L.

STOCKHOLDERS
G.R. No. 91889 August 27, 1993
MANUEL R. DULAY ENTERPRISES, INC., VIRGILIO E. DULAY AND NEPOMUCENO REDOVAN, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, EDGARDO D. PABALAN, MANUEL A. TORRES, JR., MARIA THERESA V. VELOSO AND
CASTRENSE C. VELOSO, respondents.
Virgilio E. Dulay for petitioners.
Torres, Tobias, Azura & Jocson for private respondents.

NOCON, J.:
1 2
This is a petition for review on certiorari to annul and set aside the decision of the Court of Appeals affirming the decision of the Regional Trial
Court of Pasay, Branch 114 Civil Cases Nos. 8198-P, and 2880-P, the dispositive portion of which reads, as follows:
Wherefore, in view of all the foregoing considerations, in this Court hereby renders judgment, as follows:
In Civil Case No. 2880-P, the petition filed by Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay for annulment or declaration
of nullity of the decision of the Metropolitan Trial Court, Branch 46, Pasay City, in its Civil Case No. 38-81 entitled "Edgardo D.
Pabalan, et al., vs. Spouses Florentino Manalastas, et al.," is dismissed for lack of merits;
In Civil Case No. 8278-P, the complaint filed by Manuel R. Dulay Enterprises, Inc. for cancellation of title of Manuel A. Torres, Jr.
(TCT No. 24799 of the Register of Deeds of Pasay City) and reconveyance, is dismissed for lack or merit, and,
In Civil Case No. 8198-P, defendants Manuel R. Dulay Enterprises, Inc. and Virgilio E. Dulay are ordered to surrender and deliver
possession of the parcel of land, together with all the improvements thereon, described in Transfer Certificate of Title No. 24799 of
the Register of Deeds of Pasay City, in favor of therein plaintiffs Manuel A. Torres, Jr. as owner and Edgardo D. Pabalan as real
estate administrator of said Manuel A. Torres, Jr.; to account for and return to said plaintiffs the rentals from dwelling unit No. 8-A
of the apartment building (Dulay Apartment) from June 1980 up to the present, to indemnify plaintiffs, jointly and severally,
expenses of litigation in the amount of P4,000.00 and attorney's fees in the sum of P6,000.00, for all the three (3) cases. Co-
defendant Nepomuceno Redovan is ordered to pay the current and subsequent rentals on the premises leased by him to plaintiffs.
The counterclaim of defendants Virgilio E. Dulay and Manuel R. Dulay Enterprises, Inc. and N. Redovan, dismissed for lack of
3
merit. With costs against the three (3) aforenamed defendants.
The facts as found by the trial court are as follows:
Petitioner Manuel R. Dulay Enterprises, Inc, a domestic corporation with the following as members of its Board of Directors: Manuel R. Dulay with
19,960 shares and designated as president, treasurer and general manager, Atty. Virgilio E. Dulay with 10 shares and designated as vice-
president; Linda E. Dulay with 10 shares; Celia Dulay-Mendoza with 10 shares; and Atty. Plaridel C. Jose with 10 shares and designated as
4
secretary, owned a property covered by TCT No. 17880 and known as Dulay Apartment consisting of sixteen (16) apartment units on a six
hundred eighty-nine (689) square meters lot, more or less, located at Seventh Street (now Buendia Extension) and F.B. Harrison Street, Pasay
City.
Petitioner corporation through its president, Manuel Dulay, obtained various loans for the construction of its hotel project, Dulay Continental Hotel
(now Frederick Hotel). It even had to borrow money from petitioner Virgilio Dulay to be able to continue the hotel project. As a result of said loan,
petitioner Virgilio Dulay occupied one of the unit apartments of the subject property since property since 1973 while at the same time managing the
5
Dulay Apartment at his shareholdings in the corporation was subsequently increased by his father.
On December 23, 1976, Manuel Dulay by virtue of Board Resolution
6
No 18 of petitioner corporation sold the subject property to private respondents spouses Maria Theresa and Castrense Veloso in the amount of
7
P300,000.00 as evidenced by the Deed of Absolute Sale. Thereafter, TCT No. 17880 was cancelled and TCT No. 23225 was issued to private
8
respondent Maria Theresa Veloso. Subsequently, Manuel Dulay and private respondents spouses Veloso executed a Memorandum to the Deed
9
of Absolute Sale of December 23, 1976 dated December 9, 1977 giving Manuel Dulay within (2) years or until December 9, 1979 to repurchase
the subject property for P200,000.00 which was, however, not annotated either in TCT No. 17880 or TCT No. 23225.
On December 24, 1976, private respondent Maria Veloso, without the knowledge of Manuel Dulay, mortgaged the subject property to private
10
respondent Manuel A. Torres for a loan of P250,000.00 which was duly annotated as Entry No. 68139 in TCT No. 23225.
Upon the failure of private respondent Maria Veloso to pay private respondent Torres, the subject property was sold on April 5, 1978 to private
11
respondent Torres as the highest bidder in an extrajudicial foreclosure sale as evidenced by the Certificate of Sheriff's Sale issued on April 20,
1978.
12
On July 20, 1978, private respondent Maria Veloso executed a Deed of Absolute Assignment of the Right to Redeem in favor of Manuel Dulay
assigning her right to repurchase the subject property from private respondent Torres as a result of the extra sale held on April 25, 1978.
As neither private respondent Maria Veloso nor her assignee Manuel Dulay was able to redeem the subject property within the one year statutory
13
period for redemption, private respondent Torres filed an Affidavit of Consolidation of Ownership with the Registry of Deeds of Pasay City and
14
TCT No. 24799 was subsequently issued to private respondent Manuel Torres on April 23, 1979.
On October 1, 1979, private respondent Torres filed a petition for the issuance of a writ of possession against private respondents spouses Veloso
and Manuel Dulay in LRC Case No. 1742-P. However, when petitioner Virgilio Dulay was never authorized by the petitioner corporation to sell or
mortgage the subject property, the trial court ordered private respondent Torres to implead petitioner corporation as an indispensable party but the
latter moved for the dismissal of his petition which was granted in an Order dated April 8, 1980.
On June 20, 1980, private respondent Torres and Edgardo Pabalan, real estate administrator of Torres, filed an action against petitioner
corporation, Virgilio Dulay and Nepomuceno Redovan, a tenant of Dulay Apartment Unit No. 8-A for the recovery of possession, sum of money
and damages with preliminary injunction in Civil Case, No. 8198-P with the then Court of First Instance of Rizal.
On July 21, 1980, petitioner corporation filed an action against private respondents spouses Veloso and Torres for the cancellation of the
Certificate of Sheriff's Sale and TCT No. 24799 in Civil Case No. 8278-P with the then Court of First Instance of Rizal.
On January 29, 1981, private respondents Pabalan and Torres filed an action against spouses Florentino and Elvira Manalastas, a tenant of Dulay
Apartment Unit No. 7-B, with petitioner corporation as intervenor for ejectment in Civil Case No. 38-81 with the Metropolitan Trial Court of Pasay
City which rendered a decision on April 25, 1985, dispositive portion of which reads, as follows:
 Wherefore, judgment is hereby rendered in favor of the plaintiff (herein private respondents) and against the defendants:
1. Ordering the defendants and all persons claiming possession under them to vacate the premises.
2. Ordering the defendants to pay the rents in the sum of P500.000 a month from May, 1979 until they shall have vacated the
premises with interest at the legal rate;
3. Ordering the defendants to pay attorney's fees in the sum of P2,000.00 and P1,000.00 as other expenses of litigation and for
15
them to pay the costs of the suit.
Thereafter or on May 17, 1985, petitioner corporation and Virgilio Dulay filed an action against the presiding judge of the Metropolitan Trial Court of
Pasay City, private respondents Pabalan and Torres for the annulment of said decision with the Regional Trial Court of Pasay in Civil Case No.
2880-P.
Thereafter, the three (3) cases were jointly tried and the trial court rendered a decision in favor of private respondents.
Not satisfied with said decision, petitioners appealed to the Court of Appeals which rendered a decision on October 23, 1989, the dispositive
portion of which reads, as follows:
16
PREMISES CONSIDERED, the decision being appealed should be as it is hereby AFFIRMED in full.
On November 8, 1989, petitioners filed a Motion for Reconsideration which was denied on January 26, 1990.
Hence, this petition.
17
During the pendency of this petition, private respondent Torres died on April 3, 1991 as shown in his death certificate and named Torres-Pabalan
18
Realty & Development Corporation as his heir in his holographic will dated October 31, 1986.
Petitioners contend that the respondent court had acted with grave abuse of discretion when it applied the doctrine of piercing the veil of corporate
entity in the instant case considering that the sale of the subject property between private respondents spouses Veloso and Manuel Dulay has no
binding effect on petitioner corporation as Board Resolution No. 18 which authorized the sale of the subject property was resolved without the
approval of all the members of the board of directors and said Board Resolution was prepared by a person not designated by the corporation to be
its secretary.
We do not agree.
Section 101 of the Corporation Code of the Philippines provides:
Sec. 101. When board meeting is unnecessary or improperly held. Unless the by-laws provide otherwise, any action by the
directors of a close corporation without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors, or
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or
3. The directors are accustomed to take informal action with the express or implied acquiese of all the stockholders, or
4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto
in writing.
If a directors' meeting is held without call or notice, an action taken therein within the corporate powers is deemed ratified by a
director who failed to attend, unless he promptly files his written objection with the secretary of the corporation after having
knowledge thereof.
In the instant case, petitioner corporation is classified as a close corporation and consequently a board resolution authorizing the sale or mortgage
of the subject property is not necessary to bind the corporation for the action of its president. At any rate, corporate action taken at a board
meeting without proper call or notice in a close corporation is deemed ratified by the absent director unless the latter promptly files his written
objection with the secretary of the corporation after having knowledge of the meeting which, in his case, petitioner Virgilio Dulay failed to do.
It is relevant to note that although a corporation is an entity which has a personality distinct and separate from its individual stockholders or
19
members, the veil of corporate fiction may be pierced when it is used to defeat public convenience justify wrong, protect fraud or defend
20
crime. The privilege of being treated as an entity distinct and separate from its stockholder or members is therefore confined to its legitimate
uses and is subject to certain limitations to prevent the commission of fraud or other illegal or unfair act. When the corporation is used merely as
21
an alter ego or business conduit of a person, the law will regard the corporation as the act of that person. The Supreme Court had repeatedly
disregarded the separate personality of the corporation where the corporate entity was used to annul a valid contract executed by one of its
members.
Petitioners' claim that the sale of the subject property by its president, Manuel Dulay, to private respondents spouses Veloso is null and void as the
alleged Board Resolution No. 18 was passed without the knowledge and consent of the other members of the board of directors cannot be
sustained. As correctly pointed out by the respondent Court of Appeals:
Appellant Virgilio E. Dulay's protestations of complete innocence to the effect that he never participated nor was even aware of
any meeting or resolution authorizing the mortgage or sale of the subject premises (see par. 8, affidavit of Virgilio E. Dulay, dated
May 31, 1984, p. 14, Exh. "21") is difficult to believe. On the contrary, he is very much privy to the transactions involved. To begin
with, he is a incorporator and one of the board of directors designated at the time of the organization of Manuel R. Dulay
Enterprise, Inc. In ordinary parlance, the said entity is loosely referred to as a "family corporation". The nomenclature, if imprecise,
however, fairly reflects the cohesiveness of a group and the parochial instincts of the individual members of such an aggrupation
of which Manuel R. Dulay Enterprises, Inc. is typical: four-fifths of its incorporators being close relatives namely, three (3) children
and their father whose name identifies their corporation (Articles of Incorporation of Manuel R. Dulay Enterprises, Inc. Exh. "31-
22
A").
23
Besides, the fact that petitioner Virgilio Dulay on June 24, 1975 executed an affidavit that he was a signatory witness to the execution of the post-
dated Deed of Absolute Sale of the subject property in favor of private respondent Torres indicates that he was aware of the transaction executed
between his father and private respondents and had, therefore, adequate knowledge about the sale of the subject property to private respondents.
Consequently, petitioner corporation is liable for the act of Manuel Dulay and the sale of the subject property to private respondents by Manuel
Dulay is valid and binding. As stated by the trial court:
. . . the sale between Manuel R. Dulay Enterprises, Inc. and the spouses Maria Theresa V. Veloso and Castrense C. Veloso, was
a corporate act of the former and not a personal transaction of Manuel R. Dulay. This is so because Manuel R. Dulay was not only
president and treasurer but also the general manager of the corporation. The corporation was a closed family corporation and the
only non-relative in the board of directors was Atty. Plaridel C. Jose who appeared on paper as the secretary. There is no denying
the fact, however, that Maria Socorro R. Dulay at times acted as secretary. . . ., the Court can not lose sight of the fact that the
Manuel R. Dulay Enterprises, Inc. is a closed family corporation where the incorporators and directors belong to one single family.
It cannot be concealed that Manuel R. Dulay as president, treasurer and general manager almost had absolute control over the
24
business and affairs of the corporation.
Moreover, the appellate courts will not disturb the findings of the trial judge unless he has plainly overlooked certain facts of substance and value
25
that, if considered, might affect the result of the case, which is not present in the instant case.
Petitioners' contention that private respondent Torres never acquired ownership over the subject property since the latter was never in actual
possession of the subject property nor was the property ever delivered to him is also without merit.
Paragraph 1, Article 1498 of the New Civil Code provides:
When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed the contrary do not appear or cannot clearly be inferred.
Under the aforementioned article, the mere execution of the deed of sale in a public document is equivalent to the delivery of the property.
Likewise, this Court had held that:
It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property purchased if it is not redeemed during
the period of one year after the registration of the sale. As such, he is entitled to the possession of the said property and can
demand it at any time following the consolidation of ownership in his name and the issuance to him of a new transfer certificate of
title. The buyer can in fact demand possession of the land even during the redemption period except that he has to post a bond in
accordance with Section 7 of Act No. 3133 as amended. No such bond is required after the redemption period if the property is
26
not redeemed. Possession of the land then becomes an absolute right of the purchaser as confirmed owner.
Therefore, prior physical delivery or possession is not legally required since the execution of the Deed of Sale in deemed equivalent to delivery.
Finally, we hold that the respondent appellate court did not err in denying petitioner's motion for reconsideration despite the fact that private
respondents failed to submit their comment to said motion as required by the respondent appellate court from resolving petitioners' motion for
reconsideration without the comment of the private respondent which was required merely to aid the court in the disposition of the motion. The
courts are as much interested as the parties in the early disposition of cases before them. To require otherwise would unnecessarily clog the
courts' dockets.
WHEREFORE, the petition is DENIED and the decision appealed from is hereby AFFIRMED.
SO ORDERED.

[G.R. No. 116123. March 13, 1997.]

SERGIO F. NAGUIAT, doing business under the name and style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD TAXI, INC., Petitioners, v.
NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), NATIONAL ORGANIZATION OF WORKINGMEN and its members, LEONARDO T.
GALANG, Et Al., Respondents.

Villanueva, De Leon, Hipolito & Associates Law Offices, for Petitioners.

The Solicitor General for Respondents.

SYLLABUS

1. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; WHEN A LABOR CASE MAY REACH THE SUPREME COURT; GROUNDS THEREOF. — Firmly, we
reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court, which is the only way a labor case may reach the Supreme
Court, the petitioner/s must clearly show that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion.

2. ID.; EVIDENCE; FINDINGS OF FACTS OF AN ADMINISTRATE AGENCY OR A QUASI-JUDICIAL BODY; BINDING UPON THE SUPREME COURT; EXCEPTION. —
Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of facts of administrative agencies and quasi-judicial bodies, which
have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only great respect but even finality, and are
binding upon this Court unless there is a showing of grave abuse of discretion, or where it is clearly shown that they were arrived at arbitrarily or in disregard of
the evidence on record. Decisions, however concisely written, must distinctly and clearly set forth the facts and law upon which they are based. This rule
applies as well to dispositions by quasi-judicial and administrative bodies.

3. LABOR AND SOCIAL LEGISLATION; LABOR CODE; RETRENCHMENT; WHEN A COMPANY MAY BE EXEMPTED FROM PAYMENT OF SEPARATION PAY; NOT
APPLICABLE IN CASE AT BAR. — Well-settled is the rule that business losses or financial reverses, in order to sustain retrenchment of personnel or closure of
business and warrant exemption from payment of separation pay, must be proved with clear and satisfactory evidence. The records, however, are devoid of
such evidence. The labor arbiter, as affirmed by NLRC, correctly found that petitioners stopped their taxi business within Clark Air Base because of the phase-
out of U.S. military presence thereat. It was not due to any great financial loss because petitioners’ taxi business was earning profitably at the time of its
closure. With respect to the amount of separation pay that should be granted, Article 283 of the Labor Code provides: ". . . In case of retrenchment to prevent
losses and in case of closures or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, the separation
pay shall be equivalent to one (1) month pay or at least one-half (½) month pay for every year of service, whichever is higher. A fraction of at least six (6)
months shall be-considered one (1) whole year." cralaw virtua1aw library

4. ID.; ID.; EMPLOYMENT; LABOR-ONLY CONTRACTING AND INDEPENDENT CONTRACTORS, DISTINGUISHED. — Labor-only contracting exists where: (1) the
person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machinery, and work premises,
among others; and (2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the
employer. Independent contractors, meanwhile, are those who exercise independent employment, contracting to do a piece of work according to their own
methods without being subject to control of their employer except as to the result of their work.

5. COMMERCIAL LAW; CORPORATION; WHEN A STOCKHOLDER MAY BE HELD LIABLE FOR CORPORATE TORT; CASE AT BAR. — Our jurisprudence is wanting as
to the definite scope of "corporate tort." Essentially, "tort" consists in the violation of a right given or the omission of a duty imposed by law. Simply stated, tort
is a breach of a legal duty. Article 283 of the Labor Code mandates the employer to grant separation pay to employees in case of closure or cessation of
operations of establishment or undertaking not due to serious business losses or financial reverses, which is the condition obtaining at bar. CFTI failed to
comply with this law-imposed duty or obligation. Consequently, its stockholder who was actively engaged in the management or operation of the business
should be held personally liable. Furthermore, in MAM Realty Development v. NLRC , 244 SCRA 797, June 2, 1995, the Court recognized that a director or
officer may still be held solidarity liable with a corporation by specific provision of law. thus: ". . . A corporation, being a juridical entity, may act only through its
directors, officers and employees. Obligations incurred by them, acting as such corporate agents, are not theirs but the direct accountabilities of the corporation
they represent. True, solidary liabilities may at times be incurred but only when exceptional circumstances warrant such as, generally, in the following cases: . .
. 4. When a director, trustee or officer is made, by specific provision of law, personally liable for his corporate action." As pointed out earlier, the fifth paragraph
of Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively managing or operating the business and affairs of
the close corporation. The Court here finds no application to the rule that a corporate officer cannot be held solidarity liable with a corporation in the absence of
evidence that he had acted in bad faith or with malice. In the present case, Sergio Naguiat is held solidarily liable for corporate tort because he had actively
engaged in the management and operation of CFTI, a close corporation.
 DECISION

PANGANIBAN, J.:

Are private respondent-employees of petitioner Clark Field Taxi, Inc., who were separated from service due to the closure of Clark Air Base, entitled to
separation pay and, if so, in what amount? Are officers of corporations ipso facto liable jointly and severally with the companies they represent for the payment
of separation pay?

These questions are answered by the Court in resolving this petition for certiorari under Rule 65 of the Rules of Court assailing the Resolutions of the National
Labor Relations Commission (Third Division) 1 promulgated on February 28, 1994, 2 and May 31, 1994. 3 The February 28, 1994 Resolution affirmed with
modifications the decision 4 of Labor Arbiter Ariel C. Santos in NLRC Case No. RAB-III-12-2477-91. The second Resolution denied the motion for
reconsideration of herein petitioners.

The NLRC modified the decision of the labor arbiter by granting separation pay to herein individual respondents in the increased amount of US$120.00 for every
year of service or its peso equivalent, and holding Sergio F. Naguiat Enterprises, Inc., Sergio F. Naguiat and Antolin T. Naguiat, jointly and severally liable with
Clark Field Taxi, Inc. ("CFTI").

The Facts

The following facts are derived from the records of the case:chanrob1es virtual 1aw library

Petitioner CFTI held a concessionaire’s contract with the Army Air Force Exchange Services ("AAFES") for the operation of taxi services within Clark Air Base.
Sergio F. Naguiat was CFTI’s president, while Antolin T. Naguiat was its vice-president. Like Sergio F. Naguiat Enterprises, Incorporated ("Naguiat Enterprises"),
a trading firm, it was a family-owned corporation.

Individual respondents were previously employed by CFTI as taxicab drivers. During their employment, they were required to pay a daily "boundary fee" in the
amount of US$26.50 for those working from 1:00 a.m. to 12:00 noon, and US$27.00 for those working from 12:00 noon to 12:00 midnight. All incidental
expenses for the maintenance of the vehicles they were driving were accounted against them, including gasoline expenses.

The drivers worked at least three to four times a week, depending on the availability of taxicabs. They earned not less than US$15.00 daily. In excess of that
amount, however, they were required to make cash deposits to the company, which they could later withdraw every fifteen days.

Due to the phase-out of the US military bases in the Philippines, from which Clark Air Base was not spared, the AAFES was dissolved, and the services of
individual respondents were officially terminated on November 26, 1991.

The AAFES Taxi Drivers Association ("drivers’ union"), through its local president, Eduardo Castillo, and CFTI held negotiations as regards separation benefits
that should be awarded in favor of the drivers. They arrived at an agreement that the separated drivers will be given P500.00 for every year of service as
severance pay. Most of the drivers accepted said amount in December 1991 and January 1992. However, individual respondents herein refused to accept theirs.

Instead, after disaffiliating themselves from the drivers’ union, individual respondents, through the National Organization of Workingmen ("NOWM"), a labor
organization which they subsequently joined, filed a complaint 5 against "Sergio F. Naguiat doing business under the name and style Sergio F. Naguiat
Enterprises, Inc., Army-Air Force Exchange Services (AAFES) with Mark Hooper as Area Service Manager, Pacific Region, and AAFES Taxi Drivers Association
with Eduardo Castillo as President," for payment of separation pay due to termination/phase-out. Said complaint was later amended 6 to include additional taxi
drivers who were similarly situated as complainants, and CFTI with Antolin T. Naguiat as vice president and general manager, as party Respondent.

In their complaint, herein private respondents alleged that they were regular employees of Naguiat Enterprises, although their individual applications for
employment were approved by CFTI. They claimed to have been assigned to Naguiat Enterprises after having been hired by CFTI, and that the former thence
managed, controlled and supervised their employment. They averred further that they were entitled to separation pay based on their latest daily earnings of
US$15.00 for working sixteen (16) days a month.

