x.

xxxx

WHEREFORE, THE FOREGOING PREMISES CONSIDERED, judgment is

hereby rendered:
 (1) Rescinding the Deed of Sale dated December 28, 1990 between
[respondent] Development Bank of the Philippines and [respondents]
Roger Balila, Jose To Chip and Patricio Yap;

(2) Ordering the [respondent] Development Bank of the Philippines to

execute a Deed of Sale over the property, subject matter of this case
upon payment by [petitioners] of the whole consideration involved and
to complete all acts or documents necessary to have the title over said
property transferred to the name of [petitioners];

(3) Costs against [respondents].[41]

DBP forthwith filed a Notice of Appeal.[42] Respondents To Chip, Yap and

Balila filed a Motion for Reconsideration[43] of the above decision, but the RTC
denied the same in an Order[44] dated July 4, 1997. Said respondents then filed their
Notice of Appeal.[45]

On February 14, 2001, the Court of Appeals promulgated its

Decision,[46] pronouncing that:

We find nothing erroneous with the judgment rendered by the trial

court. Perforce, We sustain it and dismiss the [respondents] submission.

The RTC determined, upon evidence on record after a careful evaluation

of the witnesses and their testimonies during the trial that indeed [petitioners]
right of first option was violated and thus, rescission of the sale made by DBP to
[respondents To Chip, Yap and Balila] are in order.

xxxx

Apparently, DBP accepted [the documents submitted by petitioners] and

thereafter, through Atty. Panal (of DBP), returned all of it to the [petitioners] with
the assurance that since there was no other bidder of the said property, there was
no urgency for the same and that [Cebu Bionic] also, in all events, is entitled to
first option being the present lessee.

[DBP] maintains that the return of the documents [submitted by

petitioners] was in order since the [petitioners] offered to buy the property in
question on installment basis requiring a higher 20% deposit. This, however, was
correctly rejected by the trial court[.] x x x

The binding effect of the lease agreement upon the [respondents To Chip,
Yap and Balila] must be sustained since from existing jurisprudence cited by the
lower court, it was determined during trial that:
 ... [respondents To Chip, Yap and Balila] knew that
[Cebu Bionic] was the present lessee of the property before they
bought the same from [respondent] bank. Common observation,
knowledge and experience dictates that as a prudent
businessman, it was but natural that he ask Lydia Sia what her
status was in occupying the property when he went to talk to
her, that he ask her if she was a lessee. But he said, all he asked
her was whether she was interested to buy the property. x x x.

Moreover, We find that the submissions presented by the [respondents] in

their respective briefs argue against questions of facts as found and determined by
the lower court. The respondents contentions consist of crude attempts to question
the assessment and evaluation of testimonies and other evidence gathered by the
trial court.

It must be remembered that findings of fact as determined by the trial

court are entitled to great weight and respect from appellate courts and should not
be disturbed on appeal unless for [strong] and cogent reasons. These findings
generally, so long as supported by evidence on record, are not to be disturbed
unless there are some facts or evidence which the trial court has misappreciated or
overlooked, and which if considered would have altered the results of the entire
case. Sad to say for the [respondents], We see no reason to depart from this well-
settled legal principle.

WHEREFORE, in view of the foregoing, the judgment of the Regional

Trial Court of Cebu City, Branch 8, in Civil Case No. 10104 is
hereby AFFIRMED in toto.[47]

On October 1, 2001, petitioners filed a Motion for Issuance of Entry of

Judgment.[48] Petitioners stressed that, based on the records of the case, respondents
were served a copy of the Court of Appeals Decision dated February 14, 2001
sometime on March 7, 2001. However, petitioners discovered that respondents
have not filed any motion for reconsideration of the said decision within the
reglementary period therefor, nor was there any petition for certiorari or appeal
filed before the Supreme Court.

In response to the above motion, respondents To Chip, Yap and Balila filed
on October 8, 2001 a Motion to Admit Motion for Reconsideration.[49] Atty.
Francis M. Zosa, the counsel for respondents To Chip, Yap and Balila, explained
that he sent copies of the motion for reconsideration to petitioners and
DBP via personal delivery. On the other hand, the copies of the motion to be filed
with the Court of Appeals were purportedly sent to Mr. Domingo Tan, a friend of
Atty. Zosa in Quezon City, who agreed to file the same personally with the
appellate court in Manila. When Atty. Zosa inquired if the motion for
reconsideration was accordingly filed, Mr. Tan allegedly answered in the
affirmative. To his surprise, Atty. Zosa received a copy of petitioners Motion for
Issuance of Entry of Judgment. Atty. Zosa, thus, attributed the failure of his clients
to file a motion for reconsideration on the mistake, excusable negligence and/or
fraud committed by Mr. Tan.

In the assailed Resolution dated February 5, 2002, the Court of Appeals

granted the motion of respondents To Chip, Yap and Balila and admitted the
motion for reconsideration attached therewith in the higher interest of substantial
justice.[50]

On July 5, 2002, the Court of Appeals reversed its original Decision dated
February 14, 2001, reasoning thus:

After a judicious review and reevaluation of the evidence and facts on

record, we are convinced that DBP had terminated the Robles lease
contract. From its letter of June 18, 1987, DBP had expressly notified [petitioners]
that (I)f they wish to continue on leasing the property x x x to come to the Bank for
the execution of a Contract of Lease, the salient conditions of which are as
follows:

1. The lease will be on a month to month basis for a maximum period

of one (1) year;

2. Deposit equivalent to two (2) months rental and advance of one (1)
month rental, and the remaining amount for one year (equivalent to 9
months rental) shall be secured by either surety bond, cash bond or assigned
time deposit;

3. That in case there is a better offer or if the property will be subject

of a purchase offer, within the term, the lessor is given an option of first
refusal, otherwise he has to vacate the premises within thirty (30) days from
date of notice.

We consider, temporarily, the current monthly rental based on the six-

month receipts, which we require you to submit, until such time when we will fix
the amount accordingly.

Evidently, except for the remittance of the monthly rentals up to March

1991, the conditions imposed by DBP have never been complied
with.[Petitioners] did not go to the Bank to sign any new written contract of lease
with DBP. [Petitioners] also did not put up a surety bond nor cash bond nor assign
a time deposit to secure the payment of rental for nine (9) months, although the
[petitioners] opened a time deposit but did not assign it to DBP.

But even with the remittance and acceptance of the deposit made by
[petitioners] equivalent to two (2) months rental and advance of one (1) month
rental it does not necessarily follow that DBP opted to continue with the Robles
lease. This is because the Robles contract provides:

That the term of the agreement shall start on November

1, 1981 and shall terminate on the last day of every month
thereafter, provided however, that this contract shall be
automatically renewed on a month to month basis if no notice
in writing is sent to the other party to determine to terminate
this agreement after fifteen (15) days from the receipt of said
notice.

Here, a notice was sent to [petitioners] on June 18, 1987, informing them that if
they wish to continue on leasing the property, we request you to come to the Bank
for the execution of a Contract of Lease x x x.

[Petitioners] failed to enter into the contract of lease required by DBP for
it to continue occupying the leased premises.

Because of [petitioners] failure to comply with the conditions embodied in

the 18 June 1987 letter, it cannot be said that [petitioners] entered into a new
contract with DBP where they were given the first option to buy the leased
property and to match offers from outside parties.

xxxx

Be that as it may, DBP continued to accept the monthly rentals based on

the old Robles contract despite the fact that the [petitioners] failed to enter into a
written lease contract with it. Corollarily, the relations between the parties is now
governed by Article 1670 of the New Civil Code, thus:

Art. 1670. If at the end of contract the lessee should

continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary by
either party has previously been given, it is understood that there is
an implied new lease, not for the period of the original contract,
but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived.

xxxx
 x x x [T]he acceptance by DBP of the monthly rentals does not mean that
the terms of the Robles contract were revived. In the case of Dizon vs. Court of
Appeals, the Supreme Court declared that:

The other terms of the original contract of lease which are

revived in the implied new lease under Article 1670 of the New
Civil Code are only those terms which are germane to the lessees
right [of] continued enjoyment of the property leased an implied
new lease does not ipso facto carry with it any implied revival of
any option to purchase the leased premises.

In view of the foregoing, it is clear that [petitioners] had no right to file a

case for rescission of the deed of sale executed by DBP in favor of [respondents
To Chip, Yap and Balila] because said deed of sale did not violate their alleged
first option to buy or match offers from outside parties which is legally non-
existent and which was not impliedly renewed under Article 1670 of the Civil
Code.

WHEREFORE, premises considered, the 14 February 2001 Decision is

hereby RECONSIDERED and another one is issued REVERSINGthe 25 April
1997 Decision of the Regional Trial Court, Branch 8, Cebu City in Civil Case
No. CEB-10104 and the complaint of [petitioners] is DISMISSED for lack of
merit.[51]
Without seeking a reconsideration of the above decision, petitioners filed the
instant petition. In their Comment, respondents opposed the petition on both
procedural and substantive grounds.

In petitioners Memorandum, they summarized the issues to be resolved in

the present case as follows:

A) PRELIMINARY ISSUES:

WHETHER OR NOT THE VERIFICATION (AND CERTIFICATION

OF NON-FORUM SHOPPING) IN THE INSTANT PETITION WAS
PROPER AND VALID DESPITE ITS BEING SIGNED BY ONLY
ONE OF THE TWO PETITIONERS.

II

WHETHER OR NOT ONLY QUESTIONS OF LAW AND NOT OF

FACT CAN BE RAISED IN THE INSTANT PETITION BEFORE
THIS HON. SUPREME COURT.
B) MAIN AND PRINCIPAL ISSUES IN THE INSTANT PETITION:

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN

ADMITTING RESPONDENTS MOTION FOR RECONSIDERATION
DESPITE ITS BEING FILED OUT OF TIME

II

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN

DECLARING THAT PETITIONERS DID NOT ENTER INTO
CONTRACT WITH RESPONDENT DBP CONTINUING THE
TERMS OF THE ROBLES CONTRACT

III

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED

WHEN IT DECLARED THAT THE CONTINUATION BY
RESPONDENT DBP OF THE LEASE CONTRACT DID NOT
CONTAIN THE RIGHT OF FIRST REFUSAL

IV

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED

WHEN IT DECLARED THAT THE LEASE CONTRACT IS
GOVERNED BY ART. 1670 OF THE NEW CIVIL CODE

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED

WHEN IT FAILED TO RECOGNIZE PETITIONERS RIGHT OF
FIRST REFUSAL TO WHICH RESPONDENTS WERE BOUND

VI

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED

WHEN IT FAILED TO DECLARE THAT RESPONDENT DBP HAD
VIOLATED PETITIONERS RIGHTS
 VII

WHETHER OR NOT THE HON. COURT OF APPEALS ERRED IN

REVERSING ITS OWN JUDGMENT AND DISMISSING PETITIONERS
CLAIM FOR RESCISSION[52]

We shall first resolve the preliminary issues.

Respondents To Chip, Yap and Balila argue that the instant petition should be
dismissed outright as the verification and certification of non-forum shopping was
executed only by petitioner Lydia Sia in her personal capacity, without the
participation of Cebu Bionic.

The Court is not persuaded.