In their position paper submitted to the labor arbiter, herein petitioners claimed that the cessation of business of CFTI on November 26, 1991, was due to
"great financial losses and lost business opportunity" resulting from the phase-out of Clark Air Base brought about by the Mt. Pinatubo eruption and the
expiration of the RP-US military bases agreement. They admitted that CFTI had agreed with the drivers’ union, through its President Eduardo Castillo who
claimed to have had blanket authority to negotiate with CFTI in behalf of union members, to grant its taxi driver-employees separation pay equivalent to
P500.00 for every year of service.

The labor arbiter, finding the individual complainants to be regular workers of CFTI, ordered the latter to pay them P1,200.00 for every year of service "for
humanitarian consideration," setting aside the earlier agreement between CFTI and the drivers’ union of P500.00 for every year of service. The labor arbiter
rejected the allegation of CFTI that it was forced to close business due to "great financial losses and lost business opportunity" since, at the time it ceased
operations, CFTI was profitably earning and the cessation of its business was due to the untimely closure of Clark Air Base. In not awarding separation pay in
accordance with the Labor Code, the labor-arbiter explained: jgc:chanrobles.com.ph

"To allow respondents exemption from its (sic) obligation to pay separation pay would be inhuman to complainants but to impose a monetary obligation to an
employer whose profitable business was abruptly shot (sic) down by force majeure would be unfair and unjust to say the least." 7

and thus, simply awarded an amount for "humanitarian consideration." cralaw virtua1aw library

Herein individual private respondents appealed to the NLRC. In its Resolution, the NLRC modified the decision of the labor arbiter by granting separation pay to
the private respondents. The concluding paragraphs of the NLRC Resolution read: jgc:chanrobles.com.ph

"The contention of complainant is partly correct. One-half month salary should be US$120.00 but this amount can not be paid to the complainant in U.S. Dollar
which is not the legal tender in the Philippines. Paras, in commenting on Art. 1249 of the New Civil Code, defines legal tender as ‘that which a debtor may
compel a creditor to accept in payment of the debt. The complainants who are the creditors in this instance can be compelled to accept the Philippine peso
which is the legal tender, in which case, the table of conversion (exchange rate) at the time of payment or satisfaction of the judgment should be used.
However, since the choice is left to the debtor, (respondents) they may choose to pay in US dollar.’ (Phoenix Assurance Co. v. Macondray & Co. Inc., L-25048,
May 13, 1975)

In discharging the above obligations, Sergio F. Naguiat Enterprises, which is headed by Sergio F. Naguiat and Antolin Naguiat, father and son at the same time
the President and Vice-President and General Manager, respectively, should be joined as indispensable party whose liability is joint and several. (Sec. 7, Rule 3,
Rules of Court)" 8

As mentioned earlier, the motion for reconsideration of herein petitioners was denied by the NLRC. Hence, this petition with prayer for issuance of a temporary
restraining order. Upon posting by the petitioners of a surety bond, a temporary restraining order 9 was issued by this Court enjoining execution of the assailed
Resolutions.
 Issues

The petitioners raise the following issues before this Court for resolution: jgc:chanrobles.com.ph

"I. Whether or not public respondent NLRC (3rd Div.) committed grave abuse of discretion amounting to lack of jurisdiction in issuing the appealed resolution;

II. Whether or not Messrs. Teofilo Rafols and Romeo N. Lopez could validly represent herein private respondents; and,

III. Whether or not the resolution issued by public respondent is contrary to law." 10

Petitioners also submit two additional issues by way of a supplement 11 to their petition, to Wit: that Petitioners Sergio F. Naguiat and Antolin Naguiat were
denied due process; and that petitioners were not furnished copies of private respondents’ appeal to the NLRC. As to the procedural lapse of insufficient copies
of the appeal, the proper forum before which petitioners should have raised it is the NLRC. They, however, failed to question this in their motion for
reconsideration. As a consequence, they are deemed to have waived the same and voluntarily submitted themselves to the jurisdiction of the appellate body.

Anent the first issue raised in their original petition, petitioners contend that NLRC committed grave abuse of discretion amounting to lack or excess of
jurisdiction in unilaterally increasing the amount of severance pay granted by the labor arbiter. They claim that this was not supported by substantial evidence
since it was based simply on the self-serving allegation of respondents that their monthly take-home pay was not lower than $240.00.

On the second issue, petitioners aver that NOWM cannot make legal representations in behalf of individual respondents who should, instead, be bound by the
decision of the union (AAFES Taxi Drivers Association) of which they were members.

As to the third issue, petitioners incessantly insist that Sergio F. Naguiat Enterprises, Inc. is a separate and distinct juridical entity which cannot be held jointly
and severally liable for the obligations of CFTI. And similarly, Sergio F. Naguiat and Antolin Naguiat were merely officers and stockholders of CFTI and, thus,
could not be held personally accountable for corporate debts.

Lastly, Sergio and Antolin Naguiat assail the Resolution of NLRC holding them solidarily liable despite not having been impleaded as parties to the complaint.

Individual respondents filed a comment separate from that of NOWM. In sum, both aver that petitioners had the opportunity but failed to refute, the taxi
drivers’ claim of having an average monthly earning of $240.00; that individual respondents became members of NOWM after disaffiliating themselves from the
AAFES Taxi Drivers Association which, through the manipulations of its President Eduardo Castillo, unconscionably compromised their separation pay; and that
Naguiat Enterprises, being their indirect employer, is solidarily liable under the law for violation of the Labor Code, in this case, for nonpayment of their
separation pay.

The Solicitor General unqualifiedly supports the allegations of private respondents. In addition, he submits that the separate personalities of respondent
corporations and their officers should be disregarded and considered one and the same as these were used to perpetrate injustice to their employees.

The Court’s Ruling

As will be discussed below, the petition is partially meritorious.

First Issue: Amount of Separation Pay

Firmly, we reiterate the rule that in a petition for certiorari filed pursuant to Rule 65 of the Rules of Court, which is the only way a labor case may reach the
Supreme Court, the petitioner/s must clearly show that the NLRC acted without or in excess of jurisdiction or with grave abuse of discretion. 12

Long-standing and well-settled in Philippine jurisprudence is the judicial dictum that findings of fact of administrative agencies and quasi-judicial bodies, which
have acquired expertise because their jurisdiction is confined to specific matters, are generally accorded not only great respect but even finality; and are
binding upon this Court unless there is a showing of grave abuse of discretion, or where it is clearly shown that they were arrived at arbitrarily or in disregard of
the evidence on record. 13

Nevertheless, this Court carefully perused the records of the instant case if only to determine whether public respondent committed grave abuse of discretion,
amounting to lack of jurisdiction, in granting the clamor of private respondents that their separation pay should be based on the amount of $240.00, allegedly
their minimum monthly earnings as taxi drivers of petitioners.

In their amended complaint before the Regional Arbitration Branch in San Fernando, Pampanga, herein private respondents set forth in detail the work schedule
and financial arrangement they had with their employer. Therefrom they inferred that their monthly take-home pay amounted to not less than $240.00. Herein
petitioners did not bother to refute nor offer any evidence to controvert said allegations. Remaining undisputed, the labor arbiter adopted such facts in his
decision. Petitioners did not even appeal from the decision of the labor arbiter nor manifest any error in his findings and conclusions. Thus, petitioners are in
estoppel for not having questioned such facts when they had all opportunity to do so. Private respondents, like petitioners, are bound by the factual findings of
Respondent Commission.

Petitioners also claim that the closure of their taxi business was due to great financial losses brought about by the eruption of Mt. Pinatubo which made the
roads practically impassable to their taxicabs. Likewise well-settled is the rule that business losses or financial reverses, in order to sustain retrenchment of
personnel or closure of business and warrant exemption from payment of separation pay, must be proved with clear and satisfactory evidence. 14 The records,
however, are devoid of such evidence.

The labor arbiter; as affirmed by NLRC, correctly found that petitioners stopped their taxi business within Clark Air Base because of the phase-out of U.S.
military presence thereat. It was not due to any great financial loss because petitioners’ taxi business was earning profitably at the time of its closure.

With respect to the amount of separation pay that should be granted, Article 283 of the Labor Code provides: jgc:chanrobles.com.ph

". . . In case of retrenchment to prevent losses and in cases of closures or cessation of operations of establishment or undertaking not due to serious business
losses or financial reverses, the separation pay shall be equivalent to one (1) month pay or at least one-half (½) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one (1) whole year." cralaw virtua1aw library

Considering the above, we find that NLRC did not commit grave abuse of discretion in ruling that individual respondents were entitled to separation pay 15 in
the amount $120.00 (one-half of $240.00 monthly pay) or its peso equivalent for every year of service.

Second Issue: NOWM’s Personality to

Represent Individual Respondents-Employees

On the question of NOWM’s authority to represent private respondents, we hold petitioners in estoppel for not having seasonably raised this issue before the
labor arbiter or the NLRC. NOWM was already a party-litigant as the organization representing the taxi driver-complainants before the labor arbiter. But
petitioners who were party-respondents in said complaint did not assail the juridical personality of NOWM and the validity of its representations in behalf of the
complaining taxi drivers before the quasi-judicial bodies. Therefore, they are now estopped from raising such question before this Court. In any event,
petitioners acknowledged before this Court that the taxi drivers allegedly represented by NOWM, are themselves parties in this case. 16

Third Issue: Liability of Petitioner-

Corporations and Their Respective Officers

The resolution of this issue involves another factual finding that Naguiat Enterprises .actually managed, supervised and controlled employment terms of the taxi
drivers, making it their indirect employer. As adverted to earlier, factual findings of quasi-judicial bodies are binding upon the court in the absence of a showing
of grave abuse of discretion.

Unfortunately, the NLRC did not discuss or give any explanation for holding Naguiat Enterprises and its officers jointly and severally liable in discharging CFTI’s
liability for payment of separation pay. We again remind those concerned that decisions, however concisely written, must distinctly and clearly set forth the
facts and law upon which they are based. 17 This rule applies as well to dispositions by quasi-judicial and administrative bodies.

Naguiat Enterprises Not Liable

In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI, respondents rely on Articles 106, 18 107 19 and 109 20 of the Labor Code.

Based on factual submissions of the parties, the labor arbiter, however, found that individual respondents were regular employees of CFTI who received wages
on a boundary or commission basis.

We find no reason to make a contrary finding. Labor-only contracting exists where: (1) the person supplying workers to an employer does not have substantial
capital or investment in the form of tools, equipment, machinery, and work premises, among others; and (2) the workers recruited and placed by such person
capital or investment in the form of tools, equipment, machinery, and work premises, among others; and (2) the workers recruited and placed by such person
are performing activities which are directly related to the principal business of the employer. 21 Independent contractors, meanwhile, are those who exercise
independent employment, contracting to do a piece of work according to their own methods without being subject to control of their employer except as to the
result of their work. 22

From the evidence proffered by both parties, there is no substantial basis to hold that Naguiat Enterprises is an indirect employer of individual respondents
much less a labor only contractor. On the contrary, petitioners submitted documents such as the drivers’ applications for employment with CFTI, 23 and social
security remittances 24 and payroll 25 of Naguiat Enterprises showing that none of the individual respondents were its employees. Moreover, in the contract 26
between CFTI and AAFES, the former, as concessionaire, agreed to purchase from AAFES for a certain amount within a specified period a fleet of vehicles to be
"ke(pt) on the road" by CFTI, pursuant to their concessionaire’s contract. This indicates that CFTI became the owner of the taxicabs which became the principal
investment and asset of the company.

Private respondents failed to substantiate their claim that Naguiat Enterprises managed, supervised and controlled their employment. It appears that they were
confused on the personalities of Sergio F. Naguiat as an individual who was the president of CFTI, and Sergio F. Naguiat Enterprises, Inc., as a separate
corporate entity with a separate business. They presumed that Sergio F. Naguiat, who was at the same time a stockholder and director 27 of Sergio F. Naguiat
Enterprises, Inc., was managing and controlling the taxi business on behalf of the latter. A closer scrutiny and analysis of the records, however, evince the truth
of the matter: that Sergio F. Naguiat, in supervising the-taxi drivers and determining their employment terms, was rather carrying out his responsibilities as
president of CFTI. Hence, Naguiat Enterprises as a separate corporation does not appear to be involved at all in the taxi business.

To illustrate further, we refer to the testimony of a driver-claimant on cross examination.

"Atty. Suarez

Is it not true that you applied not with Sergio F. Naguiat but with Clark Field Taxi?

Witness

I applied for (sic) Sergio F. Naguiat

Atty. Suarez

Sergio F. Naguiat as an individual or the corporation?

Witness

‘Sergio F. Naguiat na tao.’

Atty. Suarez

Who is Sergio F. Naguiat?

Witness

He is the one managing the Sergio F. Naguiat Enterprises and he is the one whom we believe as our employer.

Atty. Suarez

What is exactly the position of Sergio F. Naguiat with the Sergio F. Naguiat Enterprises?

Witness

He is the owner, sir.

Atty. Suarez

How about with Clark Field Taxi Incorporated what is the position of Mr. Naguiat?

Witness

What I know is that he is a concessionaire.

x x x

Atty. Suarez

But do you also know that Sergio F. Naguiat is the President of Clark Field Taxi, Incorporated?

Witness

Yes. sir.

Atty. Suarez

How about Mr. Antolin Naguiat what is his role in the taxi services, the operation of the Clark Field Taxi, Incorporated?

Witness

He is the vice president." 28

And, although the witness insisted that Naguiat Enterprises was his employer, he could not deny that he received his salary from the office of CFTI inside the
base. 29

Another driver-claimant admitted, upon the prodding of counsel for the corporations, that Naguiat Enterprises was in the trading business while CFTI was in taxi
services. 30

In addition, the Constitution 31 of CFTI-AAFES Taxi Drivers Association which, admittedly, was the union of individual respondents while still working at Clark
Air Base, states that members thereof are the employees of CFTI and" (f)or collective bargaining purposes, the definite employer is the Clark Field Taxi Inc." cralaw virtua1aw library

From the foregoing, the ineludible conclusion is that CFTI was the actual and direct employer of individual respondents, and that Naguiat Enterprises was
neither their indirect employer nor labor-only contractor. It was not involved at all in the taxi business.

CFTI president

solidarily liable

Petitioner-corporations would likewise want to avoid the solidary liability of their officers. To bolster their position, Sergio F. Naguiat and Antolin T. Naguiat
specifically aver that they were denied due process since they were not parties to the complaint below. 32 In the broader interest of justice, we, however, hold
that Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated from joint and several liability in the payment of separation pay to individual
respondents.

A.C. Ransom Labor Union-CCLU v. NLRC 33 is the case in point. A.C. Ransom Corporation was a family corporation, the stockholders of which were members of
the Hernandez family. In 1973, it filed an application for clearance to close or cease operations, which was duly granted by the Ministry of Labor and
Employment, without prejudice to the right of employees to seek redress of grievance, if any. Backwages of 22 employees, who engaged in a strike prior to the
closure, were subsequently computed at P164,984.00. Up to September 1976, the union filed about ten (10) motions for execution against the corporation, but
none could be implemented, presumably for failure to find leviable assets of said corporation. In its last motion for execution, the union asked that officers and
agents of the company be held personally liable for payment of the backwages. This was granted by the labor arbiter. In the corporation’s appeal to the NLRC,
one of the issues raised was: "Is the judgment against a corporation to reinstate its dismissed employees with backwages, enforceable against its officer and
agents, in their individual, private and personal capacities, who were not parties in the case where the judgment was rendered?" The NLRC answered in the
negative, on the ground that officers of a corporation are not liable personally for official acts unless they exceeded the scope of their authority.

On certiorari, this Court reversed the NLRC and upheld the labor arbiter. In imposing joint and several liability upon the company president, the Court, speaking
through Mme. Justice Ameurfina Melencio-Herrera, ratiocinated this wise: jgc:chanrobles.com.ph
through Mme. Justice Ameurfina Melencio-Herrera, ratiocinated this wise: jgc:chanrobles.com.ph

"(b) How can the foregoing (Articles 265 and 273 of the Labor Code) provisions be implemented when the employer is a corporation? The answer is found in
Article 212(c) of the Labor Code which provides: chanrob1es virtual 1aw library

‘(c) ‘Employer’ includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its
officers or agents except when acting as employer.’

The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed
to be the employer, being the ‘person acting in the interest of (the) employer’ RANSOM. The corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for nonpayment of back wages. That is the policy of
the law. . . .

(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. . . .

(d) The record does not clearly identify ‘the officer or officers’ of RANSOM directly responsible for failure to pay the back wages of the 22 strikers. In the
absence of definite proof in that regard, we believe it should be presumed that the responsible officer is the President of the corporation who can be deemed
the chief operation officer thereof . Thus, in RA 602, criminal responsibility is with the ‘Manager or in his default, the person acting as such.’ In RANSOM, the
President appears to be the Manager." (Emphasis supplied.)

Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed the business. Thus, applying the ruling in A. C. Ransom, he falls within the
meaning of an "employer" as contemplated by the Labor Code, who may be held jointly and severally liable for the obligations of the corporation to its
dismissed employees.

Moreover, petitioners also conceded that both CFTI and Naguiat Enterprises were "close family corporations" 34 owned by the Naguiat family. Section 100,
paragraph 5, (under Title XII on Close Corporations) of the Corporation Code, states: jgc:chanrobles.com.ph

"(5) To the extent that the stockholders are actively engage(d) in the management or operation of the business and affairs of a close corporation, the
stockholders shall be held to strict fiduciary duties to each other and among themselves. Said stockholders shall be personally liable for corporate torts unless
the corporation has obtained reasonably adequate liability insurance." (Emphasis supplied)

Nothing in the records show whether CFTI obtained "reasonably adequate liability insurance;" thus, what remains is to determine whether there was corporate
tort.

Our jurisprudence is wanting as to the definite scope of "corporate tort." Essentially, "tort" consists in the violation of a right given or the omission of a duty
imposed by law. 35 Simply stated, tort is a breach of a legal duty. 36 Article 283 of the Labor Code mandates the employer to grant separation pay to
employees in case of closure or cessation of operations of establishment or undertaking not due to serious business losses or financial reverses, which is the
condition obtaining at bar. CFTI failed to comply with this law-imposed duty or obligation. Consequently, its stockholder who was actively engaged in the
management or operation of the business should be held personally liable.

Furthermore, in MAM Realty Development v. NLRC, 37 the Court recognized that a director or officer may still be held solidarily liable with a corporation by
specific provision of law. Thus: jgc:chanrobles.com.ph

". . . A corporation, being a juridical entity, may act only through its directors, officers and employees. Obligations incurred by them, acting as such corporate
agents, are not theirs but the direct accountabilities of the corporation they represent. True, solidary liabilities may at times be incurred but only when
exceptional circumstances warrant such as, generally, in the following cases: chanrob1es virtual 1aw library

x x x

4. When a director, trustee or officer is made. by specific provision of law, personally liable for his corporate action." (footnotes omitted)

As pointed out earlier, the fifth paragraph of Section 100 of the Corporation Code specifically imposes personal liability upon the stockholder actively managing
or operating the business and affairs of the close corporation.

In fact, in posting the surety bond required by this Court for the issuance of a temporary restraining order enjoining the execution of the assailed NLRC
Resolutions, only Sergio F. Naguiat, in his individual and personal capacity, principally bound himself to comply with the obligation thereunder, i.e., "to
guarantee the payment to private respondents of any damages which they may incur by reason of the issuance of a temporary restraining order sought, if it
should be finally adjudged that said principals were not entitled thereto." 38

The Court here finds no application to the rule that a corporate officer cannot be held solidarily liable with a corporation in the absence of evidence that he had
acted in bad faith or with malice. 39 In the present case, Sergio Naguiat is held solidarily liable for corporate tort because he had actively engaged in the
management and operation of CFTI, a close corporation.

Antolin Naguiat not personally liable

Antolin T. Naguiat was the vice president of the CFTI. Although he carried the title of "general manager" as well, it had not been shown that he had acted in
such capacity. Furthermore, no evidence on the extent of his participation in the management or operation of the business was proffered. In this light, he
cannot be held solidarily liable for the obligations of CFTI and Sergio Naguiat to the private respondents.

Fourth Issue: No Denial of Due Process

Lastly, in petitioners’ Supplement to their original petition, they assail the NLRC Resolution holding Sergio F. Naguiat and Antolin T. Naguiat jointly and severally
liable with petitioner-corporations in the payment of separation pay, averring denial of due process since the individual Naguiats were not impleaded as parties
to the complaint.

We advert to the case of A.C. Ransom once more. The officers of the corporation were not parties to the case when the judgment in favor of the employees was
rendered. The corporate officers raised this issue when the labor arbiter granted the motion of the employees to enforce the judgment against them. In spite of
this, the Court held the corporation president solidarily liable with the corporation.

Furthermore, Sergio and Antolin Naguiat voluntarily submitted themselves to the jurisdiction of the labor arbiter when they, in their individual capacities, filed a
position paper 40 together with CFTI, before the arbiter. They cannot now claim to have been denied due process since they availed of the opportunity to
present their positions.

WHEREFORE, the foregoing premises considered, the petition is PARTLY GRANTED. The assailed February 28, 1994 Resolution of the NLRC is hereby MODIFIED
as follows:chanrob1es virtual 1aw library

(1) Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat, president and co-owner thereof, are ORDERED to pay, jointly and severally, the individual
respondents their separation pay computed at US$120.00 for every year of service, or its peso equivalent at the time of payment or satisfaction of the
judgment; chanroblesvirtual|awlibrary

(2) Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T. Naguiat are ABSOLVED from liability in the payment of separation pay to individual
respondents.

SO ORDERED.

G.R. No. 129459 September 29, 1998

SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner,
vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL DEVELOPMENT CORP. and JNM REALTY
AND DEVELOPMENT CORP., respondents.

PANGANIBAN, J.:
May corporate treasurer, by herself and without any authorization from he board of directors, validly sell a parcel of land owned by the
corporation?. May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are owned by
said treasurer and her husband?
The Case
These questions are answered in the negative by this Court in resolving the Petition for Review on Certiorari before us, assailing the March 18,
1 2
1997 Decision of the Court of Appeals in CA GR CV No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of
3
Makati, Metro Manila, Branch 63 in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the Counterclaim filed by the parties. On
the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH MODIFICATION ordering defendant-appellee
Nenita Lee Gruenberg to REFUND or return to plaintiff-appellant the downpayment of P100,000.00 which she received from
4
plaintiff-appellant. There is no pronouncement as to costs.
5
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration.
The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended complaint alleged that on 14 February 1989, plaintiff-
appellant entered into an agreement with defendant-appellee Motorich Sales Corporation for the transfer to it of a parcel of land
identified as Lot 30, Block 1 of the Acropolis Greens Subdivision located in the District of Murphy, Quezon City. Metro Manila,
containing an area of Four Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876: that as stipulated in the
Agreement of 14 February 1989, plaintiff-appellant paid the downpayment in the sum of One Hundred Thousand (P100,000.00)
Pesos, the balance to be paid on or before March 2, 1989; that on March 1, 1989. Mr. Andres T. Co, president of plaintiff-appellant
corporation, wrote a letter to defendant-appellee Motorich Sales Corporation requesting for a computation of the balance to be
paid: that said letter was coursed through defendant-appellee's broker. Linda Aduca, who wrote the computation of the balance:
that on March 2, 1989, plaintiff-appellant was ready with the amount corresponding to the balance, covered by Metrobank
Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales Corporation; that plaintiff-appellant and defendant-
appellee Motorich Sales Corporation were supposed to meet in the office of plaintiff-appellant but defendant-appellee's treasurer,
Nenita Lee Gruenberg, did not appear; that defendant-appellee Motorich Sales Corporation despite repeated demands and in
utter disregard of its commitments had refused to execute the Transfer of Rights/Deed of Assignment which is necessary to
transfer the certificate of title; that defendant ACL Development Corp. is impleaded as a necessary party since Transfer Certificate
of Title No. (362909) 2876 is still in the name of said defendant; while defendant JNM Realty & Development Corp. is likewise
impleaded as a necessary party in view of the fact that it is the transferor of right in favor of defendant-appellee Motorich Sales
Corporation: that on April 6, 1989, defendant ACL Development Corporation and Motorich Sales Corporation entered into a Deed
of Absolute Sale whereby the former transferred to the latter the subject property; that by reason of said transfer, the Registry of
Deeds of Quezon City issued a new title in the name of Motorich Sales Corporation, represented by defendant-appellee Nenita
Lee Gruenberg and Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that as a result of defendants-appellees
Nenita Lee Gruenberg and Motorich Sales Corporation's bad faith in refusing to execute a formal Transfer of Rights/Deed of
Assignment, plaintiff-appellant suffered moral and nominal damages which may be assessed against defendants-appellees in the
sum of Five Hundred Thousand (500,000.00) Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich
Sales Corporation's unjustified and unwarranted failure to execute the required Transfer of Rights/Deed of Assignment or formal
deed of sale in favor of plaintiff-appellant, defendants-appellees should be assessed exemplary damages in the sum of One
Hundred Thousand (P100,000.00) Pesos; that by reason of defendants-appellees' bad faith in refusing to execute a Transfer of
Rights/Deed of Assignment in favor of plaintiff-appellant, the latter lost the opportunity to construct a residential building in the sum
of One Hundred Thousand (P100,000.00) Pesos; and that as a consequence of defendants-appellees Nenita Lee Gruenberg and
Motorich Sales Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiff-appellant, it has been constrained
to obtain the services of counsel at an agreed fee of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every
appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee Gruenberg interposed as affirmative defense that
the President and Chairman of Motorich did not sign the agreement adverted to in par. 3 of the amended complaint; that Mrs.
Gruenberg's signature on the agreement (ref: par. 3 of Amended Complaint) is inadequate to bind Motorich. The other signature,
that of Mr. Reynaldo Gruenberg, President and Chairman of Motorich, is required: that plaintiff knew this from the very beginning
as it was presented a copy of the Transfer of Rights (Annex B of amended complaint) at the time the Agreement (Annex B of
amended complaint) was signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs. Gruenberg accept the
P100,000.00 as earnest money; that granting, without admitting, the enforceability of the agreement, plaintiff-appellant
nonetheless failed to pay in legal tender within the stipulated period (up to March 2, 1989); that it was the understanding between
Mrs. Gruenberg and plaintiff-appellant that the Transfer of Rights/Deed of Assignment will be signed only upon receipt of cash
payment; thus they agreed that if the payment be in check, they will meet at a bank designated by plaintiff-appellant where they
will encash the check and sign the Transfer of Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged
availability of the check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed from[,] dismissing plaintiff-appellant's complaint,
ruling that:
The issue to be resolved is: whether plaintiff had the right to compel defendants to execute a deed of absolute
sale in accordance with the agreement of February 14, 1989: and if so, whether plaintiff is entitled to damage.
As to the first question, there is no evidence to show that defendant Nenita Lee Gruenberg was indeed authorized
by defendant corporation. Motorich Sales, to dispose of that property covered by T.C.T. No. (362909) 2876. Since
the property is clearly owned by the corporation. Motorich Sales, then its disposition should be governed by the
requirement laid down in Sec. 40. of the Corporation Code of the Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to the provisions of existing laws on illegal
combination and monopolies, a corporation may by a majority vote of its board of directors . . .
sell, lease, exchange, mortgage, pledge or otherwise dispose of all or substantially all of its
property and assets including its goodwill . . . when authorized by the vote of the stockholders
representing at least two third (2/3) of the outstanding capital stock . . .
No such vote was obtained by defendant Nenita Lee Gruenberg for that proposed sale[;] neither was there
evidence to show that the supposed transaction was ratified by the corporation. Plaintiff should have been on the
look out under these circumstances. More so, plaintiff himself [owns] several corporations (tsn dated August 16,
1993, p. 3) which makes him knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find substantial evidence to hold defendant
Nenita Lee Gruenberg liable considering that she did not in anyway misrepresent herself to be authorized by the
corporation to sell the property to plaintiff (tsn dated September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at instance for lack of
 In the light of the foregoing, the Court hereby renders judgment DISMISSING the complaint at instance for lack of
merit.
"Defendants" counterclaim is also DISMISSED for lack of basis. (Decision, pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized and existing under and by virtue of Philippine
Laws, with principal office address at 5510 South Super Hi-way cor. Balderama St., Pio del Pilar. Makati, Metro
Manila, represented herein by its Treasurer, NENITA LEE GRUENBERG, hereinafter referred to as the
TRANSFEROR;
— and —
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation duly organized and existing under and by
virtue of the laws of the Philippines, with principal office address at Sumulong Highway, Barrio Mambungan,
Antipolo, Rizal, represented herein by its President, ANDRES T. CO, hereinafter referred to as the
TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30 Block 1 of the ACROPOLIS GREENS
SUBDIVISION located at the District of Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED FOURTEEN
(414) SQUARE METERS, covered by a TRANSFER OF RIGHTS between JNM Realty & Dev. Corp. as the Transferor and
Motorich Sales Corp. as the Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties have agreed as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO HUNDRED PESOS (P5,200.00) per square meter;
subject to the following terms:
a. Earnest money amounting to ONE HUNDRED THOUSAND PESOS (P100,000.00), will be
paid upon the execution of this agreement and shall form part of the total purchase price;
b. Balance shall be payable on or before March 2, 1989;
2. That the monthly amortization for the month of February 1989 shall be for the account of the Transferor; and
that the monthly amortization starting March 21, 1989 shall be for the account of the Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described property and that there [are] no existing liens
and/or encumbrances of whatsoever nature;

In case of failure by the Transferee to pay the balance on the date specified on 1, (b), the earnest money shall be forfeited in favor
of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a TRANSFER OF RIGHTS/DEED OF
ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of February, 1989 at Greenhills, San Juan,
Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL FABRICATORS
TRANSFEROR TRANSFEREE
[SGD.] [SGD.]
By. NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed In the presence of:
[SGD.] [SGD.]
6
————————————— ———————————
In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute a Deed of Absolute Sale in accordance with the
Agreement of February 14, 1989,
7
2. Plaintiff is entitled to damages.
As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision of the RTC with the modification that
Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to petitioner, the amount remitted as "downpayment" or "earnest money."
8
Hence, this petition before us.
 The Issues
Before this Court, petitioner raises the following issues:
I. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in the instant case
II. Whether or not the appellate court may consider matters which the parties failed to raise in the lower court
III. Whether or not there is a valid and enforceable contract between the petitioner and the respondent corporation
IV. Whether or not the Court of Appeals erred in holding that there is a valid correction/substitution of answer in
the transcript of stenographic note[s].
9
V. Whether or not respondents are liable for damages and attorney's fees
The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied to Motorich?
3. Is the alleged alteration of Gruenberg's testimony as recorded in the transcript of stenographic notes material to
the disposition of this case?
4. Are respondents liable for damages and attorney's fees?
The Court's Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it entered through its president, Andres Co, into the
disputed Agreement with Respondent Motorich Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg.
Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the contract they both consented to be bound by the terms thereof."
Ergo, petitioner contends that the contract is binding on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot owned by Motorich Sales Corporation was
purportedly sold. Such contract, however, cannot bind Motorich, because it never authorized or ratified such sale.
A corporation is a juridical person separate and distinct from its stockholders or members. Accordingly, the property of the corporation is not the
property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation's
10
board of directors. Section 23 of BP 68, otherwise known as the Corporation Code of the Philippines, provides;
Sec. 23. The Board of Directors or Trustees. — Unless otherwise provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the
board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year and until their successors are elected and qualified.
Indubitably, a corporation may act only through its board of directors or, when authorized either by its bylaws or by its board resolution, through its
officers or agents in the normal course of business. The general principles of agency govern the relation between the corporation and its officers or
11
agents, subject to the articles of incorporation, bylaws, or relevant provisions of law. Thus, this Court has held that "a corporate officer or agent
may represent and bind the corporation in transactions with third persons to the extent that the authority to do so has been conferred upon him,
and this includes powers which have been intentionally conferred, and also such powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally conferred, powers added by custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers as the corporation has caused persons dealing with the officer or agent to believe that it has
12
conferred."
Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent, whether the assumed agency be a general or
special one bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of
13
authority, and in case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4 Phil. 19)." Unless duly
14
authorized, a treasurer, whose powers are limited, cannot bind the corporation in a sale of its assets.
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its treasurer, to sell the subject parcel of
15
land. Consequently, petitioner had the burden of proving that Nenita Gruenberg was in fact authorized to represent and bind Motorich in the
16
transaction. Petitioner failed to discharge this burden. Its offer of evidence before the trial court contained no proof of such authority. It has not
shown any provision of said respondent's articles of incorporation, bylaws or board resolution to prove that Nenita Gruenberg possessed such
power.

That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of ascertaining the extent of her authority to
represent the corporation. Petitioner cannot assume that she, by virtue of her position, was authorized to sell the property of the corporation.
Selling is obviously foreign to a corporate treasurer's function, which generally has been described as "to receive and keep the funds of the
17
corporation, and to disburse them in accordance with the authority given him by the board or the properly authorized officers."
Neither was such real estate sale shown to be a normal business activity of Motorich. The primary purpose of Motorich is marketing, distribution,
18
export and import in relation to a general merchandising business. Unmistakably, its treasurer is not cloaked with actual or apparent authority to
buy or sell real property, an activity which falls way beyond the scope of her general authority.
Art. 1874 and 1878 of the Civil Code of the Philippines provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing:
otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following case:
 xxx xxx xxx
(5) To enter any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration;
xxx xxx xxx.
Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its "acceptance of benefits," as evidenced by the
19
receipt issued by Respondent Gruenberg. Petitioner is clutching at straws.
As a general rule, the acts of corporate officers within the scope of their authority are binding on the corporation. But when these officers exceed
20
their authority, their actions "cannot bind the corporation, unless it has ratified such acts or is estopped from disclaiming them."
In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it appear to any third person that she had
the authority, to sell its land or to receive the earnest money. Neither was there any proof that Motorich ratified, expressly or impliedly, the contract.
Petitioner rests its argument on the receipt which, however, does not prove the fact of ratification. The document is a hand-written one, not a
corporate receipt, and it bears only Nenita Gruenberg's signature. Certainly, this document alone does not prove that her acts were authorized or
ratified by Motorich.
Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the contracting parties; (2) object certain which is
21
the subject matter of the contract; (3) cause of the obligation which is established." As found by the trial court and affirmed by the Court of
22
Appeals, there is no evidence that Gruenberg was authorized to enter into the contract of sale, or that the said contract was ratified by Motorich.
23
This factual finding of the two courts is binding on this Court. As the consent of the seller was not obtained, no contract to bind the obligor was
perfected. Therefore, there can be no valid contract of sale between petitioner and Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel of land, we hold that the February 14, 1989
Agreement entered into by the latter with petitioner is void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said
24
contract cannot be ratified.
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the latter is a close corporation. Since "Spouses
25
Reynaldo L. Gruenberg and Nenita R. Gruenberg owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" of Motorich,
26
petitioner argues that Gruenberg needed no authorization from the board to enter into the subject contract. It adds that, being solely owned by
the Spouses Gruenberg, the company can treated as a close corporation which can be bound by the acts of its principal stockholder who needs
no specific authority. The Court is not persuaded.
27
First, petitioner itself concedes having raised the issue belatedly, not having done so during the trial, but only when it filed its sur-rejoinder before
28
the Court of Appeals. Thus, this Court cannot entertain said issue at this late stage of the proceedings. It is well-settled the points of law, theories
and arguments not brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot
29
be raised for the first time on appeal. Allowing petitioner to change horses in midstream, as it were, is to run roughshod over the basic principles
of fair play, justice and due process.
Second, even if the above mentioned argument were to be addressed at this time, the Court still finds no reason to uphold it. True, one of the
30
advantages of a corporate form of business organization is the limitation of an investor's liability to the amount of the investment. This feature
flows from the legal theory that a corporate entity is separate and distinct from its stockholders. However, the statutorily granted privilege of a
31
corporate veil may be used only for legitimate purposes. On equitable considerations, the veil can be disregarded when it is utilized as a shield to
commit fraud, illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or business conduit of a
32
person or an instrumentality, agency or adjunct of another corporation.
Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a fraud or an illegal act or as vehicle for the
evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to
33
allow for its consideration merely as an aggregation of individuals."
We stress that the corporate fiction should be set aside when it becomes a shield against liability for fraud, illegality or inequity committed on third
persons. The question of piercing the veil of corporate fiction is essentially, then, a matter of proof. In the present case, however, the Court finds no
reason to pierce the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was formed, or that it is
operated, for the purpose of shielding any alleged fraudulent or illegal activities of its officers or stockholders; or that the said veil was used to
conceal fraud, illegality or inequity at the expense of third persons like petitioner.
Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the Corporation Code defines a close corporation as
follows:
Sec. 96. Definition and Applicability of Title. — A close corporation, within the meaning of this Code, is one whose articles of
incorporation provide that: (1) All of the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of
record by not more than a specified number of persons, not exceeding twenty (20); (2) All of the issued stock of all classes shall
be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in any stock
exchange or make any public offering of any of its stock of any class. Notwithstanding the foregoing, a corporation shall be
deemed not a close corporation when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another
corporation which is not a close corporation within the meaning of this Code. . . . .
34
The articles of incorporation of Motorich Sales Corporation does not contain any provision stating that (1) the number of stockholders shall not
exceed 20, or (2) a preemption of shares is restricted in favor of any stockholder or of the corporation, or (3) listing its stocks in any stock
exchange or making a public offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close
35
corporation. Motorich does not become one either, just because Spouses Reynaldo and Nenita Gruenberg owned 99.866% of its subscribed
capital stock. The "[m]ere ownership by a single stockholder or by another corporation of all or capital stock of a corporation is not of itself
36
sufficient ground for disregarding the separate corporate personalities." So, too, a narrow distribution of ownership does not, by itself, make a

close corporation.
37
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals wherein the Court ruled that ". . . petitioner corporation is classified as a
close corporation and, consequently, a board resolution authorizing the sale or mortgage of the subject property is not necessary to bind the
38
corporation for the action of its president." But the factual milieu in Dulay is not on all fours with the present case. In Dulay, the sale of real
39
property was contracted by the president of a close corporation with the knowledge and acquiescence of its board of directors. In the present
case, Motorich is not a close corporation, as previously discussed, and the agreement was entered into by the corporate treasurer without the
knowledge of the board of directors.
The Court is not unaware that there are exceptional cases where "an action by a director, who singly is the controlling stockholder, may be
40
considered as a binding corporate act and a board action as nothing more than a mere formality." The present case, however, is not one of them.
41
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of Respondent Motorich. Since Nenita is not the sole
controlling stockholder of Motorich, the aforementioned exception does not apply. Granting arguendo that the corporate veil of Motorich is to be
controlling stockholder of Motorich, the aforementioned exception does not apply. Granting arguendo that the corporate veil of Motorich is to be
disregarded, the subject parcel of land would then be treated as conjugal property of Spouses Gruenberg, because the same was acquired during
their marriage. There being no indication that said spouses, who appear to have been married before the effectivity of the Family Code, have
42
agreed to a different property regime, their property relations would be governed by conjugal partnership of gains. As a consequence, Nenita
Gruenberg could not have effected a sale of the subject lot because "[t]here is no co-ownership between the spouses in the properties of the
conjugal partnership of gains. Hence, neither spouse can alienate in favor of another his or interest in the partnership or in any property belonging
43
to it; neither spouse can ask for a partition of the properties before the partnership has been legally dissolved."
Assuming further, for the sake of argument, that the spouses' property regime is the absolute community of property, the sale would still be invalid.
Under this regime, "alienation of community property must have the written consent of the other spouse or he authority of the court without which
44
the disposition or encumbrance is void." Both requirements are manifestly absent in the instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN):
Q Did you ever represent to Mr. Co that you were authorized by the corporation to sell the property?
45
A Yes, sir.
46
Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial scribbled above it. This, however, is
insufficient to prove that Nenita Gruenberg was authorized to represent Respondent Motorich in the sale of its immovable property. Said excerpt
be understood in the context of her whole testimony. During her cross-examination. Respondent Gruenberg testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that you were authorized to sell the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the property, you did not tell that to Mr. Co, is that
correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it [was] also the president who [was] also
authorized to sign on behalf of the corporation.
Q You did not say that you were not authorized nor did you say that you were authorized?
A Mr. Co was very interested to purchase the property and he offered to put up a P100,000.00 earnest money at
that time. That was our first meeting. 47
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property. On the other hand, her testimony demonstrates
that the president of Petitioner Corporation, in his great desire to buy the property, threw caution to the wind by offering and paying the earnest
money without first verifying Gruenberg's authority to sell the lot.
Fourth Issue:
Damages and Attorney's Fees
Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice and bad faith, respondents attempted and
succeeded in impressing on the trial court and [the] Court of Appeals that Gruenberg did not represent herself as authorized by Respondent
Motorich despite the receipt issued by the former specifically indicating that she was signing on behalf of Motorich Sales Corporation. Respondent
Motorich likewise acted in bad faith when it claimed it did not authorize Respondent Gruenberg and that the contract [was] not binding, [insofar] as
48
it [was] concerned, despite receipt and enjoyment of the proceeds of Gruenberg's act." Assuming that Respondent Motorich was not a party to
the alleged fraud, petitioner maintains that Respondent Gruenberg should be held liable because she "acted fraudulently and in bad faith [in]
49
representing herself as duly authorized by [R]espondent [C]orporation."
As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing allegations lack factual bases. Hence, an
award of damages or attorney's fees cannot be justified. The amount paid as "earnest money" was not proven to have redounded to the benefit of
Respondent Motorich. Petitioner claims that said amount was deposited to the account of Respondent Motorich, because "it was deposited with
50
the account of Aren Commercial c/o Motorich Sales Corporation." Respondent Gruenberg, however, disputes the allegations of petitioner. She
testified as follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that was encashed, the check was encashed.
A Yes. sir, the check was paid in my name and I deposit[ed] it.
Q In your account?
51
A Yes, sir.
52
In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not push through."
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the president of Petitioner Corporation for
53
more than ten years and has also served as chief executive of two other corporate entities. Co cannot feign ignorance of the scope of the
authority of a corporate treasurer such as Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's authorization
to enter into a contract to sell a parcel of land belonging to Motorich.
Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court. Indubitably, petitioner appears to be the victim
of its own officer's negligence in entering into a contract with and paying an unauthorized officer of another corporation.

As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return to petitioner the amount she received as
54 55
earnest money, as "no one shall enrich himself at the expense of another." a principle embodied in Article 2154 of Civil Code. Although there
was no binding relation between them, petitioner paid Gruenberg on the mistaken belief that she had the authority to sell the property of
56
Motorich. Article 2155 of Civil Code provides that "[p]ayment by reason of a mistake in the contruction or application of a difficult question of law
may come within the scope of the preceding article."
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.

M. DISSOLUTION
G.R. No. L-39050 February 24, 1981
CARLOS GELANO and GUILLERMINA MENDOZA DE GELANO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and INSULAR SAWMILL, INC., respondents.