Except for the powers which are expressly conferred on it by the

Corporation Code and those that are implied by or are incidental to its existence, a
corporation has no powers. It exercises its powers through its board of directors
and/or its duly authorized officers and agents. Thus, its power to sue and be sued
in any court is lodged with the board of directors that exercises its corporate
powers.[53] Physical acts, like the signing of documents, can be performed only by
natural persons duly authorized for the purpose by corporate by-laws or by a
specific act of the board of directors.[54]

In this case, respondents To Chip, Yap and Balila obviously overlooked the
Secretarys Certificate[55] attached to the instant petition, which was executed by the
Corporate Secretary of Cebu Bionic. Unequivocally stated therein was the fact that
the Board of Directors of Cebu Bionic held a special meeting on July 26, 2002 and
they thereby approved a Resolution authorizing Lydia Sia to elevate the present
case to this Court in behalf of Cebu Bionic, to wit:

Whereas, the board appointed LYDIA I. SIA to act and in behalf of the
corporation to file the CERTIORARI with the Supreme Court in relations to the
decision of the Court of Appeals dated July 5, 2002 which reversed its own
judgment earlier promulgated on February 14, 2001 entitled CEBU BIONIC
BUILDERS SUPPLY, INC. and LYDIA SIA, (Petitioners- Appellants) versus
THE DEVELOPMENT BANK OF THE PHILIPPINES, JOSE TO CHIP,
PATRICIO YAP and ROGER BALILA (Respondents- Appelles), docketed CA-
G.R. NO. 57216.
 Whereas, on mass unanimously motion of all members of directors present
hereby approved the appointment of LYDIA I. SIA to act and sign all papers in
connection of CA-G.R. NO. 57216.

Resolved and it is hereby resolve to appoint and authorized LYDIA I. SIA

to sign and file with the SUPREME COURT in connection to decision of the
Court of Appeals as above mention.[56]

Respondents To Chip, Yap and Balila next argue that the instant petition
raises questions of fact, which are not allowed in a petition for review
on certiorari. They, therefore, submit that the factual findings of the Court of
Appeals are binding on this Court.

Section 1, Rule 45 of the Rules of Court categorically states that the petition
filed thereunder shall raise only questions of law, which must be distinctly set
forth. A question of law arises when there is doubt as to what the law is on a
certain state of facts, while there is a question of fact when the doubt arises as to
the truth or falsity of the alleged facts. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented
by the litigants or any of them. The resolution of the issue must rest solely on what
the law provides on the given set of circumstances. Once it is clear that the issue
invites a review of the evidence presented, the question posed is one of fact.[57]

The above rule, however, admits of certain exceptions,[58] one of which is

when the findings of the Court of Appeals are contrary to those of the trial
court. As will be discussed further, this exception is attendant in the case at bar.

We now determine the principal issues put forward by petitioners.

First off, petitioners fault the Court of Appeals for admitting the Motion for
Reconsideration of its Decision dated February 14, 2001, which was filed by
respondents To Chip, Yap and Balila more than six months after receipt of the said
decision. The motion was eventually granted and the Court of Appeals issued its
assailed Amended Decision, ruling in favor of respondents.

Indeed, the appellate courts Decision dated February 14, 2001 would have
ordinarily attained finality for failure of respondents to seasonably file their Motion
for Reconsideration thereon. However, we agree with the Court of Appeals that the
higher interest of substantial justice will be better served if respondents procedural
lapse will be excused.
 Verily, we had occasion to apply this liberality in the application of
procedural rules in Barnes v. Padilla[59] where we aptly declared that

The failure of the petitioner to file his motion for reconsideration within the
period fixed by law renders the decision final and executory. Such failure carries
with it the result that no court can exercise appellate jurisdiction to review the
case. Phrased elsewise, a final and executory judgment can no longer be attacked
by any of the parties or be modified, directly or indirectly, even by the highest
court of the land.

However, this Court has relaxed this rule in order to serve substantial
justice considering (a) matters of life, liberty, honor or property, (b) the existence
of special or compelling circumstances, (c) the merits of the case, (d) a cause not
entirely attributable to the fault or negligence of the party favored by the
suspension of the rules, (e) a lack of any showing that the review sought is merely
frivolous and dilatory, and (f) the other party will not be unjustly prejudiced
thereby.[60]

In this case, what are involved are the property rights of the parties given
that, ultimately, the fundamental issue to be determined is who among the
petitioners and respondents To Chip, Yap and Balila has the better right to
purchase the subject properties. More importantly, the merits of the case
sufficiently called for the suspension of the rules in order to settle conclusively the
rights and obligations of the parties herein.

In essence, the questions that must be resolved are: 1) whether or not there
was a contract of lease between petitioners and DBP; 2) if in the affirmative,
whether or not this contract contained a right of first refusal in favor of petitioners;
and 3) whether or not respondents To Chip, Yap and Balila are likewise bound by
such right of first refusal.

Petitioners contend that there was a contract of lease between them and
DBP, considering that they had been allowed to occupy the premises of the subject
property from 1987 up to 1991 and DBP received their rental payments
corresponding to the said period. Petitioners claim that DBP were aware of their
lease on the subject property when the latter foreclosed the same and the
acquisition of the subject properties through foreclosure did not terminate the
lease. Petitioners subscribe to the ruling of the RTC that even if there was no
written contract of lease, DBP chose to continue the existing contract of lease
between petitioners and Rudy Robles by accepting the requirements set down by
DBP on the letter dated June 18, 1987. Petitioners likewise posit that the contract
of lease between them and Rudy Robles never expired, inasmuch as the contract
did not have a definite term and none of the parties thereto terminated the same. In
view of the continuation of the lease contract between petitioners and Rudy
Robles, petitioners submit that Article 1670 of the Civil Code on implied lease is
not applicable on the instant case.

We are not persuaded.

In Uy v. Land Bank of the Philippines,[61] the Court held that [i]n respect of
the lease on the foreclosed property, the buyer at the foreclosure sale merely
succeeds to the rights and obligations of the pledgor-mortgagor subject to the
provisions of Article 1676 of the Civil Code on its possible termination. This
article provides that [t]he purchaser of a piece of land which is under a lease that is
not recorded in the Registry of Property may terminate the lease, save when there
is a stipulation to the contrary in the contract of sale, or when the purchaser knows
of the existence of the lease. In short, the buyer at the foreclosure sale, as a rule,
may terminate an unregistered lease except when it knows of the existence of the
lease.

In the instant case, the lease contract between petitioners and Rudy Robles
was not registered.[62] During trial, DBP denied having any knowledge of the said
lease contract.[63] It asserted that the lease was merely presumed in view of the
existence of tenants in the subject property.[64] Nevertheless, DBP recognized and
acknowledged this lease contract in its letter dated June 18, 1987, which was
addressed to Bonifacio Sia, then President of Cebu Bionic. DBP even required Sia
to pay the monthly rental for the month of June 1987, thereby exercising the right
of the previous lessor, Rudy Robles, to collect the rental payments from the
lessee. In the same letter, DBP extended an offer to Cebu Bionic to continue the
lease on the subject property, outlining the provisions of the proposed contract and
specifically instructing the latter to come to the bank for the execution of the
same. DBP likewise gave Cebu Bionic a 30-day period within which to act on the
said contract execution. Should Cebu Bionic fail to do so, it would be deemed
uninterested in continuing with the lease. In that eventuality, the letter states that
Cebu Bionic should vacate the premises within the said period.

Instead of acceding to the terms of the aforementioned letter, the counsel of

Cebu Bionic sent a counter-offer to DBP dated July 7, 1987, suggesting a different
mode of payment for the rentals and requesting for a 60-day period within which
time the parties will execute a new contract of lease.
 The parties, however, failed to execute a written contract of
lease. Petitioners put the blame on DBP, asserting that no contract was signed
because DBP did not prepare it for them. DBP, on the other hand, counters that it
was petitioners who did not positively act on the conditions for the execution of the
lease contract. In view of the counter-offer of petitioners, DBP and respondents To
Chip, Yap and Balila argue that there was no meeting of minds between DBP and
petitioners, which would have given rise to a new contract of lease.

The Court rules that, indeed, no new contract of lease was ever perfected
between petitioners and DBP.

In Metropolitan Manila Development Authority v. JANCOM Environmental

Corporation,[65] we emphasized that:

Under Article 1305 of the Civil Code, [a] contract is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give
something or to render some service. A contract undergoes three distinct stages
preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective contracting
parties manifest their interest in the contract and ends at the moment of agreement
of the parties. The perfection or birth of the contract takes place when the parties
agree upon the essential elements of the contract. The last stage is the
consummation of the contract wherein the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof (Bugatti
vs. CA, 343 SCRA 335 [2000]). Article 1315 of the Civil Code, provides that a
contract is perfected by mere consent.Consent, on the other hand, is manifested by
the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract (See Article 1319, Civil Code). x x x.[66]

In the case at bar, there was no concurrence of offer and acceptance vis--
vis the terms of the proposed lease agreement. In fact, after the reply of petitioners
counsel dated July 7, 1987, there was no indication that the parties undertook any
other action to pursue the execution of the intended lease contract. Petitioners even
admitted that they merely waited for DBP to present the contract to them, despite
being instructed to come to the bank for the execution of the same.[67]

Contrary to the ruling of the RTC, the Court is also not convinced that DBP
opted to continue the existing lease contract between petitioners and Rudy Robles.
 The findings of the RTC that DBP supposedly accepted the requirements the
latter set forth in its letter dated June 18, 1987 is not well taken. To recapitulate,
the third paragraph of the letter reads:

If you wish to continue on leasing the property, we request you to come to the
Bank for the execution of a Contract of Lease, the salient conditions of which
are as follows:

1. The lease will be on month to month basis, for a maximum

period of one (1) year;

2. Deposit equivalent to two (2) months rental and advance of one (1)
month rental, and the remaining amount for one year period
(equivalent to 9 months rental) shall be secured by either surety
bond, cash bond or assigned time deposit;

3. That in case there is a better offer or if the property will be subject

of a purchase offer, within the term, the lessor is given an option of
first refusal, otherwise he has to vacate the premises within thirty
(30) days from date of notice.[68]

The so-called requirements enumerated in the above paragraph are not really
requirements to be complied with by the petitioners for the execution of the
proposed lease contract, as apparently considered by the RTC and the
petitioners. A close reading of the letter reveals that the items enumerated therein
were in fact the salient terms and conditions of the proposed contract of lease,
which the DBP and the petitioners were to execute if the latter were so
willing. Also, the Certificate of Time Deposit in the amount of P11,395.64, which
was allegedly paid to DBP as advance rental deposit pursuant to the said
requirements, was not even clearly established as such since it was neither secured
by a security bond or a cash bond, nor was it assigned to DBP.

The contention that the lease contract between petitioners and Rudy Robles
did not expire, given that it did not have a definite term and the parties thereto
failed to terminate the same, deserves scant consideration. To recall, the second
paragraph of the terms and conditions of the contract of lease between petitioners
and Rudy Robles reads:

2. That the term of this agreement shall start on November 1, 1981 and shall
terminate on the last day of every month thereafter; provided however that this
contract shall be automatically renewed on a month to month basis if no
 notice, in writing, is sent to the other party to terminate this agreement after
fifteen (15) days from receipt of said notice.[69] (Emphases ours.)

Crystal clear from the above provision is that the lease is on a month-to-
month basis. Relevantly, the well-entrenched principle is that alease from month-
to-month is with a definite period and expires at the end of each month upon the
demand to vacate by the lessor.[70] As held by the Court of Appeals in the assailed
Amended Decision, the above-mentioned lease contract was duly terminated by
DBP by virtue of its letter dated June 18, 1987. We reiterate that the letter
explicitly directed the petitioners to come to the office of the DBP if they wished to
enter into a new lease agreement with the said bank. Otherwise, if no contract of
lease was executed within 30 days from the date of the letter, petitioners were to be
considered uninterested in entering into a new contract and were thereby ordered to
vacate the property. As no new contract was in fact executed between petitioners
and DBP within the 30-day period, the directive to vacate, thus, took effect. DBPs
letter dated June 18, 1987, therefore, constituted the written notice that was
required to terminate the lease agreement between petitioners and Rudy
Robles. From then on, the petitioners continued possession of the subject property
could be deemed to be without the consent of DBP.