DE CASTRO, J.:
Private respondent Insular Sawmill, Inc. is a corporation organized on September 17, 1945 with a corporate life of fifty (50) years, or up to
September 17, 1995, with the primary purpose of carrying on a general lumber and sawmill business. To carry on this business, private
respondent leased the paraphernal property of petitioner-wife Guillermina M. Gelano at the corner of Canonigo and Otis, Paco, Manila for
P1,200.00 a month. It was while private respondent was leasing the aforesaid property that its officers and directors had come to know petitioner-
husband Carlos Gelano who received from the corporation cash advances on account of rentals to be paid by the corporation on the land.
Between November 19, 1947 to December 26, 1950 petitioner Carlos Gelano obtained from private respondent cash advances of P25,950.00.
The said sum was taken and received by petitioner Carlos Gelano on the agreement that private respondent could deduct the same from the
monthly rentals of the leased premises until said cash advances are fully paid. Out of the aforementioned cash advances in the total sum of
P25,950.00, petitioner Carlos Gelano was able to pay only P5,950.00 thereby leaving an unpaid balance of P20,000.00 which he refused to pay
despite repeated demands by private respondent. Petitioner Guillermina M. Gelano refused to pay on the ground that said amount was for the
personal account of her husband asked for by, and given to him, without her knowledge and consent and did not benefit the family.
On various occasions from May 4, 1948 to September 11, 1949 petitioners husband and wife also made credit purchases of lumber materials from
private respondent with a total price of P1,120.46 in connection with the repair and improvement of petitioners' residence. On November 9, 1949
partial payment was made by petitioners in the amount of P91.00 and in view of the cash discount in favor of petitioners in the amount of P83.00,
the amount due private respondent on account of credit purchases of lumber materials is P946.46 which petitioners failed to pay.
On July 14, 1952, in order to accommodate and help petitioners renew previous loans obtained by them from the China Banking Corporation,
private respondent, through Joseph Tan Yoc Su, executed a joint and several promissory note with Carlos Gelano in favor of said bank in the
amount of P8,000.00 payable in sixty (60) days. For failure of Carlos Gelano to pay the promissory note upon maturity, the bank collected from the
respondent corporation the amount of P9,106.00 including interests, by debiting it from the corporation's current account with the bank. Petitioner
Carlos Gelano was able to pay private respondent the amount of P5,000.00 but the balance of P4,106.00 remained unsettled. Guillermina M.
Gelano refused to pay on the ground that she had no knowledge about the accommodation made by the corporation in favor of her husband.
On May 29, 1959 the corporation, thru Atty. German Lee, filed a complaint for collection against herein petitioners before the Court of First
Instance of Manila. Trial was held and when the case was at the stage of submitting memorandum, Atty. Lee retired from active law practice and
Atty. Eduardo F. Elizalde took over and prepared the memorandum.
In the meantime, private respondent amended its Articles of Incorporation to shorten its term of existence up to December 31, 1960 only. The
amended Articles of Incorporation was filed with, and approved by the Securities and Exchange Commission, but the trial court was not notified of
the amendment shortening the corporate existence and no substitution of party was ever made. On November 20, 1964 and almost four (4) years
after the dissolution of the corporation, the trial court rendered a decision in favor of private respondent the dispositive portion of which reads as
follows:
WHEREFORE, judgment is rendered, ordering:
1. Defendant Carlos Gelano to pay plaintiff the sum of:
(a) P19,650.00 with interest thereon at the legal rate from the date of the filing of the complaint on May 29, 1959,
until said sum is fully paid;
(b) P4,106.00, with interest thereon at the legal rate from the date of the filing of the complaint until said sum is
fully paid;
2. Defendants Carlos Gelano and Guillermina Mendoza to pay jointly and severally the sum of:
(a) P946.46, with interest thereon, at the agreed rate of 12% per annum from October 6, 1946, until said sum is
fully paid;
(b) P550.00, with interest thereon at the legal rate from the date of the filing of the complaint until the said sum is
fully paid;
(c) Costs of the suit; and
3. Defendant Carlos Gelano to pay the plaintiff the sum of P2,000.00 attorney's fees.
The Countered of defendants are dismissed.
1
SO ORDERED.
Both parties appealed to the Court of Appeals, private respondent also appealing because it insisted that both Carlos Gelano and Guillermina
Gelano should be held liable for the substantial portion of the claim.
On August 23, 1973, the Court of Appeals rendered a decision modifying the judgment of the trial court by holding petitioner spouses jointly and
severally liable on private respondent's claim and increasing the award of P4,106.00. The dispositive portion of the decision reads as follows:
WHEREFORE, modified in the sense that the amount of P4,160.00 under paragraph 1 (b) is raised to P8,160.00 and the
clarification that the conjugal partnership of the spouses is jointly and severally liable for the obligations adjudged against
2
defendant Carlos Gelano, the judgment appealed from is affirmed in all other respects.
After petitioners received a copy of the decision on August 24, 1973, they came to know that the Insular Sawmill Inc. was dissolved way back on
December 31, 1960. Hence, petitioners filed a motion to dismiss the case and/or reconsideration of the decision of the Court of Appeals on
grounds that the case was prosecuted even after dissolution of private respondent as a corporation and that a defunct corporation cannot maintain
any suit for or against it without first complying with the requirements of the winding up of the affairs of the corporation and the assignment of its
property rights within the required period.
Incidentally, after receipt of petitioners' motion to dismiss and/or reconsideration or on October 28, 1973, private respondent thru its former
3
directors filed a Petition for Receivership before the Court of First Instance of Manila, docketed as Special Proceedings No. 92303, which petition
is still pending before said court.
On November 5, 1973, private respondent filed comment on the motion to dismiss and or reconsideration and after the parties have filed reply and
4
rejoinder, the Court of Appeals on July 5, 1974 issued a resolution denying the aforesaid motion.
Hence, the present petition for review, petitioners assigning the following errors:
I
 THE "RESPONDENT COURT" ERRED IN DENYING PETlTIONERS MOTION TO DISMISS THIS CASE DESPITE THE CLEAR
FINDING THAT "RESPONDENT" HAD ALREADY CEASED TO EXIST AS A CORPORATION SINCE DECEMBER 31, 1960 YET.
II
THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT ACTIONS PENDING FOR OR AGAINST A DEFUNCT
CORPORATION ARE DEEMED ABATED.
III
THE "RESPONDENT COURT" ERRED IN HOLDING INSTEAD THAT EVEN IF THERE WAS NO COMPLIANCE WITH
SECTIONS 77 AND 78 OF THE CORPORATION LAW FOR THE WINDING UP OF THE AFFAIRS OF THE CORPORATION BY
THE CONVEYANCE OF CORPORATE PROPERTY AND PROPERTY RIGHTS TO AN ASSIGNEE, OR TRUSTEE OR THE
APPOINTMENT OF A RECEIVER WITHIN THREE YEARS FROM THE DISSOLUTION OF SUCH CORPORATION, ANY
LITIGATION FILED BY OR AGAINST THE DISSOLVED CORPORATION, INSTITUTED WITHIN THREE YEARS AFTER SUCH
DISSOLUTION BUT WHICH COULD NOT BE TERMINATED WITHIN SAID PERIOD, MAY STILL BE CONTINUED AS IT IS NOT
DEEMED ABATED.
IV
THE "RESPONDENT COURT" ERRED IN THE APPLICATION TO THIS CASE OF ITS RULING IN PASAY CREDIT AND
FINANCE CORPORATION, VERSUS LAZARO, ET AL., 46 O.G. (11) 5528, AND IN OVERLOOKING THE DISTINCTION LAID
DOWN BY THIS HONORABLE COURT IN NUMEROUS DECIDED CASES THAT ONLY CASES FILED IN THE NAME OF
ASSIGNEES, TRUSTEES OR RECEIVERS (FOR A DEFUNCT CORPORATION), AI)POINTED WITHIN THREE YEARS FROM
ITS DISSOLUTION, MAY BE PROSECUTED BEYOND THE SAID THREE YEAR PERIOD, AND THAT, ALL OTHERS ARE
DEEMED ABATED.
V
THE "RESPONDENT COURT" ERRED IN HOLDING THAT WITH THE FILING OF SPECIAL PROCEEDINGS NO. 92303 IN THE
COURT OF FIRST INSTANCE OF MANILA BY FORMER DIRECTORS OF "PRIVATE RESPONDENT" ON OCTOBER 23,1973,
OR, THIRTEEN YEARS AFTER ITS DISSOLUTION, A LEGAL, PERSONALITY WILL BE APPOINTED TO REPRESENT THE
CORPORATION.
VI
THE "RESPONDENT COURT" ERRED IN PRACTICALLY RULING THAT THE THREE-YEAR PERIOD PROVIDED FOR BY THE
CORPORATION LAW WITHIN WHICH ASSIGNEES, TRUSTEES FOR RECEIVERS MAY BE APPOINTED MAY BE
EXTENDED.
VII
THE "RESPONDENT COURT" ERRED IN NOT HOLDING THAT THE FAILURE OF "PRIVATE RESPONDENT" OR ITS
AUTHORIZED COUNSEL TO NOTIFY THE TRIAL COURT OF ITS DISSOLUTION OR OF ITS "CIVIL DEATH" MAY BE
CONSIDERED AS AN ABANDONMENT OF ITS CAUSE OF ACTION AMOUNTING TO A FAILURE TO PROSECUTE AND
RESULTING IN THE ABATEMENT OF THE SUIT.
VIII
THE "RESPONDENT COURT" ERRED IN RECOGNIZING THE PERSONALITY OF COUNSEL APPEARING FOR PRIVATE
RESPONDENT' DESPITE HIS ADMISSION THAT HE DOES NOT KNOW THE "PRIVATE RESPONDENT" NOR HAS HE MET
ANY OF ITS DIRECTORS AND OFFICERS.
IX
THE "RESPONDENT COURT" ERRED IN AFFIRMING THE DECISION OF THE TRIAL COURT HOLDING IN FAVOR OF
"PRIVATE RESPONDENT".
X
THE "RESPONDENT COURT" ERRED IN MODIFYING THE TRIAL COURT'S DECISION AND HOLDING EVEN THE
CONJUGAL PARTNERSHIP OF PETITIONERS JOINTLY AND SEVERALLY LIABLE FOR THE OBLIGATION ADJUDGED
AGAINST PETITIONER-HUSBAND, CARLOS GELANO.
The main issue raised by petitioner is whether a corporation, whose corporate life had ceased by the expiration of its term of existence, could still
continue prosecuting and defending suits after its dissolution and beyond the period of three years provided for under Act No. 1459, otherwise
known as the Corporation law, to wind up its affairs, without having undertaken any step to transfer its assets to a trustee or assignee.
The complaint in this case was filed on May 29, 1959 when private respondent Insular Sawmill, Inc. was still existing. While the case was being
tried, the stockholders amended its Articles of Incorporation by shortening the term of its existence from December 31, 1995 to December 31,
1960, which was approved by the Securities and Exchange Commission.
In American corporate law, upon which our Corporation Law was patterned, it is well settled that, unless the statutes otherwise provide, all pending
5
suits and actions by and against a corporation are abated by a dissolution of the corporation. Section 77 of the Corporation Law provides that the
corporation shall "be continued as a body corporate for three (3) years after the time when it would have been ... dissolved, for the purpose of
prosecuting and defending suits By or against it ...," so that, thereafter, it shall no longer enjoy corporate existence for such purpose. For this
reason, Section 78 of the same law authorizes the corporation, "at any time during said three years ... to convey all of its property to trustees for
the benefit of members, Stockholders, creditors and other interested," evidently for the purpose, among others, of enabling said trustees to
6
prosecute and defend suits by or against the corporation begun before the expiration of said period. Commenting on said sections, Justice Fisher
said:
It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and
sue and be sued as a corporation is limited to three years from the time the period of dissolution commences; but that there is no
time limited within which the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78)
that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the work
of liquidation within the three-year period or to reduce disputed claims to judgment. The authorities are to the effect that suits by or

against a corporation abate when it ceased to be an entity capable of suing or being sued (7 R.C.L. Corps., Par. 750); but trustees
to whom the corporate assets have been conveyed pursuant to the authority of Section 78 may sue and be sued as such in all
matters connected with the liquidation. By the terms of the statute the effect of the conveyance is to make the trustees the legal
7
owners of the property conveyed, subject to the beneficial interest therein of creditors and stockholders.
When Insular Sawmill, Inc. was dissolved on December 31, 1960, under Section 77 of the Corporation Law, it stin has the right until December 31,
1963 to prosecute in its name the present case. After the expiration of said period, the corporation ceased to exist for all purposes and it can no
8
longer sue or be sued.
However, a corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution is authorized
under Section 78 to convey all its property to trustees to enable it to prosecute and defend suits by or against the corporation beyond the Three-
year period although private respondent (did not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation
year period although private respondent (did not appoint any trustee, yet the counsel who prosecuted and defended the interest of the corporation
in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the
matter in litigation only. Said counsel had been handling the case when the same was pending before the trial court until it was appealed before
the Court of Appeals and finally to this Court. We therefore hold that there was a substantial compliance with Section 78 of the Corporation Law
and as such, private respondent Insular Sawmill, Inc. could still continue prosecuting the present case even beyond the period of three (3) years
from the time of its dissolution.
From the above quoted commentary of Justice Fisher, the trustee may commence a suit which can proceed to final judgment even beyond the
three-year period. No reason can be conceived why a suit already commenced By the corporation itself during its existence, not by a mere trustee
who, by fiction, merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed — to proceed
to final judgment and execution thereof.
The word "trustee" as sued in the corporation statute must be understood in its general concept which could include the counsel to whom was
entrusted in the instant case, the prosecution of the suit filed by the corporation. The purpose in the transfer of the assets of the corporation to a
trustee upon its dissolution is more for the protection of its creditor and stockholders. Debtors like the petitioners herein may not take advantage of
the failure of the corporation to transfer its assets to a trustee, assuming it has any to transfer which petitioner has failed to show, in the first place.
To sustain petitioners' contention would be to allow them to enrich themselves at the expense of another, which all enlightened legal systems
condemn.
The observation of the Court of Appeals on the issue now before Us that:
Under Section 77 of the Corporation Law, when the corporate existence is terminated in any legal manner, the corporation shall
nevertheless continue as a body corporate for three (3) years after the time when it would have been dissolved, for the purpose of
prosecuting and defending suits by or against it. According to authorities, the corporation "becomes incapable of making contracts
or receiving a grant. It does not, however, cease to be a body corporate for all purposes." In the case of Pasay Credit and Finance
Corp. vs. Isidro Lazaro and others, 46 OG (11) 5528, this Court held that "a corporation may continue a pending 'litigation even
after the lapse of the 3-year period granted by Section 77 of Act 1459 to corporation subsequent to their dissolution to continue its
corporate existence for the purpose of winding up their affairs and settling all the claims by and against same." We note that the
plaintiff Insular Sawmill, Inc. ceased as a corporation on December 30, 1960 but the case at bar was instituted on May 29, 1959,
during the time when the corporation was still very much alive. Accordingly, it is our view that "any litigation filed by or against it
instituted within the period, but which could not be terminated, must necessarily prolong that period until the final termination of
said litigation as otherwise corporations in liquidation would lose what should justly belong to them or would be exempt from the
payment of just obligations through a mere technicality, something that courts should prevent" (Philippine Commercial Laws by
Martin, 1962 Ed., Vol. 2, p. 1716).
merits the approval of this Court.
The last two assigned errors refer to the disposition of the main case. Petitioners contend that the obligations contracted by petitioner Carlos
Gelano from November 19, 1947 until August 18, 1950 (before the effectivity of the New Civil Code) and from December 26, 1950 until July 14,
1952 (during the effectivity of the New Civil Code) were his personal obligations, hence, petitioners should not be held jointly and severally liable.
As regards the said issues, suffice it to say that with the findings of the Court of Appeals that the obligation contracted by petitioner-husband
Carlos Gelano redounded to the benefit of the family, the inevitable conclusion is that the conjugal property is liable for his debt pursuant to
9
paragraph 1, Article 1408, Civil Code of 1889 which provision incidentally can still be found in paragraph 1, Article 161 of the New Civil
10
Code. Only the conjugal partnership is liable, not joint and several as erroneously described by the Court of Appeals, the conjugal partnership
being only a single entity.
WHEREFORE, with the modification that only the conjugal partnership is liable, the appealed decision is hereby affirmed in all other respects.
Without pronouncement as to costs.
SO ORDERED.

G.R. No. 102965 January 21, 1999

JAMES REBURIANO and URBANO REBURIANO, petitioners,
vs.
HONORABLE COURT OF APPEALS AND PEPSI COLA BOTTLING COMPANY OF THE PHILIPPINES INC., respondents.

MENDOZA, J.:
In Civil Case No. Q-35598, entitled "Pepsi Cola Bottling Company of the Philippines Inc. v. Urbano (Ben) Reburiano and James Reburiano," the
Regional Trial Court, Branch 103 rendered on June 1, 1987 a decision, the dispositive portion of which reads:
ACCORDINGY, judgment is hereby rendered in favor of plaintiff Pepsi Cola Bottling Co. of the Philippines Inc.
1. Ordering the defendants Urbano (Ben) Reburiano and James Reburiano to pay jointly and severally the plaintiff the sum of
P55,000.00 less whatever empties (cases and bottles) may be returned by said defendants valued at the rate of P55.00 per empty
case with bottles.
2. Costs against the defendants in case of execution.
SO ORDERED.
Private respondent Pepsi Cola Bottling Company of the Philippines Inc. appealed to the Court of Appeals seeking the modification of the portion of
the decision, which stated the value of the cases with empty bottles as P55.00 per case and obtained a favorable decision. On June 26, 1990,
judgment was rendered as follows:
WHEREFORE, the decision appealed from is SET ASIDE and another one is rendered, ordering the defendant appellees to pay
jointly and severally the plaintiff-appellant the sum of P55,000.00 with interest at the legal rate from January 1982. With costs
against defendants-appellees.
After the case had been remanded to it and the judgment had become final and executory, the trial court issued on February 5, 1991 a writ of
execution.
It appears that prior to the promulgation of the decision of the trial court, private respondent amended its articles of incorporation to shorten its
term of existence to July 8, 1983. The amended articles of incorporation was approved by the Securities and Exchange Commission on March 2,
1984. The trial court was not notified of this fact.
On February 13, 1991, petitioners moved to quash the writ of execution alleging —
3. That when the trial of this case was conducted, when the decision was rendered by this Honorable Court, when the said
decision was appealed to the Court of Appeals, and when the Court of Appeals rendered its decision, the private respondent was
no longer in existence and had no more juridical personality and so, as such, it no longer had the capacity to sue and be sued;
4. That after the [private respondent], as a corporation, lost its existence and juridical personality, Atty. Romualdo M. Jubay had no
more client in this case and so his appearance in this case was no longer possible and tenable;
 5. That in view of the foregoing premises, therefore, the decision rendered by this Honorable Court and by the Honorable Court of
Appeals are patent nullity, for lack of jurisdiction and lack of capacity to sue and be sued on the part of the [private respondent];
6. That the above-stated change in the situation of parties, whereby the [private respondent] ceased to exist since 8 July 1983,
1
renders the execution of the decision inequitable or impossible.
Private respondent opposed petitioners' motion. It argued that the jurisdiction of the court as well as the respective parties capacity to sue had
already been established during the initial stages of the case; and that when the complaint was filed in 1982, private respondent was still an
existing corporation so that the mere fact that it was dissolved at the time the case was yet to be resolved did not warrant the dismissal of the case
or oust the trial court of its jurisdiction. Private respondent further claimed that its dissolution was effected in order to transfer its assets to a new
2
firm of almost the same name and was thus only for convenience.
3
On February 28, 1991, the trial court issued an order denying petitioners' motion to quash. Petitioners then filed a notice of appeal, but private
respondent moved to dismiss the appeal on the ground that the trial court's order of February 28, 1991 denying petitioners' motion to quash writ of
4
execution was not appealable. The trial court, however, denied private respondent's motion and allowed petitioners to pursue their appeal.
5
In its resolution of September 3, 1991, the appellate court dismissed petitioners' appeal. Petitioners moved for a reconsideration, but their motion
was denied by the appellate court in its resolution, dated November 26, 1991.
Hence, this petition for review on certiorari. Petitioners pray that the resolutions, dated September 3, 1991 and November 26, 1991, of the Court of
Appeals be set aside and that a new decision be rendered declaring the order of the trial court denying the motion to quash to be appealable and
6
ordering the Court of Appeals to give due course to the appeal.
On the other hand, private respondent argues that petitioners knew that it had ceased to exist during the course of the trial of the case but did not
act upon this information until the judgment was about to be enforced against them; hence, the filing of a Motion to Quash and the present petition
7
are mere dilatory tactics resorted to by petitioners. Private respondent likewise cites the ruling of this Court in Gelano v. Court of Appeals that the
counsel of a dissolved corporation is deemed a trustee of the same for purposes of continuing such action or actions as may be pending at the
time of the dissolution to counter petitioners' contention that private respondent lost its capacity to sue and be sued long before the trial court
8
rendered judgment and hence execution of such judgment could not be complied with as the judgment creditor has ceased to exist.
First. The question is whether the order of the trial court denying petitioners' Motion to Quash Writ of Execution is appealable. As a general rule,
no appeal lies from such an order, otherwise litigation will become interminable. There are exceptions, but this case does not fall within any of
such exceptions.
9
In Limpin, Jr. v. Intermediate Appellate Court, this Court held:
Certain, it is. . . . that execution of final and executory judgments may no longer be contested and prevented, and no appeal
should lie therefrom: otherwise, cases would be interminable, and there would be negation of the overmastering need to end
litigations.
There may, to be sure, be instances when an error may be committed in the course of execution proceedings prejudicial to the
rights of a party. These instances, rare though they may be, do call for correction by a superior court, as where —
1. the writ of execution varies the judgment;
2. there has been a change in the situation of the parties making execution inequitable or unjust;
3. execution is sought to be enforced against property exempt from execution;
4. it appears that the controversy has never been submitted to the judgment of the court;
5. the terms of the judgment are not clear enough and there remains room for interpretation thereof; or,
6. it appears that the writ of execution has been improvidently issued, or that it is defective in substance, or is issued against the
wrong party, or that the judgment debt has been paid or otherwise satisfied, or the writ was issued without authority;
In these exceptional circumstances, considerations or justice and equity dictate that there be some mode available to the party
aggrieved of elevating the question to a higher court. That mode of elevation may be either by appeal (writ of error or certiorari) or
by a special civil action of certiorari, prohibition, or mandamus.
In these case, petitioners anchored their Motion to Quash on the claim that there was a change in the situation of the parties. However, a perusal
of the cases which have recognized such a ground as an exception to the general rule shows that the change contemplated by such exception is
one which occurred subsequent to the judgment of the trial court. Here, the change in the status of private respondent took place in 1983, when it
was dissolved, during the pendecy of its case in the trial court. The change occurred prior to the rendition of judgment by the trial court.
It is true that private respondent did not inform the trial court of the approval of the amended articles of incorporation which shortened its term of
existence. However, it is incredible that petitioners did not know about the dissolution of private respondent considering the time it took the trial
court to decide the case and the fact that the petitioner Urbano Reburiano was a former employee of private respondent. As private respondent
10
says, since petitioner Reburiano was a former sales manager of the company, it could be reasonably presumed that petitioners knew of the
changes occurring in respondent company. Clearly, the present case does not fall under the exception relied upon by petitioners and, the Court of
Appeals correctly denied due course to the appeal. As has been noted, there are in fact cases which hold that while parties are given a remedy
from a denial of a motion to quash or recall writ of execution, it is equally settled that the writ will not be recalled by reason of any defense which
11
could have been made at the time of the trial of the case.
Second. The Court of Appeals also held that in any event petitioners cannot raise the question of capacity of a dissolved corporation to maintain or
defend actions previously filed by or against it because the matter had not been raised by petitioners before the trial court nor in their appeal from
the decision of the said court. The appellate court stated:
It appears that said motion to quash writ of execution is anchored on the ground that plaintiff-appelee Pepsi Bottling Company of
the Philippines had been dissolved as a corporation in 1983, after the filing of this case before the lower court, hence, it had lost
its capacity to sue. However, this was never raised as an issue before the lower court and the Court of Appeals when the same
was elevated on appeal. The decision of this Court, through its Fourth Division, dated June 26, 1990, in CA-G.R. CV No. 16070
which, in effect, modified the appealed decision, consequently did not touch on the issue of lack of capacity to sue, and has since
become final and executory on July 16, 1990, and has been remanded to the court a quo for execution. It is readily apparent that
the same can no longer be made the basis for this appeal regarding the denial of the motion to quash writ of execution. It should
12
have been made in the earlier appeal as the same was already obtaining at that time.
We agree with this ruling. Rules of fair play, justice, and due process dictate that parties cannot raise for the first time on appeal from a denial of a
Motion to Quash a Writ of Execution issues which they could have raised but never did during the trial and even on appeal from the decision of the
trial
13
court.
Third. In any event, if the question of private respondent's capacity to sue can be raised for the first time in this case, we think petitioners are in
error in contending that "a dissolved and non-existing corporation could no longer be represented by a lawyer and concomitantly a lawyer could
14
not appear as counsel for a non-existing judicial person."
Sec. 122 of the Corporation Code provides in part:
 §122. Corporate Liquidation. — Every Corporation whose charter expires by its own limitation or is annulled by forfeiture or
otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall nevertheless be continued as
a body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of prosecuting and
defending suits by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute
its assets, but not for the purpose of continuing the business for which it was established.
At any time during said three (3) years, said corporation is authorized the empowered to convey all of its property to trustees for
the benefit of stockholders, members, creditors, and other persons in interest. From and after any such conveyance by the
corporation of its property in trust for the benefit of its stockholders, members, creditors and others in interests, all interests which
the corporation had in the property in terminates, the legal interest vests in the trustees, and the beneficial interest in the
stockholders, members, creditors or other persons in interest.
Petitioners argue that while private respondent Pepsi Cola Bottling Company of the Philippines, Inc. undertook a voluntary dissolution on July 3,
1983 and the process of liquidation for three (3) years thereafter, there is no showing that a trustee or receiver was ever appointed. They contend
that §122 of the Corporation Code does not authorize a corporation, after the three-year liquidation period, to continue actions instituted by it within
15
said period of three years. Petitioners cite the case of National Abaca and Other Fibers Corporation v. Pore wherein this court stated:
It is generally held, that where a statue continues the existence of a corporation for a certain period after its dissolution for the
purpose of prosecuting and defending suits, etc., the corporation becomes defunct upon the expiration of such period, at least in
the absence of a provision to the contrary, so that no action can afterwards be brought by or against it, and must be dismissed.
16
Actions pending by or against the corporate when the period allowed by the statue expires, ordinarily abate.
17
This ruling, however, has been modified by subsequent cases. In Board of Liquidators v. Kalaw, this Court stated:
. . . The legal interest became vested in the trustee — the Board of Liquidators. The beneficial interest remained with the sole
stockholder — the government. At no time had the government withdrawn the property, or the authority to continue the present
suit, from the Board of Liquidators. If for this reason alone, we cannot stay the hand of the Board of Liquidators from prosecuting
this case to its final conclusion. The provision of Section 78 (now Section 122) of the Corporation Law — the third method of
18
winding up corporate affairs — finds application.
19
Indeed, in Gelano vs. Court of Appeals, a case having substantially similar facts as the instant case, this Court held:
However, a corporation that has a pending action and which cannot be terminated within the three-year period after its dissolution
is authorized under Sec. 78 [now §122] of the Corporation Law to convey all its property to trustees to enable it to prosecute and
defend suits by or against the corporation beyond the three-year period. Although private respondent did not appoint any trustee,
yet the counsel who prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in
behalf of the may be considered a trustee of the corporation at least with respect to the matter in litigation only. Said counsel had
been handling the case when the same was pending before the trial court until it was appealed before the Court of Appeals and
finally to this Court. We therefore hold that there was substantial compliance with Sec. 78 [now §122] of the Corporation Law and
such private respondent Insular Sawmill, Inc. could still continue prosecuting the present case even beyond the period of three (3)
years from the time of dissolution.
. . . [T]he trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason can be
conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee who, by fiction,
merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed — to proceed
20
to final judgment and execution thereof.
21
In the Gelano case, the counsel of the dissolved corporation was considered a trustee. In the later case of Clemente v. Court of Appeals, we held
that the board of directors may be permitted to complete the corporate liquidation by continuing as "trustees" by legal implication. For, indeed, as
22
early as 1939, in the case of Sumera v. Valencia, this Court held:
It is to be noted that the time during which the corporation, through its own officers, may conduct the liquidation of its assets and
sue and be sued as a corporation is limited to three years from the time the period of dissolution commences: but ther is no time
limit within which the trustees must complete a liquidation placed in their hands. It is provided only (Corp. Law, Sec. 78 [now Sec.
122]) that the conveyance to the trustees must be made within the three-year period. It may be found impossible to complete the
work of liquidation within the three-year period or to reduce disputed claims to judgment. The authorities are to the effect that suits
by or against a corporation abate when it ceased to be an entity capable of suing or being sued (7 R.C.L., Corps., par. 750); but
trustees to whom the corporate assets have been conveyed pursuant to the authority of Sec. 78 [now Sec. 122] may sue and be
sued as such in all matters connected with the
23
liquidation. . . .
Furthermore, the Corporation Law provides:
§145. Amendment or repeal. — No right or remedy in favor of or against any corporation, its stockholders, members, directors,
trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall
be removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of
this Code or of any part thereof.
This provision safeguards the rights of a corporation which is dissolved pending litigation.
There is, therefore, no reason why the suit filed by private respondent should not be allowed to proceed to execution. It is conceded by petitioners
that the judgment against them and in favor of private respondent in C.A. G.R. No. 16070 had become final and executory. The only reason for
their refusal to execute the same is that there is no existing corporation to which they are indebted. Such argument is fallacious. As previously
mentioned, the law specifically allows a trustee to manage the affairs of the corporation in liquidation. Consequently, any supervening fact, such as
the dissolution of the corporation, repeal of a law, or any other fact of similar nature would not serve as an effective bar to the enforcement of such
right.
WHEREFORE, the resolutions, dated September 3, 1991 and November 26, 1991, of the Court of Appeals are AFFIRMED. 1âwphi1.nêt