Thusly, petitioners assertion that Article 1670 of the Civil Code is not
applicable to the instant case is correct. The reason, however, is not that the
existing contract was continued by DBP, but because the lease was terminated by
DBP, which termination was accompanied by a demand to petitioners to vacate the
premises of the subject property.

Article 1670 states that [i]f at the end of the contract the lessee should
continue enjoying the thing leased for fifteen days with the acquiescence of the
lessor, and unless a notice to the contrary by either party has previously been
given, it is understood that there is an implied new lease, not for the period of the
original contract, but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived. In view of the order to vacate
embodied in the letter of DBP dated June 18, 1987 in the event that no new lease
contract is entered into, the petitioners continued possession of the subject
properties was without the acquiescence of DBP, thereby negating the constitution
of an implied lease.

Contrary to the ruling of the RTC, DBPs acceptance of petitioners rental

payments of P5,000.00 for the period of November 1990 to March 1991 did not
likewise give rise to an implied lease between petitioners and DBP. In Tagbilaran
Integrated Settlers Association (TISA) Incorporated v. Court of Appeals,[71] we
held that the subsequent acceptance by the lessor of rental payments does not,
absent any circumstance that may dictate a contrary conclusion, legitimize the
unlawful character of their possession. In the present case, the petitioners rental
payments to DBP were made in lump sum on March 22, 1991. Significantly, said
payments were remitted only after petitioners were notified of the sale of the
subject properties to respondents To Chip, Yap and Balila and after the petitioners
were given a final demand to vacate the properties. These facts substantially
weaken, if not controvert, the finding of the RTC and the argument of petitioners
that the latter were faithfully remitting their rental payments to DBP until the year
1991.

Thus, having determined that the petitioners and DBP neither executed a
new lease agreement, nor entered into an implied lease contract, it follows that
petitioners claim of entitlement to a right of first refusal has no leg to stand
on. Furthermore, even if we were to grant, for the sake of argument, that an
implied lease was constituted between petitioners and the DBP, the right of first
refusal that was contained in the prior lease contract with Rudy Robles was not
renewed therewith. This is in accordance with the ruling in Dizon v.
Magsaysay,[72] which involved the issue of whether a provision regarding a
preferential right to purchase is revived in an implied lease under Article 1670, to
wit:

[T]he other terms of the original contract which are revived in the implied new
lease under Article 1670 are only those terms which are germane to the lessees
right of continued enjoyment of the property leased. This is a reasonable
construction of the provision, which is based on the presumption that when the
lessor allows the lessee to continue enjoying possession of the property for fifteen
days after the expiration of the contract he is willing that such enjoyment shall be
for the entire period corresponding to the rent which is customarily paid in this
case up to the end of the month because the rent was paid monthly. Necessarily, if
the presumed will of the parties refers to the enjoyment of possession the
presumption covers the other terms of the contract related to such possession,
such as the amount of rental, the date when it must be paid, the care of the
property, the responsibility for repairs, etc. But no such presumption may be
indulged in with respect to special agreements which by nature are foreign to the
right of occupancy or enjoyment inherent in a contract of lease.[73]

DBP cannot, therefore, be accused of violating the rights of petitioners when

it offered the subject properties for sale, and eventually sold the same to
respondents To Chip, Yap and Balila, without first notifying petitioners. Neither
were the said respondents bound by any right of first refusal in favor of
petitioners. Consequently, the sale of the subject properties to respondents was
valid. Petitioners claim for rescission was properly dismissed.

WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the

Rules of Court is DENIED. The Resolution dated February 5, 2002 and the
Amended Decision dated July 5, 2002 of the Court of Appeals in CA-G.R. CV No.
57216 are hereby AFFIRMED.No costs.

SO ORDERED.

CEBU BIONIC BUILDERS SUPPLY, INC. and LYDIA SIA, Petitioners, v. DEVELOPMENT
BANK OF THE PHILIPPINES, JOSE TO CHIP, PATRICIO YAP and ROGER BALILA,
Respondents.

FACTS: Spouses Robles entered into a mortgage contract with the DBP to create the
State Theatre Building in Talisay, Cebu. Upon completion, Rudy Robles executed a
contract of lease in favour of Cebu Bionic Builders Supply. However, the spouses
defaulted on their obligation to pay and DBP extrajudicially foreclosed the mortgage.
DBP sent a letter to Cebu Bionic that if they were interested in leasing the facilities,
they would have to pay DBP. However, nothing came from these correspondences.

DBP then invited parties to bid on the property. Initially, Cebu Bionic submitted their
interest in bidding, but the price that they gave was insufficient. DBP then awarded
the auction to Respondents To Chip, Yap and Balila. In response to several demand
letters by the Respondents, Cebu Bionic filed a petition for preliminary injunction,
cancellation of deed of sale and specific performance against DBP. Petitioners then
related that, without their knowledge, DBP sold the subject properties to
respondents To Chip, Yap andBalila.The sale was claimed to be simulated and
fictitious, as DBP still received rentals from petitioners until March 1991.By acquiring
the subject properties, petitioners contended that DBP was deemed to have
assumed the contract of lease executed between them and Rudy Robles. They
alleged that the original leases clause of the Right of First Option to Buy should be
upheld.
The trial court granted their complaint. The Court of Appeals similarly upheld the
decision of the trial court. Cebu Bionic filed a motion for entry of judgment, but
Respondents filed a motion for reconsideration on the ground that they relied on the
friend of their lawyer to personally file the MR, but apparently did not. The court
granted their MR, and reversed their judgment before. Thus, the petitioners file the
case before the Supreme Court.

ISSUES:

Was a contract of lease between petitioners and DBP?

If in the affirmative, did this contract contain a right of first refusal in favor of
petitioners?
Are respondents To Chip, Yap and Balila likewise bound by such right of first
refusal?

HELD: Under Article 1305 of the Civil Code, "[a] contract is a meeting of minds
between two persons whereby one binds himself, with respect to the other, to give
something or to render some service."A contract undergoes three distinct stages
preparation or negotiation, its perfection, and finally, its consummation.Negotiation
begins from the time the prospective contracting parties manifest their interest in
the contract and ends at the moment of agreement of the parties.The perfection or
birth of the contract takes place when the parties agree upon the essential elements
of the contract.The last stage is the consummation of the contract wherein the
parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof

In the case at bar, there was no concurrence of offer and acceptancevis-visthe terms
of the proposed lease agreement.In fact, after the reply of petitioners counsel dated
July 7, 1987, there was no indication that the parties undertook any other action to
pursue the execution of the intended lease contract.Petitioners even admitted that
they merely waited for DBP to present the contract to them, despite being instructed
to come to the bank for the execution of the same.

DBP cannot, therefore, be accused of violating the rights of petitioners when it

offered the subject properties for sale, and eventually sold the same to respondents
To Chip, Yap and Balila, without first notifying petitioners.Neither were the said
respondents bound by any right of first refusal in favor of petitioners.Consequently,
the sale of the subject properties to respondents was valid.Petitioners claim for
rescission was properly dismissed.

DENIED

VIRGILIO S. DELIMA, G.R. No. 178352

Petitioner,
Present:
Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,

Chico-Nazario,

Reyes, and

Brion,* JJ.

SUSAN MERCAIDA GOIS,

Respondent. Promulgated:

June 17, 2008

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

DECISION

YNARES-SANTIAGO, J.:
This petition for review under Rule 45 of the Rules of Court assails the December
21, 2006 Decision[1] of the Court of Appeals which annulled and set aside the May
31, 2006 and August 22, 2006 Resolutions of the National Labor Relations
Commission (NLRC) in NLRC Case No. V-000188-2006 and ordered herein
petitioner to return the cash bond released to him. Also assailed is the February 5,
2007Resolution[2] denying the Motion for Reconsideration.

The antecedent facts are as follows:

A case for illegal dismissal was filed by petitioner Virgilio S. Delima against Golden
Union Aquamarine Corporation (Golden), Prospero Gois and herein respondent
Susan Mercaida Gois before the Regional Arbitration Branch No. VIII of the
National Labor Relations Commission on October 29, 2004, docketed as NLRC RAB
VIII Case No. 10-0231-04.

On April 29, 2005, Labor Arbiter Philip B. Montaces rendered a decision, the
dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered

1. Finding illegality in the dismissal of complainant Virgilio Delima from

his employment;

2. Ordering respondent Golden Union Aquamarine Corporation to pay

complainant the following:

a. Backwages (July 30, 2004 to April 29, 2005 =

 9 mos.; P5,350.50 x 9 months) .... P 48,154.50

b. Separation Pay (P5,350.50 x 4 years) 21,402.00

c. Salary Differentials 32,679.00

d. Service Incentive Leave Pay 2,820.00

Sub-Total P105,055.50

e. Attorneys fee (10%) 10,505.55

T O T A L P115,561.05

=========

3. Dismissing all other claims for lack of merit.

SO ORDERED.[3]

Golden failed to appeal the aforesaid decision; hence, it became final and
executory. A writ of execution was issued and an Isuzu Jeep with plate number
PGE-531 was attached.

Thereafter, respondent Gois filed an Affidavit of Third Party Claim claiming that
the attachment of the vehicle was irregular because said vehicle was registered in
her name and not Goldens; and that she was not a party to the illegal dismissal
case filed by Delima against Golden.[4]

In an Order[5] dated December 29, 2005, the Labor Arbiter denied respondents
third-party claim on grounds that respondent was named in the complaint as one
of the respondents; that summons were served upon her and Prospero Gois; that
both verified Goldens Position Paper and alleged therein that they are the
respondents; and that respondent is one of the incorporators/officers of the
corporation.
Gois filed an appeal before the NLRC. At the same time, she filed a motion
before the Labor Arbiter to release the motor vehicle after substituting the same
with a cash bond in the amount of P115,561.05.

On January 16, 2006, an Order was issued by the Labor Arbiter which
states:

Filed by Third Party Claimant SUSAN M. GOIS is a Motion to

Release Motor Vehicle after substituting same with a cash bond of
P115,561.05 under O.R. No. 8307036 which amount is equivalent to the
judgment award in the instant case, in the meantime that she has
appealed the Order denying her Third Party Claim.

Finding said Motion in order and with merit, Sheriff Felicisimo T.

Basilio is directed to release from his custody the Isuzu jeep with Plate
No. PGE-532 and return same to SUSAN M. GOIS.

SO ORDERED.[6]

Meanwhile, on May 31, 2006, the NLRC issued a Resolution[7] which dismissed
respondents appeal for lack of merit. A Motion for Reconsideration[8] was filed
but it was denied on August 22, 2006.[9] On September 12, 2006, the NLRC
Resolution became final and executory; subsequently, an Entry of
Judgment[10] was issued on September 29, 2006.
On October 13, 2006, Gois filed a petition for certiorari[11] before the Court of
Appeals as well as a Supplement to Petition[12] on October 27, 2006. Gois alleged
that the NLRC committed grave abuse of discretion when it dismissed her
appeal. She claimed that by denying her third-party claim, she was in effect
condemned to pay a judgment debt issued against a corporation of which she is
neither a president nor a majority owner but merely a stockholder. She further
argued that her personality is separate and distinct from that of Golden; thus, the
judgment ordering the corporation to pay the petitioner could not be satisfied out
of her personal assets.

On December 21, 2006, the appellate court rendered a Decision in favor of

respondent, which reads in part:

In the decision dated April 29, 2005 rendered by Labor Arbiter

Montaces, the dispositive portion confined itself in directing Golden
Union Aquamarine Corporation only, no more and no less, to pay
private respondent the award stated therein, but did not mention that
the liability is joint and solidary with petitioner Susan Gois although the
complaint filed by the private respondent included petitioner as among
the respondents therein.

It bears stress also that corporate officers cannot be held liable for
damages on account of the employees dismissal because the employer
corporation has a personality separate and distinct from its officers who
merely acted as its agents. They are only solidarily liable with the
corporation for the termination of employment of employees if the
same was done with malice or in bad faith. In the case at bench, it was
not clearly shown and established that the termination of private
respondent from employment was tainted with evident malice and bad
faith. As elucidated in the case of Reahs Corporation vs. NLRC, the main
doctrine of separate personality of a corporation should remain as the
 guiding rule in determining corporate liability to its employees, and
that, at the very least, to justify solidary liability, there must be an
allegation or showing that the officers of the corporation deliberately or
maliciously designed to evade the financial obligation of the
corporation to its employees.

Further, as wisely put by the petitioner, while it may be true that the
subject vehicle was used by the corporation in transporting the
products bought by the corporation from Eastern Samar to Manila, it
does not necessarily follow that it is owned by the corporation as in fact
petitioner was able to duly establish that the said vehicle is hers and is
registered under her name. Nor does it imply that the corporation is
free to dispose of the same and neither does it imply that the said
vehicle may and can be levied by respondent NLRC to satisfy a
judgment against the corporation.

WHEREFORE, in view of the foregoing premises, judgment is

hereby rendered by us GRANTING the petition filed in this case,
ANNULLING and SETTING ASIDE the Resolutions dated May 31,
2006 and August 22, 2006, respectively, issued by the respondent
National Labor Relations Commission (NLRC), 4th Division in NLRC Case
No. V-000188-2006 and ORDERING private respondent to return to
petitioner the cash bond earlier released to him.

SO ORDERED.[13]

Petitioner filed a Motion for Reconsideration[14] which was denied. Hence, the
present petition raising the following issues:
 WHETHER OR NOT THE HONORABLE COURT OF APPEALS,
NINETEENTH (19th) DIVISION, ERRED:

1. WHEN IT OMMITED PRIVATE RESPONDENT AS ONE OF THE

PRINCIPAL RESPONDENTS IN THE ORIGINAL COMPLAINT AS
ILLUSTRATED IN ITS BRIEF STATEMENT OF FACTS;

2. WHEN IT CONSIDERED THAT THE VEHICLE PRINCIPALLY USED IN THE

BUSINESS OPERATIONS OF THE CORPORATION, WHICH WAS
REGISTERED UNDER THE NAME OF PRIVATE RESPONDENT WHO
WAS ALSO THE CORPORATION PRESIDENT, CANNOT BE SUBJECT
OF GARNISHMENT;

3. WHEN IT ANNULLED AND SET ASIDE A FINAL AND EXECUTED

ORDER/RESOLUTION OF THE NATIONAL LABOR RELATIONS
COMMISSION.[15]

A corporation has a personality distinct and separate from its individual

stockholders or members and from that of its officers who manage and run its
affairs. The rule is that obligations incurred by the corporation, acting through its
directors, officers and employees, are its sole liabilities. Thus, property belonging
to a corporation cannot be attached to satisfy the debt of a stockholder and vice
versa, the latter having only an indirect interest in the assets and business of the
former.[16]

Since the Decision of the Labor Arbiter dated April 29, 2005 directed only
Golden to pay the petitioner the sum of P115,561.05 and the same was not joint
and solidary obligation with Gois, then the latter could not be held personally
liable since Golden has a separate and distinct personality of its own. It remains
undisputed that the subject vehicle was owned by Gois, hence it should not be
attached to answer for the liabilities of the corporation. 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. No
evidence was presented to show that the termination of the petitioner was done
with malice or in bad faith for it to hold the corporate officers, such as Gois,
solidarily liable with the corporation.

We note that the Resolution of the NLRC dismissing respondents appeal

was entered in the Book of Entries of Judgment on September 29, 2006 after it
allegedly became final and executory on September 12, 2006.

It will be recalled, however, that the NLRC issued the Resolution dismissing
the appeal of the respondent on May 31, 2006. A motion for reconsideration was
filed on July 24, 2006 but it was denied by the NLRC on August 22, 2006. Copy of
the denial was received by the respondent on September 1, 2006.[17] Thus,
respondent has sixty (60) days from receipt of the denial of the motion for
reconsideration or until October 31, 2006, within which to file the petition for
certiorari under Section 4 of Rule 65 of the Rules of Court. Thus, the petition for
certiorari filed by respondent before the Court of Appeals on October 13,
2006 was timely.[18] Consequently, the NLRC erred in declaring itsMay 31,
2006 Resolution final and executory.

A decision issued by a court is final and executory when such decision

disposes of the subject matter in its entirety or terminates a particular proceeding
or action, leaving nothing else to be done but to enforce by execution what has
been determined by the court, such as when after the lapse of the reglementary
period to appeal, no appeal has been perfected.[19]

In the instant case, it is undisputed that when the entry of judgment was
issued by the NLRC on September 12, 2006 and entered in the Book of Entries of
Judgment on September 29, 2006, the reglementary period to file a petition for
certiorari has not yet lapsed. In fact, when the petition for certiorari was filed
on October 13, 2006, the same was still within the reglementary period. It bears
stressing that a petition for certiorari under Rule 65 must be filed not later than
60 days from notice of the judgment, order or resolution sought to be
annulled.[20]

The period or manner of appeal from the NLRC to the Court of Appeals is
governed by Rule 65 pursuant to the ruling of this Court in the case of St. Martin
Funeral Home v. National Labor Relations Commission.[21] Section 4 of Rule 65, as
amended, states that the petition may be filed not later than sixty (60) days from
notice of the judgment, or resolution sought to be assailed.[22]

Corollarily, Section 4, Rule III of the New Rules of Procedure of the NLRC
expressly mandates that (f)or the purpose(s) of computing the period of appeal,
the same shall be counted from receipt of such decisions, awards or orders by the
counsel of record. Although this rule explicitly contemplates an appeal before the
Labor Arbiter and the NLRC, we do not see any cogent reason why the same rule
should not apply to petitions for certiorari filed with the Court of Appeals from
decisions of the NLRC.[23]

We note that in the dispositive portion of its Decision, the appellate court
ordered petitioner to return to respondent the cash bond earlier released to
him. However, petitioner admitted that the monies were spent to defray the
medical expenses of his ailing mother.Considering that petitioner is legally
entitled to receive said amount, Golden must reimburse respondent Gois the
amount of P115,561.05. To rule otherwise would result in unjust enrichment of
Golden. The corporation has benefited from the payment made by Gois because
it was relieved from its obligation to pay to petitioner the judgment debt.

WHEREFORE, the petition is PARTLY GRANTED. The assailed Decision of the

Court of Appeals dated December 21, 2006 annulling and setting aside the May
31, 2006 and August 22, 2006 Resolutions of the National Labor Relations
Commission; and its Resolution dated February 5, 2007 are AFFIRMED with the
MODIFICATION that Golden Union Aquamarine Corporation is ordered
to REIMBURSE respondent Susan M. Gois the amount of P115,561.05.

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.
CLAUDE P. BAUTISTA, G.R. No. 166405
Petitioner,
Present:
QUISUMBING, J., Chairperson,
PUNO, C.J.,
- versus - TINGA,
VELASCO, JR., and
BRION, JJ.

AUTO PLUS TRADERS, Promulgated:

INCORPORATED and COURT OF
APPEALS (Twenty-First Division), August 6, 2008
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
QUISUMBING, J.:

This petition for review on certiorari assails the Decision[1] dated August 10,
2004 of the Court of Appeals in CA-G.R. CR No. 28464 and the
Resolution[2] dated October 29, 2004, which denied petitioners motion for
reconsideration. The Court of Appeals affirmed the February 24, 2004 Decision
and May 11, 2004 Order of the Regional Trial Court (RTC), Davao City, Branch
16, in Criminal Case Nos. 52633-03 and 52634-03.

The antecedent facts are as follows:

 Petitioner Claude P. Bautista, in his capacity as President and Presiding
Officer of Cruiser Bus Lines and Transport Corporation, purchased various spare
parts from private respondent Auto Plus Traders, Inc. and issued two postdated
checks to cover his purchases. The checks were subsequently dishonored. Private
respondent then executed an affidavit-complaint for violation of Batas
Pambansa Blg. 22[3]against petitioner. Consequently, two Informations for
violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities
(MTCC) of Davao City against the petitioner. These were docketed as Criminal
Case Nos. 102,004-B-2001 and 102,005-B-2001. The Informations[4]read:
Criminal Case No. 102,004-B-2001:
The undersigned accuses the above-named accused for violation
of Batas Pambansa Bilang 22, committed as follows:
That on or about December 15, 2000, in the City of Davao,
Philippines, and within the jurisdiction of this Honorable Court, the
above-mentioned accused, knowing fully well that he had no sufficient
funds and/or credit with the drawee bank, wilfully, unlawfully and
feloniously issued and made out Rural Bank of Digos, Inc. Check No.
058832, dated December 15, 2000, in the amount of P151,200.00, in
favor of Auto Plus Traders, Inc., but when said check was presented to
the drawee bank for encashment, the same was dishonored for the reason
DRAWN AGAINST INSUFFICIENT FUNDS and despite notice of
dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment to the damage and prejudice
of herein complainant.
CONTRARY TO LAW.

Criminal Case No. 102,005-B-2001:

The undersigned accuses the above-named accused for violation
of Batas Pambansa Bilang 22, committed as follows:
That on or about October 30, 2000, in the City of Davao,
Philippines, and within the jurisdiction of this Honorable Court, the
above-mentioned accused, knowing fully well that he had no sufficient
funds and/or credit with the drawee bank, wilfully, unlawfully and
feloniously issued and made out Rural Bank of Digos, Inc. Check No.
059049, dated October 30, 2000, in the amount of P97,500.00, in favor
of Auto Plus Traders, [Inc.], but when said check was presented to the
drawee bank for encashment, the same was dishonored for the reason
 DRAWN AGAINST INSUFFICIENT FUNDS and despite notice of
dishonor and demands upon said accused to make good the check,
accused failed and refused to make payment, to the damage and
prejudice of herein complainant.
CONTRARY TO LAW.