SO ORDERED.

G.R. No. 104726 February 11, 1999

VICTOR YAM & YEK SUN LENT, doing business under the name and style of Philippine Printing Works; petitioners,
vs.
THE COURT OF APPEALS and MANPHIL INVESTMENT CORPORATION, respondents.
MENDOZA, J.:
This is a petition for review of the decision of the Court of Appeals affirming in toto the decision of the Regional
1

Trial Court of Manila (Branch 149), ordering petitioners to pay private respondent the amount of P266,146.88
plus interest, service charge, penalty fees, and attorney's fees and the costs, otherwise the chattel mortgage
given to secure payment of the loan would be foreclosed.
The following are the facts:
On May 10,1979, the parties in this case entered into a Loan Agreement with Assumption of Solidary Liability whereby petitioners were given a
loan of P500,000.00 by private respondent. The contract provided for the payment of 12% annual interest, 2% monthly penalty, 1 1/2% monthly
service charge, and 10% attorney's fees. Denominated the first Industrial Guarantee and Loan Fund (IGLF), the loan was
2

secured by a chattel mortgage on the printing machinery in petitioners' establishment.

3

Petitioners subsequently obtained a second IGLF loan of P300,000.00 evidenced by two promissory notes, dated July 3, 1981 and September 30,
1981. For this purpose, a new loan agreement was entered into by the parties containing identical provisions as the first
4

one, except as to the annual interest which was increased to 14% and the service charge which was reduced to
1% per annum. The deed of chattel mortgage was amended correspondingly.
5

By April 2, 1985, petitioners had paid their first loan of P500,000.00. On November 4, 1985, private respondent was placed under receivership by
the Central Bank and Ricardo Lirio and Cristina Destajo were appointed as receiver and in-house examiner, respectively.
On May 17, 1986, petitioners made a partial payment of P50,000.00 on the second loan. They later wrote private respondent a letter, dated June
18, 1986, proposing to settle their obligation. On July 2, 1986, private respondent, through its counsel, replied with a counter-offer, namely, that it
6
would reduce the penalty charges up to P140,000.00, provided petitioners can pay their obligation on or before July 30, 1986.
7
As of July 31, 1986, petitioners' total liability to private respondent was P727,001.35, broken down as follows:
Principal — P295,469.47
Interest — 165,385.00
Penalties — 254,820.55
Service Charges — 11,326.33
—————
TOTAL P727,001.35

The
8
On this date, petitioners paid P410,854.47 by means of a Pilipinas Bank check, receipt of which was acknowledged by Destajo.
corresponding voucher for the check bears the following notation: "full payment of IGLF LOAN."
9

The amount of P410,854.47 was the sum of the principal (P295,469.47) and the interest; (P165,385.00) less the partial payment of P50,000.00.
The private respondent sent two demand letters to petitioners, dated September 4, 1986 and September 25, 1986, seeking payment of the
balance of P266,146.88. As petitioners did not respond, private respondent filed this case in the Regional Trial Court of Metro Manila for the
collection of P266,146.88 plus interests, penalties, and service charges or, in the alternative, for the foreclosure of the mortgaged machineries.
In their Answer, petitioners claimed that they had fully paid their obligation to private respondent. They contended that some time after receiving
private respondent's letter of July 25, 1986 (concerning the conditional offer to reduce their penalty charges), petitioner Victor Yam and his wife,
Elena Yam, met with Carlos Sobrepeñas, president of respondent corporation, during which the latter agreed to waive the penalties and service
charges, provided petitioners paid the principal and interest, computed as of July 31, 1986, less the earlier payment of P50,000.00. This is the
reason why according to them they only paid P410,854.47. Petitioners added that this fact of full payment is reflected in the voucher
accompanying the Pilipinas Bank check they issued, which bore the notation "full payment of IGLF loan."
On April 30, 1990, the lower court rendered a decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the defendants Victor Yam and Yek Sun Lent are hereby ordered to pay jointly and
severally, the principal loan. balance of P266,146.88 as of September 4, 1986 plus interest at 14% per annum, service charge at
1% per annum and penalty fees at 2% per month and to pay plaintiff attorney's fees equivalent to 10% of the amount to be
recovered, and to pay the costs of suit, failing in which, the chattel mortgage instituted on the printing machineries and equipment
described in the Deed of Chattel Mortgage dated May 10, 1979, as amended, is hereby declared foreclosed and the subject
thereof sold in accordance with law to satisfy the judgment herein rendered.
10
SO ORDERED.
On appeal, the Court of Appeals affirmed the decision of the trial court in toto. Hence, this petition. Petitioners reiterate the same assignment of
11
errors made by them before the Court of Appeals, to wit:
FIRST ASSIGNED ERROR
THAT THE LOWER COURT GRIEVOUSLY ERRED IN FAILING TO GIVE CREDENCE TO THE
DOCUMENTARY AS WELL AS TESTIMONIAL EVIDENCE OF THE PETITIONERS RELATIVE TO THE
PAYMENT TO THE RESPONDENT OF THE ADDITIONAL LOAN UNDER THE AMENDMENT OF DEED
OF CHATTEL MORTGAGE: (EXHIBIT K, RESPONDENT) AND AS AGAINST THE TESTIMONY OF
RESPONDENT'S WITNESS, CRISTINA L. DESTAJO.
SECOND ASSIGNED ERROR
THAT THE COURT BELOW ERRED IN NOT TOTALLY DISREGARDING EXHIBITS E AND F OF THE RESPONDENTS.
The question in whether petitioners are liable for the payment of the penalties and service charges on their loan which, as of July 31, 1986,
amounted to P266;246.88.
The answer is in the affirmative. Art. 1270, par. 2 of the Civil Code provides that express condonation must comply with the forms of
donation. Art. 748, par. 3 provides that the donation and acceptance of a movable, the value of which exceeds
12

P5,000,00, must be made in writing, otherwise the same shall be void. In this connection, under Art. 417, par. 1,
obligations, actually referring to credits, l3 are considered movable property. In the case at bar, it is undisputed
than the alleged agreement to condone P266,196.88 of the second IGLF loan was not reduced in writing.
14

Nonetheless, petitioners insist that the voucher covering the Pilipinas Bank check for P410,854.47, containing the notation that the amount is in
"full payment of IGLF loan," constitutes documentary evidence of such oral agreement. This contention is without merit. The notation in "full
payment of IGLF loan" merely states petitioners' intention in making the payment, but in no way does it bind private respondent. It would have
been a different matter if the notation appeared in a receipt issued by respondent corporation, through its receiver, because then it would be an
admission against interest. Indeed, if private respondent really condoned the amount in question, petitioners should have asked for a certificate of
admission against interest. Indeed, if private respondent really condoned the amount in question, petitioners should have asked for a certificate of
15
full payment from respondent corporation, as they did in the case of their first IGLF loan of P500,000.00.
Petitioners, however, contend that the Central Bank examiner assigned to respondent corporation, Cristina Destajo, signed the voucher in
question. Destajo claimed that, when she signed the voucher, she failed to notice the statement that the amount of P410,854.47 was being given
in "full payment of IGLF Loan." She said she merely took note of the amount and the check number indicated therein. In any event,
16

Destajo, by countersigning the voucher, did no more than acknowledge receipt of the payment. She cannot be
held to have ascented thereby to the payment in full of petitioners' indebtedness to private respondent. It was
obvious she had no authority to condone any indebtedness, her "issuing official receipts, preparing check
vouchers and documentation."
17

Moreover, it is to be noted that the alleged agreement to condone the amount in question was supposedly entered into by the parties sometime in
July 1986, that is, after respondent corporation had been placed under receivership on November 4, 1985. As held in Villanueva v. Court of
Appeals "the appointment of a receiver operates to suspend the authority of a [corporation] and of its directors
18

and officers over its property and effects, such authority being reposed in the receiver:" Thus, Sobrepeñas had
19

no authority to condone the debt.

Indeed, Mrs. Yam herself testified that when she and her husband sought the release of the chattel mortgage over their property, they were told
that only the Central Bank would authorize the same "because [the CB] the receiver." Considering this, petitioners cannot feign
20

ignorance and plead good faith.

The second assignment of error pertains to the petitioners' allegation that they did not receive the two letters of demand sent by private
respondent on September 4 and September 25, 1986. Both the lower court and the Court of Appeals found otherwise. We have no reason to
disturb this factual finding. It is settled that findings of fact of trial courts, adopted and confirmed by the Court of Appeals, are final and conclusive
21
and, as a rule, will not be reviewed on appeal.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

G.R. No. L-65114 February 23, 1988

RENE KNECHT, petitioner,
vs.
COURT OF APPEALS, and KATHERINE H. WILLIAMS, respondents.

NARVASA, J.:
1
The application of the familiar doctrine of conclusiveness of the factual findings of the Court of Appeals, made upon its own assessment of the evidence, is all that is needful to dispose of the case at bar.

Lilian Hamby, the private respondent's predecessor in interest, was the owner of two (2) lots in Baguio City, inclusive of a house thereon standing.
Sometime in February, 1966, Rene Knecht, the petitioner, offered through intermediaries to buy this property for US $ 47,500.00 payable on terms:
US $ 17,500.00 as down payment, and the balance of US $30,000.00, in equal quarterly installments of US $ 3,750.00 over a period of two (2)
2
years. Knecht proposed at the same time the assumption by him of Hamby's lease on a beach property in Bauang, La Union. Hamby accepted
Knecht's offer to buy her Baguio property. So on April 20, 1966, Knecht paid Hamby US $ 4,750.00 as earnest money, after having taken
3
possession of the property a month earlier.
4
Knecht was given photostatic copies of Hamby's tw o (2) titles to the lots on April 28, 1966. He thereafter remitted to Hamby US $3,625.00 in
5
September, 1966 and another US $ 3,625.00 in October, .1966, in partial completion of the stipulated down payment of US $17,500.00.
Knecht subsequently refused to make any further payments, however, and ignored Hamby's demands therefor, made thru an attorney-in-fact
.Hamby then demanded in writing that Knecht vacate the premises, offering at the same time to return the money thus far paid by him, US
$12,000.00, minus the reasonable value of his use and occupation of the premises, set at P1,000. 00 per month. This was followed by a notarial
6
demand for rescission. These, Knecht also disregarded.
Hamby thereupon filed suit in the Court of First Instance of Baguio and Benguet for the rescission of her agreement for the sale to Knecht of the
7
Baguio property. In this action, Knecht sought to justify his refusal to continue complying with his contractual commitments by (1) his discovery of
what he considered to be a hidden defect in the subject of the projected sale, i.e., that the two Baguio lots were not contiguous, as he had been
made to believe, but were actually separated from each other by a strip of public land cutting across the land and passing right under the house
thereon standing — the existence of which in his view conferred on him the right to "elect between withdrawing from the contract and demanding a
8
proportionate reduction of the price with damages in either case;" and (2) Hamby's failure to assign to him the lease of her beach property at
9
Bauang, La Union. The Trial Court did not see it his way, however. It rendered judgment on May 2, 1972, ordaining the rescission of the contract
between him and Hamby, and his vacation of the premises and restoration of possession thereof to the latter, but without obligation to pay rentals.
This judgment was, on appeal taken by Knecht, affirmed in toto by the Court of Appeals which promulgated its own decision on June 9,
10
1983. The Appellate Court found that-
1) when Knecht was furnished with photocopies of the titles to the property (on April 28, 1966) his reaction was one merely of mild surprise
11
because, as he testified, "there was only one property offered and shown ... but it turned out that there were two titles;"
2) he however made no complaint at the time, or even after an actual survey of the property was undertaken in October, 1966; in fact, he assured
12
Hamby's attorney-in-fact that he would proceed with the consummation of the contract ; and
3) as regards the assignment or transfer of the lease of the Bauang property to him, Knecht had been told as early as June or July, 1966 by
Hamby's attorney-in-fact to forget about it as it was an entirely separate transaction; and this notwithstanding, Knecht had made two (2) payments
13
in September and October, 1966 of US $3,635.00 each on account of the down payment agreed upon.
Upon these facts, the Court of appeals declared that there was no hidden defect in the property subject of the agreement that Knecht could
complain about, within the meaning of article 1561 of the Civil Code; and in any case, even if the strip of public land on the property could be
deemed a non- apparent defect, its legal effects had been waived.
The defect dealt with in the law is one that is hidden, which is unknown or could not have been known to the vendee; and even if the defect is not
14
visible, it is not considered a hidden defect "if the vendee is an expert who, by reason of his trade or profession, should have known .. (it)." Now,
the existence of the strip of public land, the alleged hidden defect, could not but have been known by Knecht. Not only had he taken possession of
the property within a month after the agreement; he had also been given the titles thereto not long afterwards. In other words, there was no
attempt whatever to conceal from him the existence of that dividing piece of public land; indeed, the means and the opportunity of knowing of it
had been given to him shortly after the acceptance of his offer to purchase Hamby's lots. The actual acquisition of that knowledge by Knecht may
had been given to him shortly after the acceptance of his offer to purchase Hamby's lots. The actual acquisition of that knowledge by Knecht may
therefore not unreasonably be deemed to have taken place quite early in the game, specially considering his asserted status as a businessman of
15
no mean repute and no little experience, a dealer in millions of pesos worth of realty. It has been held that one "who contracts for the purchase of
real estate in reliance on the representations and statements of the vendor as to its character and value, but after he has visited and examined it
for himself, and has had the means and opportunity of verifying such statements, cannot avoid the contract on the ground that they were false or
16
exaggerated. Here, Knecht had ample opportunity to apprise himself of the condition of the land which he had undertaken to purchase (indeed,
he had taken possession of it albeit without the vendor's prior knowledge and consent), and Hamby did nothing whatsoever to prevent him from
making such investigation as he deemed fit; hence, "as was said in Songco vs. Sellner .. (37 Phil. 254), when the purchaser proceeds to make
investigations by himself, and the vendor does nothing to prevent such investigation from being as complete as the former might wish, the
purchaser cannot later allege that the vendor made false representations to him. (National Cash Register Co. vs. Townsend, 137 N.C. 652; 70
17
L.R.A. 349; Williamson vs. Holt, 147 N.C. 515.)"
It seems obvious that for Knecht's appeal to have any chance of success at all, it is indispensable for the findings of fact of the Court of Appeals to
be modified. For as those findings stand, his awareness of the existence of the strip of public land dividing the two lots subject of his agreement to
purchase cannot but be necessarily concluded, as also, his partial compliance and avowed willingness to continue to comply with his contractual
undertakings even after acquiring knowledge thereof. This Court cannot however modify on appeal the Appellate Court's factual findings. It is
axiomatic that the appellate jurisdiction of this Court is limited to reviewing errors of law, it being bound by the conclusions of the fact of the Court
18 19
of Appeals. There are, to be sure, exceptions to this principle, but none is disclosed in the instant case. In any event, those factual conclusions
are justified by the evidence, as a review of the record demonstrates.
June 9, 1983, upholding that of the Trial Court dated May 2, 1972,is affirmed in all respects,with costs against the petitioner.