Petitioner pleaded not guilty. Trial on the merits ensued. After the
presentation of the prosecutions evidence, petitioner filed a demurrer to
evidence. On April 21, 2003, the MTCC granted the demurrer, thus:
WHEREFORE, the demurrer to evidence is granted, premised on
reasonable doubt as to the guilt of the accused. Cruiser Bus Line[s] and
Transport Corporation, through the accused is directed to pay the
complainant the sum of P248,700.00 representing the value of the two
checks, with interest at the rate of 12% per annum to be computed from
the time of the filing of these cases in Court, until the account is paid in
full; ordering further Cruiser Bus Line[s] and Transport Corporation,
through the accused, to reimburse complainant the expense representing
filing fees amounting to P1,780.00 and costs of litigation which this
Court hereby fixed at P5,000.00.
SO ORDERED.[5]

Petitioner moved for partial reconsideration but his motion was

denied. Thereafter, both parties appealed to the RTC. On February 24, 2004, the
trial court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby
MODIFIED to read as follows: Accused is directed to pay and/or
reimburse the complainant the following sums: (1) P248,700.00
representing the value of the two checks, with interest at the rate of 12%
per annum to be computed from the time of the filing of these cases in
Court, until the account is paid in full; (2) P1,780.00 for filing fees
and P5,000.00 as cost of litigation.
SO ORDERED.[6]

Petitioner moved for reconsideration, but his motion was denied on May 11,
2004. Petitioner elevated the case to the Court of Appeals, which affirmed the
February 24, 2004 Decision and May 11, 2004 Order of the RTC:
 WHEREFORE, premises considered, the instant petition
is DENIED. The assailed Decision of the Regional Trial Court, Branch
16, DavaoCity, dated February 24, 2004 and its Order dated May 11,
2004 are AFFIRMED.
SO ORDERED.[7]

Petitioner now comes before us, raising the sole issue of whether the Court of
Appeals erred in upholding the RTCs ruling that petitioner, as an officer of the
corporation, is personally and civilly liable to the private respondent for the value
of the two checks.[8]

Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of

the accused and that the corporation, which has a separate personality from its
officers, is solely liable for the value of the two checks.

Private respondent counters that petitioner should be held personally liable

for both checks. Private respondent alleged that petitioner issued two postdated
checks: a personal check in his name for the amount of P151,200 and a corporation
check under the account of Cruiser Bus Lines and Transport Corporation for the
amount of P97,500. According to private respondent, petitioner, by issuing his
check to cover the obligation of the corporation, became an accommodation
party. Under Section 29[9] of the Negotiable Instruments Law, an accommodation
party is liable on the instrument to a holder for value. Private respondent adds that
petitioner should also be liable for the value of the corporation check because
instituting another civil action against the corporation would result in multiplicity
of suits and delay.

At the outset, we note that private respondents allegation that petitioner

issued a personal check disputes the factual findings of the MTCC. The MTCC
found that the two checks belong to Cruiser Bus Lines and Transport Corporation
while the RTC found that one of the checks was a personal check of the
petitioner. Generally this Court, in a petition for review on certiorari under Rule 45
of the Rules of Court, has no jurisdiction over questions of facts. But, considering
that the findings of the MTCC and the RTC are at variance,[10] we are compelled to
settle this issue.
 A perusal of the two check return slips [11] in conjunction with the Current
Account Statements[12] would show that the check for P151,200 was drawn against
the current account of Claude Bautista while the check for P97,500 was drawn
against the current account of Cruiser Bus Lines and Transport
Corporation. Hence, we sustain the factual finding of the RTC.

Nonetheless, we find the appellate court in error for affirming the decision of
the RTC holding petitioner liable for the value of the checks considering that
petitioner was acquitted of the crime charged and that the debts are clearly
corporate debts for which only Cruiser Bus Lines and Transport Corporation
should be held liable.

Juridical entities have personalities separate and distinct from its officers and
the persons composing it.[13] Generally, the stockholders and officers are not
personally liable for the obligations of the corporation except only when the veil of
corporate fiction is being used as a cloak or cover for fraud or illegality, or to work
injustice.[14] These situations, however, do not exist in this case. The evidence
shows that it is Cruiser Bus Lines and Transport Corporation that has obligations to
Auto Plus Traders, Inc. for tires. There is no agreement that petitioner shall be held
liable for the corporations obligations in his personal capacity. Hence, he cannot be
held liable for the value of the two checks issued in payment for the corporations
obligation in the total amount of P248,700.

Likewise, contrary to private respondents contentions, petitioner cannot be

considered liable as an accommodation party for Check No. 58832. Section 29 of
the Negotiable Instruments Law defines an accommodation party as a person who
has signed the instrument as maker, drawer, acceptor, or indorser, without
receiving value therefor, and for the purpose of lending his name to some other
person. As gleaned from the text, an accommodation party is one who meets all the
three requisites, viz: (1) he must be a party to the instrument, signing as maker,
drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he
must sign for the purpose of lending his name or credit to some other
person.[15] An accommodation party lends his name to enable the accommodated
party to obtain credit or to raise money; he receives no part of the consideration for
the instrument but assumes liability to the other party/ies thereto.[16] The first two
elements are present here, however there is insufficient evidence presented in the
instant case to show the presence of the third requisite. All that the evidence shows
is that petitioner signed Check No. 58832, which is drawn against his personal
account. The said check, dated December 15, 2000, corresponds to the value of 24
sets of tires received by Cruiser Bus Lines and Transport Corporation on August
29, 2000.[17] There is no showing of when petitioner issued the check and in what
capacity. In the absence of concrete evidence it cannot just be assumed that
petitioner intended to lend his name to the corporation. Hence, petitioner cannot be
considered as an accommodation party.

Cruiser Bus Lines and Transport Corporation, however, remains liable for the
checks especially since there is no evidence that the debts covered by the subject
checks have been paid.

WHEREFORE, the petition is GRANTED. The Decision dated August 10,

2004 and the Resolution dated October 29, 2004 of the Court of Appeals in CA-
G.R. CR No. 28464 are REVERSED and SET ASIDE. Criminal Case Nos.
52633-03 and 52634-03 are DISMISSED, without prejudice to the right of private
respondent Auto Plus Traders, Inc., to file the proper civil action against Cruiser
Bus Lines and Transport Corporation for the value of the two checks.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 100866 July 14, 1992

REBECCA BOYER-ROXAS and GUILLERMO ROXAS, petitioners,

vs.
HON. COURT OF APPEALS and HEIRS OF EUGENIA V. ROXAS, INC., respondents.

GUTIERREZ, JR., J.:

This is a petition to review the decision and resolution of the Court of Appeals in CA-G.R. No. 14530 affirming the earlier decision of the
Regional Trial Court of Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case Nos. 802-84-C and 803-84-C entitled "Heirs of
Eugenia V. Roxas, Inc. v. Rebecca Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas," the dispositive portion of which
reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, by
ordering as it is hereby ordered that:

1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all persons claiming under her to:
 a) Immediately vacate the residential house near the Balugbugan pool located inside the premises of the Hidden Valley
Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for her occupancy of the residential
house until the same is vacated;

c) Remove the unfinished building erected on the land of the plaintiff within ninety (90) days from receipt of this
decision;

d) Pay the plaintiff the amount of P100.00 per month from September 10, 1983, until the said unfinished building is
removed from the land of the plaintiff; and

e) Pay the costs.

2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons claiming under him to:

a) Immediately vacate the residential house near the tennis court located within the premises of the Hidden Valley
Springs Resort at Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September 10, 1983, for his occupancy of the said
residential house until the same is vacated; and

c) Pay the costs. (Rollo, p. 36)

In two (2) separate complaints for recovery of possession filed with the Regional Trial Court of Laguna against petitioners Rebecca Boyer-
Roxas and Guillermo Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc., prayed for the ejectment of the petitioners
from buildings inside the Hidden Valley Springs Resort located at Limao, Calauan, Laguna allegedly owned by the respondent corporation.

In the case of petitioner Rebecca Boyer-Roxas (Civil Case No-802-84-C), the respondent corporation alleged that Rebecca is in possession
of two (2) houses, one of which is still under construction, built at the expense of the respondent corporation; and that her occupancy on the
two (2) houses was only upon the tolerance of the respondent corporation.

In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the respondent corporation alleged that Guillermo occupies a house
which was built at the expense of the former during the time when Guillermo's father, Eriberto Roxas, was still living and was the general
manager of the respondent corporation; that the house was originally intended as a recreation hall but was converted for the residential use
of Guillermo; and that Guillermo's possession over the house and lot was only upon the tolerance of the respondent corporation.

In both cases, the respondent corporation alleged that the petitioners never paid rentals for the use of the buildings and the lots and that they
ignored the demand letters for them to vacate the buildings.

In their separate answers, the petitioners traversed the allegations in the complaint by stating that they are heirs of Eugenia V. Roxas and
therefore, co-owners of the Hidden Valley Springs Resort; and as co-owners of the property, they have the right to stay within its premises.

The cases were consolidated and tried jointly.

At the pre-trial, the parties limited the issues as follows:

1) whether plaintiff is entitled to recover the questioned premises;

2) whether plaintiff is entitled to reasonable rental for occupancy of the premises in question;

3) whether the defendant is legally authorized to pierce the veil of corporate fiction and interpose the same as a
defense in an accion publiciana;

4) whether the defendants are truly builders in good faith, entitled to occupy the questioned premises;

5) whether plaintiff is entitled to damages and reasonable compensation for the use of the questioned premises;

6) whether the defendants are entitled to their counterclaim to recover moral and exemplary damages as well as
attorney's fees in the two cases;
 7) whether the presence and occupancy by the defendants on the premises in questioned (sic) hampers, deters or
impairs plaintiff's operation of Hidden Valley Springs Resort; and

8) whether or not a unilateral and sudden withdrawal of plaintiffs tolerance allowing defendants' occupancy of the
premises in questioned (sic) is unjust enrichment. (Original Records, 486)

Upon motion of the plaintiff respondent corporation, Presiding Judge Francisco Ma. Guerrero of Branch 34 issued an Order dated April 25,
1986 inhibiting himself from further trying the case. The cases were re-raffled to Branch 37 presided by Judge Odilon Bautista. Judge
Bautista continued the hearing of the cases.

For failure of the petitioners (defendants below) and their counsel to attend the October 22, 1986 hearing despite notice, and upon motion of
the respondent corporation, the court issued on the same day, October 22, 1986, an Order considering the cases submitted for decision. At
this stage of the proceedings, the petitioners had not yet presented their evidence while the respondent corporation had completed the
presentation of its evidence.

The evidence of the respondent corporation upon which the lower court based its decision is as follows:

To support the complaints, the plaintiff offered the testimonies of Maria Milagros Roxas and that of Victoria Roxas
Villarta as well as Exhibits "A" to "M-3".