G.R. No. 175109 August 6, 2008

PARAMOUNT INSURANCE CORP., petitioner,
vs.
A.C. ORDOÑEZ CORPORATION and FRANKLIN SUSPINE, respondents.
DECISION
YNARES-SANTIAGO, J.:
1
This petition for review on certiorari seeks to annul and set aside the July 17, 2006 Decision of the Court of Appeals in CA-G.R. SP No. 93073,
2
which reversed and set aside the September 21, 2005 Decision of the Regional Trial Court of Makati City, Branch 58 and reinstated the August
3
25, 2000 and September 26, 2000 Orders of the Metropolitan Trial Court of Makati City, Branch 66, which admitted respondent’s Answer and set
4
the case for pre-trial, as well as its October 12, 2006 Resolution denying the Motion for Reconsideration.
Petitioner Paramount Insurance Corp. is the subrogee of Maximo Mata, the registered owner of a Honda City sedan involved in a vehicular
accident with a truck mixer owned by respondent corporation and driven by respondent Franklin A. Suspine on September 10, 1997, at Brgy.
Panungyanan, Gen. Trias, Cavite.
On February 22, 2000, petitioner filed before the Metropolitan Trial Court of Makati City, a complaint for damages against respondents. Based on
5
the Sheriff’s Return of Service, summons remained unserved on respondent Suspine, while it was served on respondent corporation and received
6
by Samuel D. Marcoleta of its Receiving Section on April 3, 2000.
On May 19, 2000, petitioner filed a Motion to Declare Defendants in Default; however, on June 28, 2000, respondent corporation filed an Omnibus
Motion (And Opposition to Plaintiff’s Motion to Declare Defendant in Default) alleging that summons was improperly served upon it because it was
made to a secretarial staff who was unfamiliar with court processes; and that the summons was received by Mr. Armando C. Ordoñez, President
and General Manager of respondent corporation only on June 24, 2000. Respondent corporation asked for an extension of 15 days within which to
file an Answer.
Pending resolution of its first motion to declare respondents in default, petitioner filed on June 30, 2000 a Second Motion to Declare Defendants in
Default.
On July 26, 2000, respondent corporation filed a Motion to Admit Answer alleging honest mistake and business reverses that prevented them from
hiring a lawyer until July 10, 2000, as well as justice and equity. The Answer with Counterclaim specifically denied liability, averred competency on
the part of respondent Suspine, and due selection and supervision of employees on the part of respondent corporation, and argued that it was
Maximo Mata who was at fault.
On August 25, 2000, the Metropolitan Trial Court of Makati City, Branch 66, issued an Order admitting the answer and setting the case for pre-trial,
thus:
When this case was called for the hearing of Motion, the Court’s attention was brought to the Answer filed by the defendant.
WHEREFORE, in order to afford the defendants a day in Court, defendant’s answer is admitted and the pre-trial is set for October 17,
2000 at 8:30 in the morning.
SO ORDERED.
Petitioner moved for reconsideration but it was denied. Thus, it filed a petition for certiorari and mandamus with prayer for preliminary injunction
and temporary restraining order before the Regional Trial Court of Makati City. Petitioner claimed that the Metropolitan Trial Court gravely abused
its discretion in admitting the answer which did not contain a notice of hearing, contrary to Sections 4 and 5, Rule 15 of the Rules of Court. It also
assailed respondent corporation’s Omnibus Motion for being violative of Section 9, Rule 15 because while it sought leave to file an answer, it did
not attach said answer but only asked for a 15-day extension to file the same. Petitioner also averred that assuming the Omnibus Motion was
granted, the Motion to Admit Answer and the Answer with Counterclaim were filed 26 days beyond the extension period it requested.
On October 16, 2000, the Regional Trial Court of Makati City, Branch 58 issued a temporary restraining order, and on May 22, 2001, issued a writ
7
of preliminary injunction. On September 21, 2005, the Regional Trial Court rendered a Decision granting the petition, thus:
WHEREFORE, premises considered, the petition for certiorari and mandamus is hereby GRANTED. The Orders of public respondent
dated August 25, 2000 and September 26, 2000 are hereby SET ASIDE. The writ of preliminary injunction issued by this Court on May 22,
2001 is hereby made permanent.
The case is hereby remanded to the court a quo to act on petitioner’s (plaintiff’s) "Second motion to declare defendants in Default" dated
June 29, 2000.
SO ORDERED.
Respondent corporation moved for reconsideration but it was denied; hence, it appealed to the Court of Appeals which rendered the assailed
Decision dated July 17, 2006, thus:
 By and large, We find no abuse of discretion committed by the first level court in the contested orders.
IN VIEW OF ALL THE FOREGOING, the instant appeal is hereby GRANTED, the challenged RTC Decision dated September 21, 2005 is
hereby REVERSED and SET ASIDE, and a new one entered REINSTATING the Orders dated August 25, 2000 and September 26, 2000
of the Metropolitan Trial Court of Makati City. No pronouncement as to cost.
SO ORDERED.
Petitioner’s motion for reconsideration was denied. Hence, the instant petition raising the following issues:
I. WHETHER THERE WAS VALID SERVICE OF SUMMONS ON DEFENDANT AC ORDONEZ CONSTRUCTION CORPORATION.
II. WHETHER A PARTY WITHOUT CORPORATE EXISTENCE MAY FILE AN APPEAL.
III. WHETHER THIS COURT ERRED IN NOT CALLING THE PARTIES INTO MEDIATION.
IV. WHETHER THERE WAS FRAUD COMMITTED BY THE PETITIONER IN ITS PLEADINGS.
The petition lacks merit.
Section 11, Rule 14 of the Rules of Court provides:
SEC. 11. Service upon domestic private juridical entity. – When the defendant is a corporation, partnership or association organized under
the laws of the Philippines with a juridical personality, service may be made on the president, managing partner, general manager,
corporate secretary, treasurer, or in-house counsel.
Section 11, Rule 14 sets out an exclusive enumeration of the officers who can receive summons on behalf of a corporation. Service of summons to
someone other than the corporation’s president, managing partner, general manager, corporate secretary, treasurer, and in-house counsel, is not
valid.
The designation of persons or officers who are authorized to receive summons for a domestic corporation or partnership is limited and more
8
clearly specified in the new rule. The phrase ‘agent, or any of its directors’ has been conspicuously deleted. Moreover, the argument of substantial
compliance is no longer compelling. We have ruled that the new rule, as opposed to Section 13, Rule 14 of the 1964 Rules of Court, is restricted,
limited and exclusive, following the rule in statutory construction that expressio unios est exclusio alterius. Had the Rules of Court Revision
Committee intended to liberalize the rule on service of summons, it could have done so in clear and concise language. Absent a manifest intent to
9
liberalize the rule, strict compliance with Section 11, Rule 14 of the 1997 Rules of Civil Procedure is required.
Thus, the service of summons to respondent corporation’s Receiving Section through Samuel D. Marcoleta is defective and not binding to said
corporation.
Moreover, petitioner was served with a copy of the Sheriff’s Return which states:
3. MANNER OF SERVICE: DULY SERVED thru SAMUEL D. MARCOLETA (receiving section-A.C. Ordonez Construction Corp.,) and who
was authorized by A. C. Ordonez Construction Corp., management to receive such court processes.
On its face, the return shows that the summons was received by an employee who is not among the responsible officers enumerated by law. Such
being invalid, petitioner should have sought the issuance and proper service of new summons instead of moving for a declaration of default.
Consequently, the motions for declaration of default filed on May 19, 2000 and June 30, 2000 were both premature.
Thus, there was no grave abuse of discretion when the Metropolitan Trial Court admitted respondent corporation’s Answer. Although it was filed
beyond the extension period requested by respondent corporation, however, Sec. 11, Rule 11 grants discretion to the trial court to allow an answer
or other pleading to be filed after the reglementary period, upon motion and on such terms as may be just. An answer should be admitted where it
had been filed before the defendant was declared in default and no prejudice is caused to plaintiff. The hornbook rule is that default judgments are
10
generally disfavored.
There is likewise no merit in petitioner’s claim that respondent corporation lacks legal personality to file an appeal. Although the cancellation of a
corporation’s certificate of registration puts an end to its juridical personality, Sec. 122 of the Corporation Code, however provides that a
corporation whose corporate existence is terminated in any manner continues to be a body corporate for three years after its dissolution for
11
purposes of prosecuting and defending suits by and against it and to enable it to settle and close its affairs. Moreover, the rights of a corporation,
which is dissolved pending litigation, are accorded protection by law pursuant to Sec. 145 of the Corporation Code, to wit:
Section 145. Amendment or repeal. No right or remedy in favor of or against any corporation, its stockholders, members, directors,
trustees, or officers, nor any liability incurred by any such corporation, stockholders, members, directors, trustees, or officers, shall be
removed or impaired either by the subsequent dissolution of said corporation or by any subsequent amendment or repeal of this
Code or of any part thereof. (Emphasis ours)
Dissolution or even the expiration of the three-year liquidation period should not be a bar to a corporation’s enforcement of its rights as a
12
corporation.
Finally, the decision to refer a case to mediation involves judicial discretion. Although Sec. 9 B, Rule 141 of the Rules of Court, as amended by A.
M. No. 04-2-04-SC, requires the payment of P1,000.00 as mediation fee upon the filing of a mediatable case, petition, special civil action,
comment/answer to the petition or action, and the appellee’s brief, the final decision to refer a case to mediation still belongs to the ponente,
subject to the concurrence of the other members of the division.
As clarified by A. M. No. 04-3-15 (Revised Guidelines for the Implementation of Mediation in the Court of Appeals) dated March 23, 2004:
II. SELECTION OF CASES
Division Clerks of Court, with the assistance of the Philippine Mediation Center (PMC), shall identify the pending cases to be referred to
mediation for the approval either of the Ponente for completion of records, or, the Ponente for decision. Henceforth, the petitioner or
appellant shall specify – by writing or by stamping on the right side of the caption of the initial pleading (under the case number) that the
case is mediatable.
Any party who is interested to have the appealed case mediated may also submit a written request in any formto the Court of
Appeals. If the case is eligible for mediation, the Ponente, with the concurrence of the other members of the Division, shall refer the case
to the PMC. (Emphasis ours)
Thus, for cases pending at the time the said guidelines were issued, the Division Clerks of Court, with the assistance of the Philippine Mediation
Center, shall identify the cases to be referred to mediation. Thereafter, the petitioner or appellant shall specify, by writing or by stamping on the
right side of the caption of the initial pleading (under the case number), that the case is mediatable. Further, any party who is interested to have
the appealed case mediated may also submit a "written request in any form to the Court of Appeals." In the instant case, petitioner failed to write
or stamp the notation "mediatable" on its Memorandum of Appeal. Moreover, it failed to submit any written request for mediation.
WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated July 17, 2006 reinstating the August 25, 2000 and
September 26, 2000 Orders of the Metropolitan Trial Court of Makati City, Branch 66 which admitted respondent corporation’s Answer and set the
case for pre-trial, as well as the Resolution dated October 12, 2006 denying the motion for reconsideration, are AFFIRMED.
SO ORDERED.
N. FOREIGN CORPORATION

G.R. No. L-27906 January 8, 1987

CONVERSE RUBBER CORPORATION, petitioner,
vs.
UNIVERSAL RUBBER PRODUCTS, INC. and TIBURCIO S. EVALLE, DIRECTOR OF PATENTS, respondents.
Parades, Poblador, Nazareno, Azada & Tomacruz for petitioner.
RESOLUTION

FERNAN, J.:
The undisputed facts of the case are as follows:
Respondent Universal Rubber Products, Inc. filed an application with the Philippine Patent office for registration of the trademark "UNIVERSAL
CONVERSE AND DEVICE" used on rubber shoes and rubber slippers.
Petitioner Converse Rubber Corporation filed its opposition to the application for registration on grounds that:
a] The trademark sought to be registered is confusingly similar to the word "CONVERSE" which is part of petitioner's corporate
name "CONVERSE RUBBER CORPORATION" as to likely deceive purchasers of products on which it is to be used to an extent
that said products may be mistaken by the unwary public to be manufactured by the petitioner; and,
b] The registration of respondent's trademark will cause great and irreparable injury to the business reputation and goodwill of
petitioner in the Philippines and would cause damage to said petitioner within the, meaning of Section 8, R.A. No. 166, as
amended.
Thereafter, respondent filed its answer and at the pre-trial, the parties submitted the following partial stipulation of facts:
1] The petitioner's corporate name is "CONVERSE RUBBER CORPORATION" and has been in existence since July 31, 1946; it
is duly organized under the laws of Massachusetts, USA and doing business at 392 Pearl St., Malden, County of Middle sex,
Massachusetts;
2] Petitioner is not licensed to do business in the Philippines and it is not doing business on its own in the Philippines; and,
3] Petitioner manufacturers rubber shoes and uses thereon the trademarks "CHUCK TAYLOR "and "ALL STAR AND DEVICE". 1
At the trial, petitioner's lone witness, Mrs. Carmen B. Pacquing, a duly licensed private merchant with stores at the Sta. Mesa Market and in Davao City, testified that she had been selling CONVERSE rubber
shoes in the local market since 1956 and that sales of petitioner's rubber shoes in her stores averaged twelve to twenty pairs a month purchased mostly by basketball players of local private educational
institutions like Ateneo, La Salle and San Beda.

Mrs. Pacquing, further stated that she knew petitioner's rubber shoes came from the United States "because it says there in the trademark
2
Converse Chuck Taylor with star red or blue and is a round figure and made in U.S.A. " In the invoices issued by her store, the rubber shoes were
3 4 5 6
described as "Converse Chuck Taylor", "Converse All Star," "All Star Converse Chuck Taylor," or "Converse Shoes Chuck Taylor." She also
affirmed that she had no business connection with the petitioner.
Respondent, on the other hand, presented as its lone witness the secretary of said corporation who testified that respondent has been selling on
wholesale basis "Universal Converse" sandals since 1962 and "Universal Converse" rubber shoes since 1963. Invoices were submitted as
evidence of such sales. The witness also testified that she had no Idea why respondent chose "Universal Converse" as a trademark and that she
was unaware of the name "Converse" prior to her corporation's sale of "Universal Converse" rubber shoes and rubber sandals.
Eventually, the Director of Patents dismissed the opposition of the petitioner and gave due course to respondent's application. His decision reads
in part:
... the only question for determination is whether or not the applicant's partial appropriation of the Opposer's [petitioner'] corporate
name is of such character that in this particular case, it is calculated to deceive or confuse the public to the injury of the
corporation to which the name belongs ...
I cannot find anything that will prevent registration of the word 'UNIVERSAL CONVERSE' in favor of the respondent. In arriving at
this conclusion, I am guided by the fact that the opposer failed to present proof that the single word "CONVERSE' in its corporate
name has become so Identified with the corporation that whenever used, it designates to the mind of the public that particular
corporation.
The proofs herein are sales made by a single witness who had never dealt with the petitioner . . . the entry of Opposer's
[petitioner's] goods in the Philippines were not only effected in a very insignificant quantity but without the opposer [petitioner]
having a direct or indirect hand in the transaction so as to be made the basis for trademark pre- exemption.
Opposer's proof of its corporate personality cannot establish the use of the word "CONVERSE" in any sense, as it is already
stipulated that it is not licensed to do business in the Philippines, and is not doing business of its own in the Philippines. If so, it will
be futile for it to establish that "CONVERSE" as part of its corporate name Identifies its rubber shoes. Besides, it was also
stipulated that opposer [petitioner], in manufacturing rubber shoes uses thereon the trademark "CHUCK TAYLOR" and "ALL STAR
and DEVICE" and none other.
Furthermore, inasmuch as the Opposer never presented any label herein, or specimen of its shoes, whereon the label may be
seen, notwithstanding its witness' testimony touching upon her Identification of the rubber shoes sold in her stores, no
determination can be made as to whether the word 'CONVERSE' appears thereon.
7
. . .the record is wanting in proof to establish likelihood of confusion so as to cause probable damage to the Opposer.
Its motion for reconsideration having been denied by the respondent Director of Patents, petitioner instituted the instant petition for review.
As correctly phrased by public respondent Director of Patents, the basic issue presented for our consideration is whether or not the respondent's
partial appropriation of petitioner's corporate name is of such character that it is calculated to deceive or confuse the public to the injury of the
petitioner to which the name belongs.
A trade name is any individual name or surname, firm name, device or word used by manufacturers, industrialists, merchants and
8
others to Identify their businesses, vocations or occupations. As the trade name refers to the business and its goodwill ... the
9
trademark refers to the goods." The ownership of a trademark or tradename is a property right which the owner is entitled to
protect "since there is damage to him from confusion or reputation or goodwill in the mind of the public as well as from confusion
of goods. The modern trend is to give emphasis to the unfairness of the acts and to classify and treat the issue as fraud. 10
From a cursory appreciation of the petitioner's corporate name "CONVERSE RUBBER CORPORATION,' it is evident that the word "CONVERSE"
From a cursory appreciation of the petitioner's corporate name "CONVERSE RUBBER CORPORATION,' it is evident that the word "CONVERSE"
is the dominant word which Identifies petitioner from other corporations engaged in similar business. Respondent, in the stipulation of facts,
admitted petitioner's existence since 1946 as a duly organized foreign corporation engaged in the manufacture of rubber shoes. This admission
necessarily betrays its knowledge of the reputation and business of petitioner even before it applied for registration of the trademark in question.
Knowing, therefore, that the word "CONVERSE" belongs to and is being used by petitioner, and is in fact the dominant word in petitioner's
corporate name, respondent has no right to appropriate the same for use on its products which are similar to those being produced by petitioner.
A corporation is entitled to the cancellation of a mark that is confusingly similar to its corporate name."11"Appropriation by another of the
dominant part of a corporate name is an infringement."12

Respondent's witness had no Idea why respondent chose "UNIVERSAL CONVERSE" as trademark and the record discloses no reasonable
explanation for respondent's use of the word "CONVERSE" in its trademark. Such unexplained use by respondent of the dominant word of
petitioner's corporate name lends itself open to the suspicion of fraudulent motive to trade upon petitioner's reputation, thus:
A boundless choice of words, phrases and symbols is available to one who wishes a trademark sufficient unto itself to distinguish
his product from those of others. When, however, there is no reasonable explanation for the defendant's choice of such a mark
though the field for his selection was so broad, the inference is inevitable that it was chosen deliberately to deceive. 13
The testimony of petitioner's witness, who is a legitimate trader as well as the invoices evidencing sales of petitioner's products in the Philippines, give credence to petitioner's claim that it has earned a business
reputation and goodwill in this country. The sales invoices submitted by petitioner's lone witness show that it is the word "CONVERSE" that mainly Identifies petitioner's products, i.e. "CONVERSE CHUCK
TAYLOR, 14 "CONVERSE ALL STAR," 15 ALL STAR CONVERSE CHUCK TAYLOR," 16 or "CONVERSE SHOES CHUCK and TAYLOR." 17 Thus, contrary to the determination of the respondent Director of
Patents, the word "CONVERSE" has grown to be Identified with petitioner's products, and in this sense, has acquired a second meaning within the context of trademark and tradename laws.

Furthermore, said sales invoices provide the best proof that there were actual sales of petitioner's products in the country and that there was
actual use for a protracted period of petitioner's trademark or part thereof through these sales. "The most convincing proof of use of a mark in
commerce is testimony of such witnesses as customers, or the orders of buyers during a certain period. 18 Petitioner's witness, having affirmed her lack of business
connections with petitioner, has testified as such customer, supporting strongly petitioner's move for trademark pre-emption.

The sales of 12 to 20 pairs a month of petitioner's rubber shoes cannot be considered insignificant, considering that they appear to be of high
expensive quality, which not too many basketball players can afford to buy. Any sale made by a legitimate trader from his store is a commercial act
establishing trademark rights since such sales are made in due course of business to the general public, not only to limited individuals. It is a
matter of public knowledge that all brands of goods filter into the market, indiscriminately sold by jobbers dealers and merchants not necessarily
with the knowledge or consent of the manufacturer. Such actual sale of goods in the local market establishes trademark use which serves as the
basis for any action aimed at trademark pre- exemption. It is a corollary logical deduction that while Converse Rubber Corporation is not licensed
to do business in the country and is not actually doing business here, it does not mean that its goods are not being sold here or that it has not
earned a reputation or goodwill as regards its products. The Director of Patents was, therefore, remiss in ruling that the proofs of sales presented
"was made by a single witness who had never dealt with nor had never known opposer [petitioner] x x x without Opposer having a direct or indirect
hand in the transaction to be the basis of trademark pre- exemption."
Another factor why respondent's applications should be denied is the confusing similarity between its trademark "UNIVERSAL CONVERSE AND
DEVICE" and petitioner's corporate name and/or its trademarks "CHUCK TAYLOR" and "ALL STAR DEVICE" which could confuse the purchasing
public to the prejudice of petitioner,
The trademark of respondent "UNIVERSAL CONVERSE and DEVICE" is imprinted in a circular manner on the side of its rubber shoes. In the
same manner, the trademark of petitioner which reads "CONVERSE CHUCK TAYLOR" is imprinted on a circular base attached to the side of its
rubber shoes. The deteminative factor in ascertaining whether or not marks are confusingly similar to each other "is not whether the challenged
mark would actually cause confusion or deception of the purchasers but whether the use of such mark would likely cause confusion or mistake on
the part of the buying public. It would be sufficient, for purposes of the law, that the similarity between the two labels is such that there is a
possibility or likelihood of the purchaser of the older brand mistaking the new brand for it." 19 Even if not an the details just mentioned were identical, with the general
20
appearance alone of the two products, any ordinary, or even perhaps even [sic] a not too perceptive and discriminating customer could be deceived ... "
21
When the law speaks co-purchaser," the reference is to ordinary average purchaser. It is not necessary in either case that the resemblance be
22
sufficient to deceive experts, dealers, or other persons specially familiar with the trademark or goods involve."
The similarity y in the general appearance of respondent's trademark and that of petitioner would evidently create a likelihood of confusion among
the purchasing public. But even assuming, arguendo, that the trademark sought to be registered by respondent is distinctively dissimilar from
those of the petitioner, the likelihood of confusion would still subsists, not on the purchaser's perception of the goods but on the origins thereof. By
appropriating the word "CONVERSE," respondent's products are likely to be mistaken as having been produced by petitioner. "The risk of damage
is not limited to a possible confusion of goods but also includes confusion of reputation if the public could reasonably assume that the goods of the
23
parties originated from the same source.
It is unfortunate that respondent Director of Patents has concluded that since the petitioner is not licensed to do business in the country and is
actually not doing business on its own in the Philippines, it has no name to protect iN the forum and thus, it is futile for it to establish that
"CONVERSE" as part of its corporate name identifies its rubber shoes. That a foreign corporation has a right to maintain an action in the forum
even if it is not licensed to do business and is not actually doing business on its own therein has been enunciated many times by this Court. In La
Chemise Lacoste, S.A. vs. Fernandez, 129 SCRA 373, this Court, reiterating Western Equipment and Supply Co. vs. Reyes, 51 Phil. 115, stated
that:
... a foreign corporation which has never done any business in the Philippines and which is unlicensed and unregistered to do
business here, but is widely and favorably known in the Philippines through the use therein of its products bearing its corporate
and tradename, has a legal right to maintain an action in the Philippines to restrain the residents and inhabitants thereof from
organizing a corporation therein bearing the same name as the foreign corporation, when it appears that they have personal
knowledge of the existence of such a foreign corporation, and it is apparent that the purpose of the proposed domestic corporation
is to deal and trade in the same goods as those of the foreign corporation.
We further held:
xxx xxx xxx
That company is not here seeking to enforce any legal or control rights arising from or growing out of, any
business which it has transacted in the Philippine Islands. The sole purpose of the action:
Is to protect its reputation, its corporate name, its goodwill whenever that reputation, corporate name or goodwill
have, through the natural development of its trade, established themselves.' And it contends that its rights to the
use of its corporate and trade name:
Is a property right, a right in recess which it may assert and protect against all the world, in any of the courts of the
world even in jurisdictions where it does not transact business-just the same as it may protect its tangible
property, real or personal against trespass, or conversion. Citing sec. 10, Nims on Unfair Competition and
Trademarks and cases cited; secs. 21-22, Hopkins on Trademarks, Trade Names and Unfair Competition and
cases cited That point is sustained by the authorities, and is well stated in Hanover Star Milling Co. vs. Allen and
Wheeler Co. [208 Fed., 5131, in which the syllabus says:
Since it is the trade and not the mark that is to be protected, a trademark acknowledges no territorial boundaries
of municipalities or states or nations, but extends to every market where the trader's goods have become known
and Identified by the use of the mark.
The ruling in the aforecited case is in consonance with the Convention of the Union of Paris for the Protection of Industrial Property to which the
Philippines became a party on September 27, 1965. Article 8 thereof provides that "a trade name [corporate name] shall be protected in all the
Philippines became a party on September 27, 1965. Article 8 thereof provides that "a trade name [corporate name] shall be protected in all the
countries of the Union without the obligation of filing or registration, whether or not it forms part of the trademark. " [emphasis supplied]
The object of the Convention is to accord a national of a member nation extensive protection "against infringement and other types of unfair
competition" [Vanitary Fair Mills, Inc. vs. T. Eaton Co., 234 F. 2d 6331.
The mandate of the aforementioned Convention finds implementation in Sec. 37 of RA No. 166, otherwise known as the Trademark Law:
Sec. 37. Rights of Foreign Registrants-Persons who are nationals of, domiciled or have a bona fide or effective business or
commercial establishment in any foreign country, which is a party to an international convention or treaty relating to marks or
tradenames on the repression of unfair competition to which the Philippines may be a party, shall be entitled to the benefits and
subject to the provisions of this Act . . . ...
Tradenames of persons described in the first paragraph of this section shall be protected without the obligation of filing or
registration whether or not they form parts of marks. [emphasis supplied]
WHEREFORE, the decision of the Director of Patents is hereby set aside and a new one entered denying Respondent Universal Rubber
Products, Inc.'s application for registration of the trademark "UNIVERSAL CONVERSE AND DEVICE" on its rubber shoes and slippers.
SO ORDERED.