The evidence of the plaintiff established the following: that the plaintiff, Heirs of Eugenia V Roxas, Incorporated, was
incorporated on December 4, 1962 (Exh. "C") with the primary purpose of engaging in agriculture to develop the
properties inherited from Eugenia V. Roxas and that of y Eufrocino Roxas; that the Articles of Incorporation of the
plaintiff, in 1971, was amended to allow it to engage in the resort business (Exh.
"C-1"); that the incorporators as original members of the board of directors of the plaintiff were all members of the same
family, with Eufrocino Roxas having the biggest share; that accordingly, the plaintiff put up a resort known as Hidden
Valley Springs Resort on a portion of its land located at Bo. Limao, Calauan, Laguna, and covered by TCT No. 32639
(Exhs. "A" and "A-l"); that improvements were introduced in the resort by the plaintiff and among them were cottages,
houses or buildings, swimming pools, tennis court, restaurant and open pavilions; that the house near the Balugbugan
Pool (Exh. "B-l") being occupied by Rebecca B. Roxas was originally intended as staff house but later used as the
residence of Eriberto Roxas, deceased husband of the defendant Rebecca Boyer-Roxas and father of Guillermo
Roxas; that this house presently being occupied by Rebecca B. Roxas was built from corporate funds; that the
construction of the unfinished house (Exh. "B-2") was started by the defendant Rebecca Boyer-Roxas and her husband
Eriberto Roxas; that the third building (Exh. "B-3") presently being occupied by Guillermo Roxas was originally intended
as a recreation hall but later converted as a residential house; that this house was built also from corporate funds; that
the said house occupied by Guillermo Roxas when it was being built had nipa roofing but was later changed to
galvanized iron sheets; that at the beginning, it had no partition downstairs and the second floor was an open space;
that the conversion from a recreation hall to a residential house was with the knowledge of Eufrocino Roxas and was
not objected to by any of the Board of Directors of the plaintiff; that most of the materials used in converting the building
into a residential house came from the materials left by Coppola, a film producer, who filmed the movie "Apocalypse
Now"; that Coppola left the materials as part of his payment for rents of the rooms that he occupied in the resort; that
after the said recreation hall was converted into a residential house, defendant Guillermo Roxas moved in and
occupied the same together with his family sometime in 1977 or 1978; that during the time Eufrocino Roxas was still
alive, Eriberto Roxas was the general manager of the corporation and there was seldom any board meeting; that
Eufrocino Roxas together with Eriberto Roxas were (sic) the ones who were running the corporation; that during this
time, Eriberto Roxas was the restaurant and wine concessionaire of the resort; that after the death of Eufrocino Roxas,
Eriberto Roxas continued as the general manager until his death in 1980; that after the death of Eriberto Roxas in
1980, the defendants Rebecca B. Roxas and Guillermo Roxas, committed acts that impeded the plaintiff's expansion
and normal operation of the resort; that the plaintiff could not even use its own pavilions, kitchen and other facilities
because of the acts of the defendants which led to the filing of criminal cases in court; that cases were even filed before
the Ministry of Tourism, Bureau of Domestic Trade and the Office of the President by the parties herein; that the
defendants violated the resolution and orders of the Ministry of Tourism dated July 28, 1983, August 3, 1983 and
November 26, 1984 (Exhs. "G", "H" and "H-l") which ordered them or the corporation they represent to desist from and
to turn over immediately to the plaintiff the management and operation of the restaurant and wine outlets of the said
resort (Exh. "G-l"); that the defendants also violated the decision of the Bureau of Domestic Trade dated October 23,
1983 (Exh. "C"); that on August 27, 1983, because of the acts of the defendants, the Board of Directors of the plaintiff
adopted Resolution No. 83-12 series of 1983 (Exh. "F") authorizing the ejectment of the defendants from the premises
occupied by them; that on September 1, 1983, demand letters were sent to Rebecca Boyer-Roxas and Guillermo
Roxas (Exhs. "D" and "D-1") demanding that they vacate the respective premises they occupy; and that the dispute
between the plaintiff and the defendants was brought before the barangay level and the same was not settled (Exhs.
"E" and "E-l"). (Original Records, pp. 454-456)

The petitioners appealed the decision to the Court of Appeals. However, as stated earlier, the appellate court affirmed the lower court's
decision. The Petitioners' motion for reconsideration was likewise denied.

Hence, this petition.

In a resolution dated February 5, 1992, we gave due course to the petition.

The petitioners now contend:

I Respondent Court erred when it refused to pierce the veil of corporate fiction over private respondent and maintain the petitioners in their
possession and/or occupancy of the subject premises considering that petitioners are owners of aliquot part of the properties of private
respondent. Besides, private respondent itself discarded the mantle of corporate fiction by acts and/or omissions of its board of directors
and/or stockholders.

II The respondent Court erred in not holding that petitioners were in fact denied due process or their day in court brought about by the gross
negligence of their former counsel.

III The respondent Court misapplied the law when it ordered petitioner Rebecca Boyer-Roxas to remove the unfinished building in RTC Case
No. 802-84-C, when the trial court opined that she spent her own funds for the construction thereof. (CA Rollo, pp. 17-18)

Were the petitioners denied due process of law in the lower court?

After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of Branch 37 the following events transpired:

On July 3, 1986, the lower court issued an Order setting the hearing of the cases on July 21, 1986. Petitioner Rebecca V. Roxas received a
copy of the Order on July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18, 1986. Atty. Conrado Manicad, the
petitioners' counsel received another copy of the Order on July 11, 1986. (Original Records, p. 260)

On motion of the respondent corporation's counsel, the lower court issued an Order dated July 15, 1986 cancelling the July 21, 1986 hearing
and resetting the hearing to August 11, 1986. (Original records, 262-263) Three separate copies of the order were sent and received by the
petitioners and their counsel. (Original Records, pp. 268, 269, 271)

A motion to cancel and re-schedule the August 11, 1986 hearing filed by the respondent corporation's counsel was denied in an Order dated
August 8, 1986. Again separate copies of the Order were sent and received by the petitioners and their counsel. (Original Records, pp. 276-
279)

At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for the respondent corporation appeared. Neither the petitioners
nor their counsel appeared despite notice of hearing. The lower court then issued an Order on the same date, to wit:

ORDER

When these cases were called for continuation of trial, Atty. Benito P. Fabie appeared before this Court, however, the
defendants and their lawyer despite receipt of the Order setting the case for hearing today failed to appear. On Motion
of Atty. Fabie, further cross examination of witness Victoria Vallarta is hereby considered as having been waived.

The plaintiff is hereby given twenty (20) days from today within which to submit formal offer of evidence and defendants
are also given ten (10) days from receipt of such formal offer of evidence to file their objection thereto.

In the meantime, hearing in these cases is set to September 29, 1986 at 10:00 o'clock in the morning. (Original
Records, p. 286)

Copies of the Order were sent and received by the petitioners and their counsel on the following dates — Rebecca Boyer-Roxas on August
20, 1986, Guillermo Roxas on August 26, 1986, and Atty. Conrado Manicad on September 19, 1986. (Original Records, pp. 288-290)

On September 1, 1986, the respondent corporation filed its "Formal Offer of Evidence." In an Order dated September 29, 1986, the lower
court issued an Order admitting exhibits "A" to "M-3" submitted by the respondent corporation in its "Formal Offer of Evidence . . . there being
no objection . . ." (Original Records, p. 418) Copies of this Order were sent and received by the petitioners and their counsel on the following
dates: Rebecca Boyer-Roxas on October 9, 1986; Guillermo Roxas on October 9, 1986 and Atty. Conrado Manicad on October 4, 1986
(Original Records, pp. 420, 421, 428).

The scheduled hearing on September 29, 1986 did not push through as the petitioners and their counsel were not present prompting Atty.
Benito Fabie, the respondent corporation's counsel to move that the cases be submitted for decision. The lower court denied the motion and
set the cases for hearing on October 22, 1986. However, in its Order dated September 29, 1986, the court warned that in the event the
petitioners and their counsel failed to appear on the next scheduled hearing, the court shall consider the cases submitted for decision based
on the evidence on record. (Original Records, p. 429, 430 and 431)

Separate copies of this Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-Roxas on
October 9, 1986, Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1, 1986. (Original Records, pp. 429-430)
Despite notice, the petitioners and their counsel again failed to attend the scheduled October 22, 1986 hearing. Atty. Fabie representing the
respondent corporation was present. Hence, in its Order dated October 22, 1986, on motion of Atty. Fabie and pursuant to the order dated
September 29, 1986, the Court considered the cases submitted for decision. (Original Records, p. 436)

On November 14, 1986, the respondent corporation, filed a "Manifestation", stating that ". . . it is submitting without further argument its
"Opposition to the Motion for Reconsideration" for the consideration of the Honorable Court in resolving subject incident." (Original Records,
p. 442)

On December 16, 1986, the lower court issued an Order, to wit:

ORDER

Considering that the Court up to this date has not received any Motion for Reconsideration filed by the defendants in
the above-entitled cases, the Court cannot act on the Opposition to Motion for Reconsideration filed by the plaintiff and
received by the Court on November 14, 1986. (Original Records, p. 446)

On January 15, 1987, the lower court rendered the questioned decision in the two (2) cases. (Original Records, pp. 453-459)

On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an Ex-Parte Manifestation and attached thereto, a motion for
reconsideration of the October 22, 1986 Order submitting the cases for decision. He prayed that the Order be set aside and the cases be re-
opened for reception of evidence for the petitioners. He averred that: 1) within the reglementary period he prepared the motion for
reconsideration and among other documents, the draft was sent to his law office thru his messenger; after signing the final copies, he caused
the service of a copy to the respondent corporation's counsel with the instruction that the copy of the Court be filed; however, there was a
miscommunication between his secretary and messenger in that the secretary mailed the copy for the respondent corporation's counsel and
placed the rest in an envelope for the messenger to file the same in court but the messenger thought that it was the secretary who would file
it; it was only later on when it was discovered that the copy for the Court has not yet been filed and that such failure to file the motion for
reconsideration was due to excusable neglect and/or accident. The motion for reconsideration contained the following allegations: that on the
date set for hearing (October 22, 1986), he was on his way to Calamba to attend the hearing but his car suffered transmission breakdown;
and that despite efforts to repair said transmission, the car remained inoperative resulting in his absence at the said hearing. (Original
Records, pp. 460-469)

On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the January 15, 1987 decision. He explained that he had to file the
motion because the receiving clerk refused to admit the motion for reconsideration attached to the ex-parte manifestation because there was
no proof of service to the other party. Included in the motion for reconsideration was a notice of hearing of the motion on February 3, 1987.
(Original Records, p. 476-A)

On February 4, 1987, the respondent corporation through its counsel filed a Manifestation and Motion manifesting that they received the
copy of the motion for reconsideration only today (February 4, 1987), hence they prayed for the postponement of the hearing. (Original
Records, pp. 478-479)

On the same day, February 4, 1987, the lower court issued an Order setting the hearing on February 13, 1987 on the ground that it received
the motion for reconsideration late. Copies of this Order were sent separately to the petitioners and their counsel. The records show that Atty.
Manicad received his copy on February 11, 1987. As regards the petitioners, the records reveal that Rebecca Boyer-Roxas did not receive
her copy while as regards Guillermo Roxas, somebody signed for him but did not indicate when the copy was received. (Original Records,
pp. 481-483)

At the scheduled February 13, 1987 hearing, the counsels for the parties were present. However, the hearing was reset for March 6, 1987 in
order to allow the respondent corporation to file its opposition to the motion for reconsideration. (Order dated February 13, 1987, Original
Records, p. 486) Copies of the Order were sent and received by the petitioners and their counsel on the following dates: Rebecca Boyer-
Roxas on February 23, 1987; Guillermo Roxas on February 23, 1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487,
489-490)

The records are not clear as to whether or not the scheduled hearing on March 6, 1987 was held. Nevertheless, the records reveal that on
March 13, 1987, the lower court issued an Order denying the motion for reconsideration.

The well-settled doctrine is that the client is bound by the mistakes of his lawyer. (Aguila v. Court of First Instance of Batangas, Branch I, 160
SCRA 352 [1988]; See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil. 279 [1951]; Montes v. Court of First
Instance of Tayabas, 48 Phil. 640 [1926]; People v. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274 [1914]; and United
States v. Umali, 15 Phil. 33 [1910]) This rule, however, has its exceptions. Thus, in several cases, we ruled that the party is not bound by the
actions of his counsel in case the gross negligence of the counsel resulted in the client's deprivation of his property without due process of
law. In the case of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said:

In People's Homesite & Housing Corp. v. Tiongco and Escasa (12 SCRA 471 [1964]), this Court ruled as follows:

Procedural technicality should not be made a bar to the vindication of a legitimate grievance.
When such technicality deserts from being an aid to Justice, the courts are justified in excepting
 from its operation a particular case. Where there was something fishy and suspicious about the
actuations of the former counsel of petitioners in the case at bar, in that he did not give any
significance at all to the processes of the court, which has proven prejudicial to the rights of said
clients, under a lame and flimsy explanation that the court's processes just escaped his attention,
it is held that said lawyer deprived his clients of their day in court, thus entitling said clients to
petition for relief from judgment despite the lapse of the reglementary period for filing said period
for filing said petition.