G.R. No. 97816 July 24, 1992

MERRILL LYNCH FUTURES, INC., petitioner,
vs.
HON. COURT OF APPEALS, and the SPOUSES PEDRO M. LARA and ELISA G. LARA, respondents.

NARVASA, C.J.:
The capacity of a foreign corporation to maintain an action in the Philippines against residents thereof, is the principal question in the appellate
proceedings at bar. The issue arises from the undisputed facts now to be briefly narrated.
On November 23, 1987, Merrill Lynch Futures, Inc. (hereafter, simply ML FUTURES) filed a complaint with the Regional Trial Court at Quezon City
1
against the Spouses Pedro M. Lara and Elisa G. Lara for the recovery of a debt and interest thereon, damages, and attorney's fees. In its
complaint ML FUTURES described itself as —
a) a non-resident foreign corporation, not doing business in the Philippines, duly organized and existing under and by virtue of the
laws of the state of Delaware, U.S.A.;" as well as
b) a "futures commission merchant" duly licensed to act as such in the futures markets and exchanges in the United States, . .
essentially functioning as a broker . . (executing) orders to buy and sell futures contracts received from its customers on U.S.
futures exchanges.
It also defined a "futures contract" as a "contractual commitment to buy and sell a standardized quantity of a particular item at a specified future
settlement date and at a price agreed upon, with the purchase or sale being executed on a regulated futures exchange."
In its complaint ML FUTURES alleged the following:
1) that on September 28, 1983 it entered into a Futures Customer Agreement with the defendant spouses (Account No. 138-12161), in virtue of
which it agreed to act as the latter's broker for the purchase and sale of futures contracts in the U.S.;
2) that pursuant to the contract, orders to buy and sell futures contracts were transmitted to ML FUTURES by the Lara Spouses "through the
2
facilities of Merrill Lynch Philippines, Inc., a Philippine corporation and a company servicing plaintiffs customers;
3) that from the outset, the Lara Spouses "knew and were duly advised that Merrill Lynch Philippines, Inc. was not a broker in futures contracts,"
and that it "did not have a license from the Securities and Exchange Commission to operate as a commodity trading advisor (i.e., 'an entity which,
not being a broker, furnishes advice on commodity futures to persons who trade in futures contracts');
4) that in line with the above mentioned agreement and through said Merrill Lynch Philippines, Inc., the Lara Spouses actively traded in futures
3
contracts, including "stock index futures" for four years or so, i.e., from 1983 to October, 1987, there being more or less regular accounting and
corresponding remittances of money (or crediting or debiting) made between the spouses and ML FUTURES;
5) that because of a loss amounting to US$160,749.69 incurred in respect of three (3) transactions involving "index futures," and after setting this
off against an amount of US$75,913.42 then owing by ML FUTURES to the Lara Spouses, said spouses became indebted to ML FUTURES for
the ensuing balance of US$84,836.27, which the latter asked them to pay;
6) that the Lara Spouses however refused to pay this balance, "alleging that the transactions were null and void because Merrill Lynch Philippines,
Inc., the Philippine company servicing accounts of plaintiff, . . had no license to operate as a 'commodity and/or financial futures broker.'"
On the foregoing essential facts, ML FUTURES prayed (1) for a preliminary attachment against defendant spouses' properties "up to the value of
at least P2,267,139.50," and (2) for judgment, after trial, sentencing the spouses to pay ML FUTURES:
a) the Philippine peso equivalent of $84,836.27 at the applicable exchanged rate on date of payment, with legal interest from date
of demand until full payment;
b) exemplary damages in the sum of at least P500,000.00; and
c) attorney's fees and expenses of litigation as may be proven at the trial.
Preliminary attachment issued ex parte on December 2, 1987, and the defendant spouses were duly served with summons.
They then filed a motion to dismiss dated December 18, 1987 on the grounds that:
(1) plaintiff ML FUTURES had "no legal capacity to sue" and
(2) its "complaint states no cause of action since . . (it) is not the real party in interest."
In that motion to dismiss, the defendant spouses averred that:
a) although not licensed to do so, ML FUTURES had been doing business in the Philippines "at least for the last four (4) years," this being clear
from the very allegations of the complaint; consequently, ML FUTURES is prohibited by law "to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines;" and

b) they had never been informed that Merrill Lynch Philippines, Inc. was not licensed to do business in this country; and contrary to the allegations
of the complaint, all their transactions had actually been with MERRILL LYNCH PIERCE FENNER & SMITH, INC., and not with ML
FUTURES (Merrill Lynch Futures, Inc.), in proof of which they attached to their motion to dismiss copies of eight (8) agreements, receipts or
4
reminders, etc., executed on standard printed forms of said Merrill Lynch Pierce Fenner & Smith Inc.
ML FUTURES filed an OPPOSITION to the defendant spouses' motion to dismiss. In that motion —
a) it drew attention to paragraph 4 of its complaint, admitted by defendants, that the latter "have been actively trading in futures contracts . . . in
U.S. futures exchanges from 1983 to 1987," and ask, "If the trading . . . (was) made in U.S., how could plaintiff be doing business in the
Philippines?"
b) it also drew attention to a printed form of "Merrill Lynch Futures, Inc." filled out and signed by defendant spouses when they opened an account
with ML Futures, in order to supply information about themselves, including their bank's name —
(1) in which appear the following epigraph: "Account introduced by Merrill Lynch International, Inc.," and the
following statements, to wit:
This Commodity Trading Advisor (Merrill Lynch, Pierce, Fenner & Smith Philippines, Inc.) is prohibited by the Philippine Securities
and Exchange Commission from accepting funds in the trading advisor's name from a client of Merrill Lynch Futures, Inc. for
trading commodity interests. All funds in this trading program must be placed with Merrill Lynch Futures, Inc.;
and
. . . It is agreed between MERRILL LYNCH, PIERCE, FENNER & SMITH INC., and other account carrying MERRILL LYNCH
entities and their customers that all legal relationships between them will be governed by applicable laws in countries outside the
Philippines where sale and purchase transactions take place.
c) and it argued that —
(1) it is not permitted for defendant spouses to present "evidence" in connection with a motion to dismiss based on failure of the
complaint to state a cause of action;
(2) even if the documents appended to the motion to dismiss be considered as admissible "evidence," the same would be
immaterial since the documents refer to a different account number: 138-12136, the defendants' account number with ML
FUTURES being 138-12161;
(3) it is a lie for the defendant spouses to assert that they were never informed that Merrill Lynch Philippines, Inc. had not been
licensed to do business in the Philippines; and
(4) defendant spouses should not be allowed to "invoke the aid of the court with unclean hands.
The defendant spouses filed a REPLY reaffirming their lack of awareness that Merrill Lynch Philippines, Inc. (formerly registered as Merrill Lynch,
5
Pierce, Fenner & Smith Philippines, Inc.) did not have a license, claiming that they learned of this only from inquiries with the Securities and
Exchange Commission which elicited the information that it had denied said corporation's application to operate as a commodity futures trading
advisor — a denial subsequently affirmed by the Court of Appeals (Merrill Lynch Philippines, Inc. v. Securities & Exchange Commission,CA-
G.R. No. 10821-SP, Nov. 19, 1987). The spouses also submitted additional documents (Annexes J to R) involving transactions with Merrill Lynch
Pierce Fenner & Smith, Inc., dating back to 1980, stressing that all but one of the documents "refer to Account No. 138-12161 which is the very
account that is involved in the instant complaint."
ML FUTURES filed a Rejoinder alleging it had given the spouses a disclosure statement by which the latter were made aware that the transactions
they were agreeing on would take place outside of the Philippines, and that "all funds in the trading program must be placed with Merrill Lynch
Futures, Inc."
On January 12, 1988, the Trial Court promulgated an Order sustaining the motion to dismiss, directing the dismissal of the case and discharging
the writ of preliminary attachment. It later denied ML FUTURES's motion for reconsideration, by Order dated February 29, 1988. ML FUTURES
6
appealed to the Court of Appeals.
7
In its own decision promulgated on November 27, 1990, the Court of Appeals affirmed the Trial Court's judgment. It declared that the Trial Court
had seen "through the charade in the representation of MLPI and the plaintiff that MLPI is only a trading advisor and in fact it is a conduit in the
plaintiff's business transactions in the Philippines as a basis for invoking the provisions of Section 133 of the Corporation Code," 8 viz.:
Sec. 133. Doing business without a license. — No foreign corporation transacting business in the Philippines without a license, or
its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency in the Philippines; but such corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine laws.
It also declared that the evidence established that plaintiff had in fact been "doing business" in this country in legal contemplation,
9
adverting to Mentholatum v. Mangaliman, 72 Phil. 524, 528-530, and Section 1 of Republic Act No. 5455 reading as follows:
Sec. 1. Definition and scope of this ACT . (1) As used in this Act, the term "investment" shall mean equity participation in any
enterprise formed, organized, or existing under the laws of the Philippines; and the phrase "doing business" shall INCLUDE
soliciting orders, purchases, service contracts, opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors who are domiciled in the Philippines or who in any calendar year stay in the Philippines for a period
or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic
business firm, entity or corporation in the Philippines; AND ANY OTHER ACT OR ACTS THAT IMPLY A CONTINUITY OF
COMMERCIAL DEALINGS OR ARRANGEMENTS AND CONTEMPLATE TO THAT EXTENT THE PERFORMANCE OF ACTS
OR WORKS, OR THE EXERCISE OF SOME FUNCTIONS NORMALLY INCIDENT TO, AND IN PROGRESSIVE
PROSECUTION OF COMMERCIAL GAIN OR OF THE PURPOSE AND OBJECT OF THE BUSINESS ORGANIZATION.
As regards the claim that it was error for the Trial Court to place reliance on the decision of the Court of Appeals in CA-G.R. No. 10821-SP —
sustaining the finding of the Securities & Exchange Commission that ML FUTURES was doing business in the Philippines — since that judgment
was not yet final and ML FUTURES was not a party to that proceeding, the Court of Appeals ruled that there was no need to belabor the point
considering that there was, in any event, "adequate proof of the activities of MLPI . . . which manifestly show that the plaintiff (ML FUTURES)
performed a series of business acts, consummated contracts and undertook transactions for the period from 1983 to October 1987," "and because
ML FUTURES had done so without license, it consequently had "no legal personality to bring suit in Philippine courts."
10
Its motion for reconsideration having been denied, ML FUTURES has appealed to this Court on certiorari. Here, it submits the following issues
for resolution:
(a) Whether or not the annexes appended by the Laras to their Motion to Dismiss and Reply filed with the Regional Trial Court, but
never authenticated or offered, constitute admissible evidence.
(b) Whether or not in the proceedings below, ML FUTURES has been accorded procedural due process.
(c) Whether or not the annexes, assuming them to be admissible, established that ML FUTURES was doing business in the
Philippines without a license.
As just stated, the Lara Spouse's motion to dismiss was founded on two (2) grounds: (a) that the plaintiff has no legal capacity to sue, and (b) that
the complaint states no cause of action (Sec. 1 [d], and [g], Rule 16, Rules of Court).
As regards the second ground, i.e., that the complaint states no cause of action, the settled doctrine of course is that said ground must appear on
the face of the complaint, and its existence may be determined only by the allegations of the complaint, consideration of other facts being
11
proscribed, and any attempt to prove extraneous circumstances not being allowed. The test of the sufficiency of the facts alleged in a complaint
as constituting a cause of action is whether or not, admitting the facts alleged, the court might render a valid judgment upon the same in
as constituting a cause of action is whether or not, admitting the facts alleged, the court might render a valid judgment upon the same in
12
accordance with the prayer of the complaint. Indeed, it is error for a judge to conduct a preliminary hearing and receive evidence on the
13
affirmative defense of failure of the complaint to state a cause of action.
The other ground for dismissal relied upon, i.e., that the plaintiff has no legal capacity to sue — may be understood in two senses: one, that the
14
plaintiff is prohibited or otherwise incapacitated by law to institute suit in Philippine Courts, or two, although not otherwise incapacitated in the
15
sense just stated, that it is not a real party in interest. Now, the Lara Spouses contend that ML Futures has no capacity to sue them because the
transactions subject of the complaint were had by them, not with the plaintiff ML FUTURES, but with Merrill Lynch Pierce Fenner & Smith, Inc.
Evidence is quite obviously needed in this situation, for it is not to be expected that said ground, or any facts from which its existence may be
inferred, will be found in the averments of the complaint. When such a ground is asserted in a motion to dismiss, the general rule governing
evidence on motions applies. The rule is embodied in Section 7, Rule 133 of the Rules of Court.
Sec. 7. Evidence on motion. — When a motion is based on facts not appearing of record the court may hear the matter on
affidavits or depositions presented by the respective parties, but the court may direct that the matter be heard wholly or partly on
oral testimony or depositions.
There was, to be sure, no affidavit or deposition attached to the Lara Spouses' motion to dismiss or thereafter proffered in proof of the averments
of their motion. The motion itself was not verified. What the spouses did do was to refer in their motion to documents which purported to establish
that it was not with ML FUTURES that they had theretofore been dealing, but another, distinct entity, Merrill Lynch, Pierce, Fenner & Smith, Inc.,
copies of which documents were attached to the motion. It is significant that ML FUTURES raised no issue relative to the authenticity of the
documents thus annexed to the Laras' motion. In fact, its arguments subsumed the genuineness thereof and even adverted to one or two of them.
Its objection was centered on the propriety of taking account of those documents as evidence, considering the established principle that no
evidence should be received in the resolution of a motion to dismiss based on an alleged failure of the complaint to state a cause of action.
There being otherwise no question respecting the genuineness of the documents, nor of their relevance to at least one of the grounds for
dismissal — i.e., the prohibition on suits in Philippine Courts by foreign corporations doing business in the country without license — it would have
been a superfluity for the Court to require prior proof of their authenticity, and no error may be ascribed to the Trial Court in taking account of them
in the determination of the motion on the ground, not that the complaint fails to state a cause of action — as regards which evidence is improper
and impermissible — but that the plaintiff has no legal capacity to sue — respecting which proof may and should be presented.
Neither may ML FUTURES argue with any degree of tenability that it had been denied due process in the premises. As just pointed out, it was
very clear from the outset that the claim of lack of its capacity to sue was being made to rest squarely on the documents annexed thereto, and ML
FUTURES had more than ample opportunity to impugn those documents and require their authentication, but did not do so. To sustain its theory
that there should have been identification and authentication, and formal offer, of those documents in the Trial Court pursuant to the rules of
evidence would be to give unwarranted importance to technicality and make it prevail over the substance of the issue.
The first question then, is, as ML FUTURES formulates it, whether or not the annexes, assuming them to be admissible, establish that (a) ML
FUTURES is prohibited from suing in Philippine Courts because doing business in the country without a license, and that (b) it is not a real party in
interest since the Lara Spouses had not been doing business with it, but with another corporation, Merrill Lynch, Pierce, Fenner & Smith, Inc.
The Court is satisfied that the facts on record adequately establish that ML FUTURES, operating in the United States, had indeed done business
with the Lara Spouses in the Philippines over several years, had done so at all times through Merrill Lynch Philippines, Inc. (MLPI), a corporation
organized in this country, and had executed all these transactions without ML FUTURES being licensed to so transact business here, and without
MLPI being authorized to operate as a commodity futures trading advisor. These are the factual findings of both the Trial Court and the Court of
Appeals. These, too, are the conclusions of the Securities & Exchange Commission which denied MLPI's application to operate as a commodity
futures trading advisor, a denial subsequently affirmed by the Court of Appeals. Prescinding from the proposition that factual findings of the Court
of Appeals are generally conclusive this Court has been cited to no circumstance of substance to warrant reversal of said Appellate Court's
findings or conclusions in this case.
The Court is satisfied, too, that the Laras did transact business with ML FUTURES through its agent corporation organized in the Philippines, it
being unnecessary to determine whether this domestic firm was MLPI (Merrill Lynch Philippines, Inc.) or Merrill Lynch Pierce Fenner & Smith
(MLPI's alleged predecessor). The fact is that ML FUTURES did deal with futures contracts in exchanges in the United States in behalf and for the
account of the Lara Spouses, and that on several occasions the latter received account documents and money in connection with those
transactions.
Given these facts, if indeed the last transaction executed by ML FUTURES in the Laras's behalf had resulted in a loss amounting to US
$160,749.69; that in relation to this loss, ML FUTURES had credited the Laras with the amount of US$75,913.42 — which it (ML FUTURES) then
admittedly owed the spouses — and thereafter sought to collect the balance, US$84,836.27, but the Laras had refused to pay (for the reasons
already above stated), the crucial question is whether or not ML FUTURES may sue in Philippine Courts to establish and enforce its rights against
said spouses, in light of the undeniable fact that it had transacted business in this country without being licensed to do so. In other words, if it be
true that during all the time that they were transacting with ML FUTURES, the Laras were fully aware of its lack of license to do business in the
Philippines, and in relation to those transactions had made payments to, and received money from it for several years, the question is whether or
not the Lara Spouses are now estopped to impugn ML FUTURES' capacity to sue them in the courts of the forum.
The rule is that a party is estopped to challenge the personality of a corporation after having acknowledged the same by entering into a contract
16 17
with it. And the "doctrine of estoppel to deny corporate existence applies to foreign as well as to domestic corporations;" "one who has dealt
18
with a corporation of foreign origin as a corporate entity is estopped to deny its corporate existence and capacity." The principle "will be applied
to prevent a person contracting with a foreign corporation from later taking advantage of its noncompliance with the statutes, chiefly in cases
where such person has received the benefits of the contract (Sherwood v. Alvis, 83 Ala 115, 3 So 307, limited and distinguished in Dudley v.
Collier, 87 Ala 431, 6 So 304; Spinney v. Miller, 114 Iowa 210, 86 NW 317), where such person has acted as agent for the corporation and has
violated his fiduciary obligations as such, and where the statute does not provide that the contract shall be void, but merely fixes a special penalty
19
for violation of the statute. . . ."
20
The doctrine was adopted by this Court as early as 1924 in Asia Banking Corporation v. Standard Products Co., in which the following
21
pronouncement was made:
The general rule that in the absence of fraud of person who has contracted or otherwise dealt with an association in such a way
as to recognize and in effect admit its legal existence as a corporate body is thereby estopped to deny its corporate existence in
any action leading out of or involving such contract or dealing, unless its existence is attacked for causes which have arisen since
making the contract or other dealing relied on as an estoppel and this applies to foreign as well as domestic corporations.
(14 C.J .7; Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil. 222).
There would seem to be no question that the Laras received benefits generated by their business relations with ML FUTURES. Those business
relations, according to the Laras themselves, spanned a period of seven (7) years; and they evidently found those relations to be of such
profitability as warranted their maintaining them for that not insignificant period of time; otherwise, it is reasonably certain that they would have
terminated their dealings with ML FUTURES much, much earlier. In fact, even as regards their last transaction, in which the Laras allegedly
suffered a loss in the sum of US$160,749.69, the Laras nonetheless still received some monetary advantage, for ML FUTURES credited them with
the amount of US$75,913.42 then due to them, thus reducing their debt to US$84,836.27. Given these facts, and assuming that the Lara Spouses
were aware from the outset that ML FUTURES had no license to do business in this country and MLPI, no authority to act as broker for it, it would
appear quite inequitable for the Laras to evade payment of an otherwise legitimate indebtedness due and owing to ML FUTURES upon the plea
that it should not have done business in this country in the first place, or that its agent in this country, MLPI, had no license either to operate as a
"commodity and/or financial futures broker."
Considerations of equity dictate that, at the very least, the issue of whether the Laras are in truth liable to ML FUTURES and if so in what amount,
and whether they were so far aware of the absence of the requisite licenses on the part of ML FUTURES and its Philippine correspondent, MLPI,
as to be estopped from alleging that fact as defense to such liability, should be ventilated and adjudicated on the merits by the proper trial court.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 16478 dated November 27, 1990 and its Resolution of March 7, 1991 are
REVERSED and SET ASIDE, and the Regional Trial Court at Quezon City, Branch 84, is ORDERED to reinstate Civil Case No. Q-52360 and
forthwith conduct a hearing to adjudicate the issues set out in the preceding paragraph on the merits.
SO ORDERED.

LITTON MILLS vs. CA

G.R. No. 96597-99 October 6, 1994

COLUMBIA PICTURES, INC., ORION PICTURES CORP., PARAMOUNT PICTURES CORP., TWENTIETH CENTURY FOX FILM CORP.,
UNITED ARTISTS CORP., UNIVERSAL CITY STUDIOS, INC., WALT DISNEY COMPANY and WARNER BROS., INC., petitioners,
vs.
HON. COURT OF APPEALS, TUBE VIDEO ENTERPRISES and EDWARD CHAM, BLOOMING ROSE TAPE CENTER and MA. JAJORIE T.
UY, and VIDEO CHANNEL and LYDIA NABONG, respondents.
G.R. No. 97156 October 6, 1994
COLUMBIA PICTURES INDUSTRIES, INC., ORION PICTURES CORPORATION, PARAMOUNT PICTURES CORP., TWENTIETH CENTURY
FOX FILM CORP., MGM/UA COMMUNICATIONS COMPANY, UNIVERSAL CITY STUDIOS, INC., THE WALT DISNEY COMPANY, and
WARNER BROS., INC., petitioners,
vs.
HON. COURT OF APPEALS, FOX'S VIDEO, INC. and ALFREDO ONGYANGCO., respondents.
Castillo, Laman, Tan & Pantaleon for petitioners.
Herminio T. Banico, Jr. & Associates for private respondent Lydia Nabong.
Molo, Padua, Salazar, Roldan & Associates for Blooming Rose Tape Center/Ma. J.T. Uy.
RESOLUTION

VITUG, J.:
On 07 April 1988, the National Bureau of Investigation ("NBI"), through its Agent Lauro C. Reyes, filed with the Regional Trial Court of Pasig
(Branch 159) three applications for search warrant against private respondents Tube Video Enterprises and Edward C. Cham (ASW No. 95), the
Blooming Rose Tape Center and Ma. Jajorie T. Uy (ASW No. 96), and the Video
Channel and Lydia Nabong (ASW No. 97), charging said respondents with violation of Section 56 of Presidential Decree ("P.D.") No. 49, otherwise
known as the Decree on the Protection of Intellectual Property, as amended by P.D. No. 1988.
In the three applications for search warrant, NBI Agent Reyes stated under oath that the respondents had in their possession and control —
1. (p)irated video tapes of the copyrighted motion pictures/films the titles of which are mentioned in the attached list;
2. (p)osters, advertising leaflets, flyers, brochures, invoices, journals, ledgers, job order slips, delivery slips, stickers and books of
account bearing and/or mentioned the pirated films with titles . . ., or otherwise used in the videogram business or activities of the
defendants; sold, leased, distributed or possessed for the purpose of sale, lease, distribution, circulation or public exhibition,
journals, ledgers, job order slips, delivery slips, stickers and books of accounts used in the unlawful videogram business or
activities of the defendants; (and)
3. (t)elevision sets, video cassette and/or laser disc recorders, dubbing machines, rewinders, film projectors, U-matic machines,
image enhancers, dubbing machines, tape head cleaners, converters, accessories, equipment and other machines and
paraphernalia, materials or empty/erasable video tapes and master copies used or intended to be used in the unlawful exhibition,
1
showing, reproduction, sale lease or disposition of videograms they are keeping and concealing in the premises abovedescribed.
Acting on the applications, then Regional Trial Court Judge Maria
Alicia M. Austria conducted a joint hearing during which she made a personal examination of the applicant and his witnesses. Finding just and
probable cause for granting the application at the time, Judge Austria issued the corresponding Search Warrants ("SW") numbered 95, 96, and 97.
Private respondents filed their respective motions to quash the three search warrants, citing as grounds therefor the following:
In SW No. 95
1. There is no probable cause nor the existence of a satisfactory fact upon which the search warrant is based;
2. The National Bureau of Investigation has no authority nor the jurisdiction to initiate the filing of suit against the defendants;
3. The confiscation of defendants' seized articles based on the questioned search warrant violated the latter's constitutional right
against deprivation of properties without due process.
4. The films in question are not protected by Pres. Decree
No. 1988 in that they were never registered in the National Library as a condition precedent to the availment of the protection
secured by that decree. The complaint has acquired no right under the same.
5. The mere publication by complainant of its alleged ownership over the films in question does not ipso facto vest in the right to
proceed under P.D. No. 49 as that law requires official registration. Moreover, the said publication took place only after the
2
application for the questioned search warrant.
In SW No. 96
1. The complainants, one Rico V. Domingo and one Rene C. Baltazar, in representation of the Motion Picture Association of
America, Inc., have not proven nor established their ownership over the films listed in Annex "A" of the search warrant issued by
this Honorable Court against the defendants herein.
2. The information provided by the National Bureau of Investigation agents and the representatives of the MPAA, Inc. are replete

with generalities insofar as the description of the items to be concerned in violation of the provisions of Sec. 3 of Rule 126 of the
Rules of Court. Their allegations as to the offense are presumptuous and speculative in violation of the same section of the Rules
3
of Court.
Private respondents in SW No. 97 adopted the motions filed for the quashal of both SW No. 95 and SW No. 96.
Herein petitioners (the private complainants in the three cases), namely, Columbia Pictures Entertainment, Inc., Orion Pictures Corporation,
Twentieth Century Fox Film Corporation, MGM/UA Communications Company, Universal City Studios, Inc., Walt Disney Company and Warner
Bros., Inc., submitted their oppositions to the motions to quash. The movants, herein private respondents, filed their replies to the oppositions and
sought, simultaneously, the release of the items seized. After a rejoinder was filed, the court a quo considered all the incidents submitted for
resolution.
In a Joint Order, issued on 09 December 1988, Judge Austria defined the issues raised in the motions to quash thusly:
1. Whether or not the NBI had authority to file the application for search warrant; whether or not it is the Videogram Regulatory
Board under P.D. No. 1987 which has exclusive jurisdiction to file suits against violators of said law.
2. Whether or not this Court observed due process of law before issuing the search warrants in question.
3. Whether or not search warrants Nos. 95, 96 and 97 are general warrants and therefore void.
4. Whether or not there was probable cause in the issuance of the search warrants pursuant to Section 3, Rule 126 of the 1985
Rules on Criminal Procedure and Section 2, Article III of the 1987 Constitution of the Republic of the Philippines.
5. Whether or not private complainants who are members of the Motion Picture Association of America, Inc. (MPAA for brevity)
through their counsel, Atty. Rico Domingo, have sufficiently proven their ownership over the alleged pirated video tapes of the
copyrighted motion pictures/films.
6. Whether or not the items seized by the NBI agents by virtue of SW Nos. 95, 96 and 97 may be ordered released to
4
defendants.
Anent the first three issues, Judge Austria ruled that the NBI had the authority to apply for the search warrants; that in the issuance of the search
warrants, due process of law was duly observed; and that the questioned search warrants were not general in character since the provision of law
violated, i.e., Sec. 56 of P.D. No. 49, as amended by P.D. No. 1988, was clearly specified. Judge Austria, nonetheless, reversed her former stand
initially finding probable cause for the issuance of the search warrants and ordered the quashal of the search warrants giving the following
reasons:
1. Private complainants were uncertain of their ownership of the titles subject of the seized video tapes;
2. Complainants did not comply with the requirement that the master tapes should be presented during the application for search
warrants; and
3. Private complainants cannot seek the protection of Philippine laws as they failed to comply with the deposit and registration
5
requirements of P.D. No. 49 as amended by P.D. No. 1988.
Judge Austria thus ordered the return of all the items seized by virtue of the warrants.
Petitioners appealed the order of Judge Austria to the Court of Appeals, docketed CA-G.R. CV No. 22133-22135, assigning the following alleged
errors:
1. The Court a quo erred in ruling that private complainants were uncertain of their ownership of the titles subject of the pirated
video tapes.
2. The Court a quo erred in ordering the quashal of the search warrants on the ground that the requirement of producing the
"master tapes" during the application for a search warrant, as enunciated in the 20th Century Fox case, promulgated on 19 August
1988, was applicable to the facts of the instant case which transpired on 07 April 1988, and that the same was not complied with.
3. The Court a quo erred in ruling that appellants do not have a protectable copyright under Philippine laws for their failure to
comply with the deposit and registration requirements of Presidential Decree No. 49, as amended by Presidential Decree No.
6
1988.
On 31 October 1990, the Court of Appeals, through Justice Salome A. Montoya, rendered its decision sustaining petitioners' first and third
assignment of errors but rejecting petitioners' second assignment of error. It, therefore, still affirmed the quashal of the search warrants.
Hence, this petition (G.R. No. 96597-99). Another decision rendered by the Court of Appeals in another case (CA-G.R. No. 20617), involving the
same petitioners on substantially identical facts and issues, was also brought before this Court (G.R. No. 97156). In a Resolution, dated 06 March
1991, this Court consolidated the two petitions.
We affirm the decisions of the Court of Appeals.
This Court, in 20th Century Fox Film Corp. vs. Court of Appeals (164 SCRA 655) has already laid down the rule that a basic requirement for the
validity of search warrants, in cases of this nature, is the presentation of the master tapes of the copyrighted films from which pirated films are
supposed to have been copied. We quote:
The presentation of the master tapes of the copyrighted films from which the pirated films were allegedly copied, was necessary
for the validity of search warrants against those who have in their possession the pirated films. The petitioner's argument to the
effect that the presentation of the master tapes at the time of application may not be necessary as these would be merely
evidentiary in nature and not determinative of whether or not a probable cause exists to justify the issuance of the search warrants
is not meritorious. The court cannot presume that duplicate or copied tapes were necessarily reproduced from master tapes that it
owns.
The application for search warrants was directed against video tape outlets which allegedly were engaged in the unauthorized
sale and renting out of copyrighted films belonging to the petitioner pursuant to P.D. 49.
The essence of a copyright infringement is the similarity or at least substantial similarity of the purported pirated works to the
copyrighted work. Hence, the applicant must present to the court the copyrighted films to compare them with the purchased
evidence of the video tapes allegedly pirated to determine whether the latter is an unauthorized reproduction of the former. This
linkage of the copyrighted films to the pirated films must be established to satisfy the requirements of probable cause. Mere
allegations as to the existence of the copyrighted films cannot serve as basis for the issuance of a search warrant.
We also fully concur with the Court of Appeals when, in resolving petitioners' motion for reconsideration in CA-G.R. CV No. 22133-35, it
ratiocinated thusly:
It is not correct to say that "the basic fact" to be proven to establish probable cause in the instant cases is not the "unauthorized
transfer" of a motion picture that has been recorded but the "sale, lease, or distribution of pirated video tapes of copyrighted films."
In applying for the search warrants the NBI charged violation of the entire provisions of Section 56 of P.D. No. 49 as amended by
P.D.
No. 1988. This included not only the sale, lease or distribution of pirated tapes but also the transfer or causing to be transferred of
any sound recording or motion picture or other audio visual work.

But even assuming, as appellants argue, that only the sale, lease, or distribution of pirated video tapes is involved, the fact
remains that there is need to establish probable cause that the tapes being sold, leased or distributed are pirated tapes, hence the
issue reverts back to the question of whether there was unauthorized transfer, directly or indirectly, of a sound recording or motion
 issue reverts back to the question of whether there was unauthorized transfer, directly or indirectly, of a sound recording or motion
7
picture or other audio visual work that has been recorded.
With due respect to petitioners, the Court does not see a compelling reason to reexamine its previous position on the issue.
WHEREFORE, in view of the foregoing, the instant petitions are hereby DENIED for lack of merit.
SO ORDERED.

AVON INSURANCE PLC vs CA

Facts:

Respondent Yupangco Cotton Mills engaged to secure with Worldwide Security and Insurance Co. several of its
properties which were then covered by reinsurance treaties between Worldwide Security and several foreign
reinsurance companies, including herein petitioners. These reinsurance agreements had been made through an
international broker acting for Worldwide Security. While the policies are in effect, Yupangco’s properties were
razed in fire giving rise to their indemnification. Worldwide acknowledged a remaining balance and assigned to
Yupangco all reinsurance proceeds still collectible from all the reinsurance companies. Thus, as assignee and
original insured, Yupangco instituted a collection suit against petitioners. Petitioners averred that they are foreign
corporations not doing business in the Philippines therefore cannot be subject to the jurisdiction of its courts. CA
found for Yupangco.

Issue:

Whether or not petitioners are foreign corporations doing business in the Philippines.

Ruling: NO.

To qualify the petitioners’ business of reinsurance within the Philippine forum, resort must be made to the
established principles in determining what is meant by “doing business in the Philippines.” The term ordinarily
implies a continuity of commercial dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of the functions normally incident to and in progressive prosecution
of the purpose and object of its organization.

As it is, private respondent has made no allegation or demonstration of the existence of petitioners’ domestic
agent, but avers simply that they are doing business not only abroad but in the Philippines as well. It does not
appear at all that the petitioners had performed any act which would give the general public the impression that it
had been engaging, or intends to engage in its ordinary and usual business undertakings in the country. The
reinsurance treaties between the petitioners and Worldwide Surety and Insurance were made through an
international insurance broker, and not through any entity or means remotely connected with the Philippines.
Moreover, there is authority to the effect that a reinsurance company is not doing business in a certain state
merely because the property or lives which are insured by the original insurer company are located in that state.
The reason for this is that a contract of reinsurance is generally a separate and distinct arrangement from the
original contract of insurance, whose contracted risk is insured in the reinsurance agreement. Hence, the original
insured has generally no interest in the contract of reinsurance.

Indeed, if a foreign corporation does not do business here, there would be no reason for it to be subject to the
State’s regulation. As we observed, in so far as the State is concerned, such foreign corporation has no legal
existence. Therefore, to subject such corporation to the courts’ jurisdiction would violate the essence of
sovereignty.

G.R. No. 168402 August 6, 2008

ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
 DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee, the insurer
steps into the shoes of the assured and may exercise only those rights that the assured may have against the wrongdoer who
caused the damage.
1 2
Before Us is a petition for review on certiorari of the Decision of the Court of Appeals (CA) which reversed the Decision of the
Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and
attorney's fees in favor of respondent Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine
insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools
and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu
3 4
City, Philippines. ICNA issued an "all-risk" open marine policy, stating:
This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure
for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: - Loss, if any,
5
payable to the Assured or order.
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on board M/S Katsuragi. A clean
6
bill of lading was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993, the ship
arrived and docked at the Manila International Container Port where the container van was again off-loaded. On July 26, 1993, the
cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz
7
Transport System. The bill of lading issued by Aboitiz contained the notation "grounded outside warehouse."
The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on
8
the Stuffing/Stripping Report. On August 1, 1993, the container van was loaded on board petitioner's vessel, MV Super Concarrier I.
The vessel left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was
then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping
9
Report dated August 5, 1993, petitioner's checker noted that the crates were slightly broken or cracked at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project (STIP)
and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13,
1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig informing him that the cargo sustained
water damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of the
container and other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were
10
completely dry and showed no sign of wetness.
Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had
no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further explained that
11
the "grounded outside warehouse" notation in the bill of lading referred only to the container van bearing the cargo.
12
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo. The letter stated that
the crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches were found to have
been completely soaked in water with most of the packing cartons already disintegrating. The crate was properly sealed off from the
inside with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The letter concluded that
apparently, the damage was caused by water entering through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen Adjustment
Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water
13
damage, molds, and corrosion which were discovered upon delivery to consignee.
14
On September 21, 1993, the consignee filed a formal claim with Aboitiz in the amount of P276,540.00 for the damaged condition of
the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
15
In a Supplemental Report dated October 20, 1993, CAC reported to ICNA that based on official weather report from the Philippine
Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28 and 29, 1993
caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North Harbor,
Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of
lading issued by Aboitiz which contained the notation "grounded outside warehouse." It was only on July 31, 1993 when the shipment
was stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A subrogation receipt
was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-
ups, however, no reply was received from Aboitiz.
 RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest and attorney's
16
fees. ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by the fault and
negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint stated no
cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the suit was premature
there being no claim made upon Aboitiz.
17
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the complaint for being
baseless and without merit. The complaint is hereby DISMISSED. The defendant's counterclaims are, likewise, DISMISSED
18
for lack of basis.
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial court noted
that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA.
However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK
assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it had been subrogated to the rights of the consignee
must fail because the subrogation receipt had no probative value for being hearsay evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited (ICNA
UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would show that
ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office
address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA UK
assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International
Limited &/or Associated &/or Subsidiary Companies. Plaintiff's witness, Francisco B. Francisco, claims that the signature
below the name MSAS Cargo International is an endorsement of the marine policy in favor of Science Teaching Improvement
Project. Plaintiff's witness, however, failed to identify whose signature it was and plaintiff did not present on the witness stand
or took (sic) the deposition of the person who made that signature. Hence, the claim that there was an endorsement of the
marine policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement Project as
shown by the Subrogation Form (Exhibit "K") allegedly signed by a representative of Science Teaching Improvement Project.
Such representative, however, was not presented on the witness stand. Hence, the Subrogation Form is self-serving and has
19
no probative value. (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do business in the
Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly authorized
to do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of
12 March 1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity to sue and be
sued. Under Philippine law, the condition is that a foreign insurance company must obtain licenses/authority to do business in
the Philippines. These licenses/authority are obtained from the Securities and Exchange Commission, the Board of
Investments and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign corporation doing
business in the Philippines cannot sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524.
(Emphasis supplied)
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the right of
subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as made known in the
20
dorsal portion of the Open Policy.
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed within the period
required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the subrogation receipt should
have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional Trial
Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered
ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America
the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of this case until fully paid, and
21
attorney's fees in the sum of P50,000, plus the costs of suit.
The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance claim. As
subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming arguendo that
the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar it from claiming
reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance and as recognized by
Philippine courts. x x x
xxxx
Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as subrogee of the
claim of the insured under the subject marine policy, is therefore the real party in interest to bring this suit and recover the full
22
amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City. x x x
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing
evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the evidence on record and
relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.
 Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A
CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING
THE ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE
PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS
MADE BY A WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED
AGENT OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").
(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE WAS
PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO
INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT
ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE
AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A
REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE EXTENT AND
KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF

23
ABOITIZ. (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-interest that
possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of claim
as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for damages?
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local
courts. Only when that foreign corporation is "transacting" or "doing business" in the country will a license be necessary before it can
24 25
institute suits. It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law. Thus,
this Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it
abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It
is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation
26
from access to our courts.
In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the present
suit was filed by the said company's authorized agent in Manila. It was the domestic corporation that brought the suit and not the
foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the Philippines as one of
the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS, the shipper,
in favor of STIP of Don Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the company
27
who issued the insurance, or against any of its listed agents worldwide. MSAS accepted said provision when it signed and accepted
the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the
agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure
MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: - Loss, if any,
payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the assured. This
is in keeping with Section 57 of the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become the
owner of the interest insured. (Emphasis added)
Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the damaged shipment.
The right of subrogation springs from Article 2207 of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury. (Emphasis added)
28
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals, payment by the insurer to the assured
operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage.
Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues
29
simply upon payment of the insurance claim by the insurer.
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to subrogation equipped it with a
30
cause of action against petitioner in case of a contractual breach or negligence. This right of subrogation, however, has its
31
limitations. First, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading. Second, the
insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving
payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim against
32
the latter.
The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the
carrier's liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied with. As
33
held in the case of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., this notice requirement protects the carrier
by affording it an opportunity to make an investigation of the claim while the matter is still fresh and easily investigated. It is meant to
safeguard the carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if the damage
is not apparent from the outside of the package. For damages that are visible from the outside of the package, the claim must be
made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages or
average which may be found therein upon opening the packages, may be made, provided that the indications of the damage
or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim
shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against
the carrier with regard to the condition in which the goods transported were delivered. (Emphasis supplied)
The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the contract
between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim under the bill of lading
issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated August 15, 1993,
that letter, together with the notice of claim, was received by petitioner only on September 21, 1993. But petitioner admits that even
before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone sometime
in August 13, 1993. Mr. Perez then immediately went to the warehouse and to the delivery site to inspect the goods in behalf of
34
petitioner.
35
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation, the notice was allegedly made
by the consignee through telephone. The claim for damages was denied. This Court ruled that such a notice did not comply with the
notice requirement under the law. There was no evidence presented that the notice was timely given. Neither was there evidence
presented that the notice was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from the PCIC case,
albeit this ruling is being made pro hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier must be given
a reasonable and practical construction, adapted to the circumstances of the case under adjudication, and their application is limited
36
to cases falling fairly within their object and purpose.
Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the delivered goods were
discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately, Perez was
able to investigate the claims himself and he confirmed that the goods were, indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and practical, rather
37
than a strict construction. We give due consideration to the fact that the final destination of the damaged cargo was a school
institution where authorities are bound by rules and regulations governing their actions. Understandably, when the goods were
delivered, the necessary clearance had to be made before the package was opened. Upon opening and discovery of the damaged
condition of the goods, a report to this effect had to pass through the proper channels before it could be finalized and endorsed by
the institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have corroded
instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was able to immediately
inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus,
there was substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the claim for
damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as stated in Article 1735 of the Civil
Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary diligence required by
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law. Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection
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use for securing and preserving their own property rights. This standard is intended to grant favor to the shipper who is at the mercy
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of the common carrier once the goods have been entrusted to the latter for shipment.
Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that petitioner failed to
overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from Trabajo Arrastre,
and the crates opened, it was discovered that the workbenches and work tools suffered damage due to "wettage" although by
then they were already physically dry. Appellee carrier having failed to discharge the burden of proving that it exercised
extraordinary diligence in the vigilance over such goods it contracted for carriage, the presumption of fault or negligence on its
part from the time the goods were unconditionally placed in its possession (July 26, 1993) up to the time the same were
delivered to the consignee (August 11, 1993), therefore stands. The presumption that the carrier was at fault or that it acted
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negligently was not overcome by any countervailing evidence. x x x (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same day, it was
stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container van. On August 1, 1993,
it was loaded onto another vessel bound for Cebu. During the period between July 26 to 31, 1993, the shipment was outside a
container van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside warehouse," suggesting that from July
26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila during the same period,
We can conclude that this was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could
be responsible for the damage. It must prove that it used "all reasonable means to ascertain the nature and characteristic of the
be responsible for the damage. It must prove that it used "all reasonable means to ascertain the nature and characteristic of the
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goods tendered for transport and that it exercised due care in handling them. Extraordinary diligence must include safeguarding the
shipment from damage coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the crate for shipment but only to the carrier van,
petitioner failed to mention where exactly the goods were stored during the period in question. It failed to show that the crate was
properly stored indoors during the time when it exercised custody before shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that seeped into
the cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of Manila from July 26 to
31, 1993. The Surveyor specifically noted that the subject cargo was under the custody of appellee carrier from the time it
was delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No
other inevitable conclusion can be deduced from the foregoing established facts that damage from "wettage" suffered by the
subject cargo was caused by the negligence of appellee carrier in grounding the shipment outside causing rainwater to seep
into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the subject goods by claiming that
the notation "GROUNDED OUTSIDE WHSE." actually refers to the container and not the contents thereof or the cargoes.
And yet it presented no evidence to explain where did they place or store the subject goods from the time it accepted the
same for shipment on July 26, 1993 up to the time the goods were stripped or transferred from the container van to another
container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City on August 2,
1993. x x x If the subject cargo was not grounded outside prior to shipment to Cebu City, appellee provided no explanation as
to where said cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is that the subject cargo was
stripped from the container van of the shipper and transferred to the container on August 1, 1993 and finally loaded into the
appellee's vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit "D") at the Manila port did not
indicate any such defect or damage, but when the container was stripped upon arrival in Cebu City port after being
discharged from appellee's vessel, it was noted that only one (1) slab was slightly broken at the bottom allegedly hit by a
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forklift blade (Exhibit "F"). (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it exercised the
extraordinary diligence required of common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.