In Escudero v. Judge Dulay (158 SCRA 69 [1988]), this Court, in holding that the counsel's blunder in procedure is an
exception to the rule that the client is bound by the mistakes of counsel, made the following disquisition:

Petitioners contend, through their new counsel, that the judgment rendered against them by the
respondent court was null and void, because they were therein deprived of their day in court and
divested of their property without due process of law, through the gross ignorance, mistake and
negligence of their previous counsel. They acknowledge that, while as a rule, clients are bound
by the mistake of their counsel, the rule should not be applied automatically to their case, as their
trial counsel's blunder in procedure and gross ignorance of existing jurisprudence changed their
cause of action and violated their substantial rights.

We are impressed with petitioner's contentions.

xxx xxx xxx

While this Court is cognizant of the rule that, generally, a client will suffer consequences of the
negligence, mistake or lack of competence of his counsel, in the interest of Justice and equity,
exceptions may be made to such rule, in accordance with the facts and circumstances of each
case. Adherence to the general rule would, in the instant case, result in the outright deprivation of
their property through a technicality.

In its questioned decision dated November 19, 1989 the Court of Appeals found, in no uncertain terms, the negligence
of the then counsel for petitioners when he failed to file the proper motion to dismiss or to draw a compromise
agreement if it was true that they agreed on a settlement of the case; or in simply filing an answer; and that after having
been furnished a copy of the decision by the court he failed to appeal therefrom or to file a petition for relief from the
order declaring petitioners in default. In all these instances the appellate court found said counsel negligent but his acts
were held to bind his client, petitioners herein, nevertheless.

The Court disagrees and finds that the negligence of counsel in this case appears to be so gross and inexcusable. This
was compounded by the fact, that after petitioner gave said counsel another chance to make up for his omissions by
asking him to file a petition for annulment of the judgment in the appellate court, again counsel abandoned the case of
petitioner in that after he received a copy of the adverse judgment of the appellate court, he did not do anything to save
the situation or inform his client of the judgment. He allowed the judgment to lapse and become final. Such reckless
and gross negligence should not be allowed to bind the petitioner. Petitioner was thereby effectively deprived of her
day in court. (at pp. 426-427)

The herein petitioners, however, are not similarly situated as the parties mentioned in the abovecited cases. We cannot rule that they, too,
were victims of the gross negligence of their counsel.

The petitioners are to be blamed for the October 22, 1986 order issued by the lower court submitting the cases for decision. They received
notices of the scheduled hearings and yet they did not do anything. More specifically, the parties received notice of the Order dated
September 29, 1986 with the warning that if they fail to attend the October 22, 1986 hearing, the cases would be submitted for decision
based on the evidence on record. Earlier, at the scheduled hearing on September 29, 1986, the counsel for the respondent corporation
moved that the cases be submitted for decision for failure of the petitioners and their counsel to attend despite notice. The lower court denied
the motion and gave the petitioners and their counsel another chance by rescheduling the October 22, 1986 hearing.

Indeed, the petitioners knew all along that their counsel was not attending the scheduled hearings. They did not take steps to change their
counsel or make him attend to their cases until it was too late. On the contrary, they continued to retain the services of Atty. Manicad
knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise the alleged gross negligence of their counsel resulting in their
denial of due process to warrant the reversal of the lower court's decision. In a similar case, Aguila v. Court of First Instance of Batangas,
Branch 1 (supra), we ruled:

In the instant case, the petitioner should have noticed the succession of errors committed by his counsel and taken
appropriate steps for his replacement before it was altogether too late. He did not. On the contrary, he continued to
retain his counsel through the series of proceedings that all resulted in the rejection of his cause, obviously through
such counsel's "ineptitude" and, let it be added, the clients' forbearance. The petitioner's reverses should have
cautioned him that his lawyer was mishandling his case and moved him to seek the help of other counsel, which he did
in the end but rather tardily.
 Now petitioner wants us to nullify all of the antecedent proceedings and recognize his earlier claims to the disputed
property on the justification that his counsel was grossly inept. Such a reason is hardly plausible as the petitioner's new
counsel should know. Otherwise, all a defeated party would have to do to salvage his case is claim neglect or mistake
on the part of his counsel as a ground for reversing the adverse judgment. There would be no end to litigation if these
were allowed as every shortcoming of counsel could be the subject of challenge by his client through another counsel
who, if he is also found wanting, would likewise be disowned by the same client through another counsel, and so on ad
infinitum. This would render court proceedings indefinite, tentative and subject to reopening at any time by the mere
subterfuge of replacing counsel. (at pp. 357-358)

We now discuss the merits of the cases.

In the first assignment of error, the petitioners maintain that their possession of the questioned properties must be respected in view of their
ownership of an aliquot portion of all the properties of the respondent corporation being stockholders thereof. They propose that the veil of
corporate fiction be pierced, considering the circumstances under which the respondent corporation was formed.

Originally, the questioned properties belonged to Eugenia V. Roxas. After her death, the heirs of Eugenia V. Roxas, among them the
petitioners herein, decided to form a corporation — Heirs of Eugenia V. Roxas, Incorporated (private respondent herein) with the inherited
properties as capital of the corporation. The corporation was incorporated on December 4, 1962 with the primary purpose of engaging in
agriculture to develop the inherited properties. The Articles of Incorporation of the respondent corporation were amended in 1971 to allow it
to engage in the resort business. Accordingly, the corporation put up a resort known as Hidden Valley Springs Resort where the questioned
properties are located.

These facts, however, do not justify the position taken by the petitioners.

The respondent is a bona fide corporation. As such, it has a juridical personality of its own separate from the members composing it.
(Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205
[1988]; Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v. Court of Industrial
Relations, 13 SCRA 290 [1965]) There is no dispute that title over the questioned land where the Hidden Valley Springs Resort is located is
registered in the name of the corporation. The records also show that the staff house being occupied by petitioner Rebecca Boyer-Roxas and
the recreation hall which was later on converted into a residential house occupied by petitioner Guillermo Roxas are owned by the
respondent corporation. Regarding properties owned by a corporation, we stated in the case of Stockholders of F. Guanzon and Sons, Inc. v.
Register of Deeds of Manila, (6 SCRA 373 [1962]):

xxx xxx xxx

. . . 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. Johnston, 166 Ala., 317, 51 So. 992). (at pp. 375-376)

The petitioners point out that their occupancy of the staff house which was later used as the residence of Eriberto Roxas, husband of
petitioner Rebecca Boyer-Roxas and the recreation hall which was converted into a residential house were with the blessings of Eufrocino
Roxas, the deceased husband of Eugenia V. Roxas, who was the majority and controlling stockholder of the corporation. In his lifetime,
Eufrocino Roxas together with Eriberto Roxas, the husband of petitioner Rebecca Boyer-Roxas, and the father of petitioner Guillermo Roxas
managed the corporation. The Board of Directors did not object to such an arrangement. The petitioners argue that . . . the authority thus
given by Eufrocino Roxas for the conversion of the recreation hall into a residential house can no longer be questioned by the stockholders of
the private respondent and/or its board of directors for they impliedly but no leas explicitly delegated such authority to said Eufrocino Roxas.
(Rollo, p. 12)

Again, we must emphasize that the respondent corporation has a distinct personality separate from its members. The corporation transacts
its business only through its officers or agents. (Western Agro Industrial Corporation v. Court of Appeals, supra). Whatever authority these
officers or agents may have is derived from the board of directors or other governing body unless conferred by the charter of the corporation.
An officer's power as an agent of the corporation must be sought from the statute, charter, the by-laws or in a delegation of authority to such
officer, from the acts of the board of directors, formally expressed or implied from a habit or custom of doing business. (Vicente v. Geraldez,
52 SCRA 210 [1973])

In the present case, the record shows that Eufrocino V. Roxas who then controlled the management of the corporation, being the majority
stockholder, consented to the petitioners' stay within the questioned properties. Specifically, Eufrocino Roxas gave his consent to the
conversion of the recreation hall to a residential house, now occupied by petitioner Guillermo Roxas. The Board of Directors did not object to
the actions of Eufrocino Roxas. The petitioners were allowed to stay within the questioned properties until August 27, 1983, when the Board
of Directors approved a Resolution ejecting the petitioners, to wit:

R E S O L U T I O N No. 83-12
 RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all persons claiming under them, be ejected from their
occupancy of the Hidden Valley Springs compound on which their houses have been constructed and/or are being
constructed only on tolerance of the Corporation and without any contract therefor, in order to give way to the
Corporation's expansion and improvement program and obviate prejudice to the operation of the Hidden Valley Springs
Resort by their continued interference.

RESOLVED, Further that the services of Atty. Benito P. Fabie be engaged and that he be authorized as he is hereby
authorized to effect the ejectment, including the filing of the corresponding suits, if necessary to do so. (Original
Records, p. 327)

We find nothing irregular in the adoption of the Resolution by the Board of Directors. The petitioners' stay within the questioned properties
was merely by tolerance of the respondent corporation in deference to the wishes of Eufrocino Roxas, who during his lifetime, controlled and
managed the corporation. Eufrocino Roxas' actions could not have bound the corporation forever. The petitioners have not cited any
provision of the corporation by-laws or any resolution or act of the Board of Directors which authorized Eufrocino Roxas to allow them to stay
within the company premises forever. We rule that in the absence of any existing contract between the petitioners and the respondent
corporation, the corporation may elect to eject the petitioners at any time it wishes for the benefit and interest of the respondent corporation.

The petitioners' suggestion that the veil of the corporate fiction should be pierced is untenable. 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 to
achieve equity or when necessary for the protection of the creditors." (Sulong Bayan, Inc. v. Araneta, Inc., 72 SCRA 347 [1976] cited in Tan
Boon Bee & Co., Inc., v. Jarencio, supra and Western Agro Industrial Corporation v. Court of Appeals, supra) The circumstances in the
present cases do not fall under any of the enumerated categories.

In the third assignment of error, the petitioners insist that as regards the unfinished building, Rebecca Boyer-Roxas is a builder in good faith.

The construction of the unfinished building started when Eriberto Roxas, husband of Rebecca Boyer-Roxas, was still alive and was the
general manager of the respondent corporation. The couple used their own funds to finance the construction of the building. The Board of
Directors of the corporation, however, did not object to the construction. They allowed the construction to continue despite the fact that it was
within the property of the corporation. Under these circumstances, we agree with the petitioners that the provision of Article 453 of the Civil
Code should have been applied by the lower courts.

Article 453 of the Civil Code provides:

If there was bad faith, not only on the part of the person who built, planted or sown on the land of another but also on
the part of the owner of such land, the rights of one and the other shall be the same as though both had acted in good
faith.

In such a case, the provisions of Article 448 of the Civil Code govern the relationship between petitioner Rebecca-Boyer-Roxas and the
respondent corporation, to wit:

Art. 448 — The owner of the land on which anything has been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting after payment of the indemnity provided for in articles 546 and
548, or to oblige the one who built or planted to pay the price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not choose to appropriate
the buildings or trees after proper indemnity. The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.

WHEREFORE, the present petition is partly GRANTED. The questioned decision of the Court of Appeals affirming the decision of the
Regional Trial Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in that subparagraphs (c) and (d) of Paragraph 1
of the dispositive portion of the decision are deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the respondent corporation are
ordered to follow the provisions of Article 448 of the Civil Code as regards the questioned unfinished building in RTC Civil Case No. 802-84-
C. The questioned decision is affirmed in all other respects.

SO ORDERED.

BOYER – ROXAS VS. COURT OF APPEALS

211 SCRA 470 (1992)

FACTS OF THE CASE

When Eugenia V. Roxas died, her heirs formed a corporation
under the name and style of Heirs of Eugenia V. Roxas, Inc. using
her estate as the capital of the corporation, the private respondent
herein. It was primarily engaged in agriculture business, however
it amended its purpose to enable it to engage in resort and
restaurant business. Petitioners are stockholders of the
corporation and two of the heirs of Eugenia. By tolerance, they
were allowed to occupy some of the properties of the corporation
as their residence. However, the board of directors of the
corporation passed a resolution evicting the petitioners from the
property of the corporation because the same will be needed for
expansion.
At the RTC, private respondent presented its evidence averring
that the subject premises are owned by the corporation.
Petitioners failed to present their evidence due to alleged
negligence of their counsel. RTC handed a decision in favor of
private respondent.
Petitioners appealed to the Court of Appeals but the latter denied
the petition and affirmed the ruling of the RTC. Hence, they
appealed to the Supreme Court. In their appeal, petitioners
argues that the CA made a mistake in upholding the decision of
the RTC, and that their occupancy of the subject premises should
be respected because they own an aliquot part of the corporation
as stockholders, and that the veil of corporate fiction must be
pierced by virtue thereof.

ISSUE
1. Whether petitioner’s contention were correct as regards the
piercing of the corporate veil.
2. Whether petitioners were correct in their contention that they
should be respected as regards their occupancy since they own
an aliquot part of the corporation.
RULING
1.Petitioner’s contention to pierce the veil of corporate fiction is
untenable. As aptly held by the court: “..The separate personality
of a corporation may ONLY be disregarded when the corporation
is used as a cloak or cover for fraud or illegality, or to work
injustice, or when necessary to achieve equity or when necessary
for the protection of creditors.”
2. As regards petitioners contention that they should be respected
on their occupancy by virtue of an aliquot part they own on the
corporation as stockholders, it also fails to hold water. The court
held that “properties owned by a corporation are owned by it as
an entity separate and distinct from its members. While shares of
stocks are personal property, they do not represent property of
the corporation. 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, but its
holder is not the owner of any part of the capital of the
corporation. Nor is he entitled to the possession of any definite
portion of its property or assets. The holder is not a co-owner or a
tenant in common of the corporate property.”
G.R. No. 90580 April 8, 1991

RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S. RUSTE AND EVELYN
SAW, petitioners,
vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO, Presiding Judge of Branch 43,
(Regional Trial Court of Manila), FREEMAN MANAGEMENT AND DEVELOPMENT
CORPORATION, EQUITABLE BANKING CORPORATION, FREEMAN INCORPORATED, SAW
CHIAO LIAN, THE REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY SHERIFF
ROSALIO G. SIGUA, respondents.

Benito O. Ching, Jr. for petitioners.

William R. Vetor for Equitable Banking Corp.
Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao.
CRUZ, J.:

A collection suit with preliminary attachment was filed by Equitable Banking Corporation against
Freeman, Inc. and Saw Chiao Lian, its President and General Manager. The petitioners moved to
intervene, alleging that (1) the loan transactions between Saw Chiao Lian and Equitable Banking
Corp. were not approved by the stockholders representing at least 2/3 of corporate capital; (2) Saw
Chiao Lian had no authority to contract such loans; and (3) there was collusion between the officials
of Freeman, Inc. and Equitable Banking Corp. in securing the loans. The motion to intervene was
denied, and the petitioners appealed to the Court of Appeals.

Meanwhile, Equitable and Saw Chiao Lian entered into a compromise agreement which they
submitted to and was approved by the lower court. But because it was not complied with, Equitable
secured a writ of execution, and two lots owned by Freeman, Inc. were levied upon and sold at
public auction to Freeman Management and Development Corp.

The Court of Appeals1 sustained the denial of the petitioners' motion for intervention, holding that
"the compromise agreement between Freeman, Inc., through its President, and Equitable Banking
Corp. will not necessarily prejudice petitioners whose rights to corporate assets are at most
inchoate, prior to the dissolution of Freeman, Inc. . . . And intervention under Sec. 2, Rule 12 of the
Revised Rules of Court is proper only when one's right is actual, material, direct and immediate and
not simply contingent or expectant."

It also ruled against the petitioners' argument that because they had already filed a notice of appeal,
the trial judge had lost jurisdiction over the case and could no longer issue the writ of execution.

The petitioners are now before this Court, contending that:

1. The Honorable Court of Appeals erred in holding that the petitioners cannot intervene in
Civil Case No. 88-44404 because their rights as stockholders of Freeman are merely
inchoate and not actual, material, direct and immediate prior to the dissolution of the
corporation;

2. The Honorable Court of Appeals erred in holding that the appeal of the petitioners in said
Civil Case No. 88-44404 was confined only to the order denying their motion to intervene
and did not divest the trial court of its jurisdiction over the whole case.

The petitioners base their right to intervene for the protection of their interests as stockholders
on Everett v. Asia Banking Corp.2 where it was held:

The well-known rule that shareholders cannot ordinarily sue in equity to redress wrongs done
to the corporation, but that the action must be brought by the Board of Directors, . . . has its
exceptions. (If the corporation [were] under the complete control of the principal defendants, .
. . it is obvious that a demand upon the Board of Directors to institute action and prosecute
the same effectively would have been useless, and the law does not require litigants to
perform useless acts.

Equitable demurs, contending that the collection suit against Freeman, Inc, and Saw Chiao Lian is
essentially in personam and, as an action against defendants in their personal capacities, will not
prejudice the petitioners as stockholders of the corporation. The Everett case is not applicable
because it involved an action filed by the minority stockholders where the board of directors refused
to bring an action in behalf of the corporation. In the case at bar, it was Freeman, Inc. that was being
sued by the creditor bank.
Equitable also argues that the subject matter of the intervention falls properly within the original and
exclusive jurisdiction of the Securities and Exchange Commission under P.D. No. 902-A. In fact, at
the time the motion for intervention was filed, there was pending between Freeman, Inc. and the
petitioners SEC Case No. 03577 entitled "Dissolution, Accounting, Cancellation of Certificate of
Registration with Restraining Order or Preliminary Injunction and Appointment of Receiver." It also
avers in its Comment that the intervention of the petitioners could have only caused delay and
prejudice to the principal parties.

On the second assignment of error, Equitable maintains that the petitioners' appeal could only apply
to the denial of their motion for intervention and not to the main case because their personality as
party litigants had not been recognized by the trial court.

After examining the issues and arguments of the parties, the Court finds that the respondent court
committed no reversible error in sustaining the denial by the trial court of the petitioners' motion for
intervention.

In the case of Magsaysay-Labrador v. Court of Appeals,3 we ruled as follows:

Viewed in the light of Section 2, Rule 12 of the Revised Rules of Court, this Court affirms the
respondent court's holding that petitioners herein have no legal interest in the subject matter
in litigation so as to entitle them to intervene in the proceedings below. In the case of Batama
Farmers' Cooperative Marketing Association, Inc. v. Rosal, we held: "As clearly stated in
Section 2 of Rule 12 of the Rules of Court, to be permitted to intervene in a pending action,
the party must have a legal interest in the matter in litigation, or in the success of either of the
parties or an interest against both, or he must be so situated as to be adversely affected by a
distribution or other disposition of the property in the custody of the court or an officer
thereof."

To allow intervention, [a] it must be shown that the movant has legal interest in the matter in
litigation, or otherwise qualified; and [b] consideration must be given as to whether the
adjudication of the rights of the original parties may be delayed or prejudiced, or whether the
intervenor's rights may be protected in a separate proceeding or not. Both requirements
must concur as the first is not more important than the second.

The interest which entitles a person to intervene in a suit between other parties must be in
the matter in litigation and of such direct and immediate character that the intervenor will
either gain or lose by the direct legal operation and effect of the judgment. Otherwise, if
persons not parties of the action could be allowed to intervene, proceedings will become
unnecessarily complicated, expensive and interminable. And this is not the policy of the law.

The words "an interest in the subject" mean a direct interest in the cause of action as
pleaded, and which would put the intervenor in a legal position to litigate a fact alleged in the
complaint, without the establishment of which plaintiff could not recover.

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,

conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or
in sheer expectancy of a right in the management of the corporation and to share in the
profits thereof and in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the
 property, his interest in the corporate property being equitable or beneficial in nature.
Shareholders are in no legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.

On the second assignment of error, the respondent court correctly noted that the notice of appeal
was filed by the petitioners on October 24, 1988, upon the denial of their motion to intervene, and
the writ of execution was issued by the lower court on January 30, 1989. The petitioners' appeal
could not have concerned the "whole" case (referring to the decision) because the petitioners "did
not appeal the decision as indeed they cannot because they are not parties to the case despite their
being stockholders of respondent Freeman, Inc." They could only appeal the denial of their motion
for intervention as they were never recognized by the trial court as party litigants in the main case.

Intervention is "an act or proceeding by which a third person is permitted to become a party to an
action or proceeding between other persons, and which results merely in the addition of a new party
or parties to an original action, for the purpose of hearing and determining at the same time all
conflicting claims which may be made to the subject matter in litigation.4

It is not an independent proceeding, but an ancillary and supplemental one which, in the nature of
things, unless otherwise provided for by the statute or Rules of Court, must be in subordination to
the main proceeding.5 It may be laid down as a general rule that an intervenor is limited to the field of
litigation open to the original parties.6

In the case at bar, there is no more principal action to be resolved as a writ of execution had already
been issued by the lower court and the claim of Equitable had already been satisfied. The decision
of the lower court had already become final and in fact had already been enforced. There is
therefore no more principal proceeding in which the petitioners may intervene.

As we held in the case of Barangay Matictic v. Elbinias:7

An intervention has been regarded, as merely "collateral or accessory or ancillary to the

principal action and not an independent proceedings; and interlocutory proceeding
dependent on and subsidiary to, the case between the original parties." (Fransisco, Rules of
Court, Vol. 1, p. 721). With the final dismissal of the original action, the complaint in
intervention can no longer be acted upon. In the case of Clareza v. Resales, 2 SCRA 455,
457-458, it was stated that:

That right of the intervenor should merely be in aid of the right of the original party,
like the plaintiffs in this case. As this right of the plaintiffs had ceased to exist, there is
nothing to aid or fight for. So the right of intervention has ceased to exist.

Consequently, it will be illogical and of no useful purpose to grant or even consider further
herein petitioner's prayer for the issuance of a writ of mandamus to compel the lower court to
allow and admit the petitioner's complaint in intervention. The dismissal of the expropriation
case has no less the inherent effect of also dismissing the motion for intervention which is
but the unavoidable consequence.

The Court observes that even with the denial of the petitioners' motion to intervene, nothing is really
lost to them. The denial did not necessarily prejudice them as their rights are being litigated in the
1âw phi 1

case now before the Securities and Exchange Commission and may be fully asserted and protected
in that separate proceeding.

WHEREFORE, the petition is DENIED, with costs against the petitioners. It is so ordered.
Narvasa, Gancayco, Griño-Aquino and Medialdea, JJ., concur.