G.R. No.

207246, April 18, 2017 a case or controversy and locus standi on their part to warrant the Court's exercise
of judicial review; the rule on the hierarchy of courts was violated; and petitioners
JOSE M. ROY III, Petitioner, v. CHAIRPERSON TERESITA HERBOSA,THE SECURITIES failed to implead indispensable parties such as the Philippine Stock Exchange, Inc.
AND EXCHANGE COMMISSION, AND PHILIPPINE LONG DISTANCE TELEPHONE and Shareholders' Association of the Philippines, Inc.5
COMPANY, Respondents.; ILSON C. GAMBOA, JR., DANIEL V. CARTAGENA, JOHN
WARREN P. GABINETE, ANTONIO V. PESINA, JR., MODESTO MARTIN Y. MAMON III, In connection with the failure to implead indispensable parties, the Court's Decision
AND GERARDO C. EREBAREN, Petitioners-In-Intervention, PHILIPPINE STOCK held:
EXCHANGE, INC., Respondent-In-Intervention, SHAREHOLDERS' ASSOCIATION OF
THE PHILIPPINES, INC., Respondent-In-Intervention. Under Section 3, Rule 7 of the Rules of Court, an indispensable party is a party-in-
interest without whom there can be no final determination of an action.
RESOLUTION Indispensable parties are those with such a material and direct interest in the
controversy that a final decree would necessarily affect their rights, so that the court
CAGUIOA, J.: cannot proceed without their presence. The interests of such indispensable parties in
the subject matter of the suit and the relief are so bound with those of the other
Before the Court is the Motion for Reconsideration dated January 19, 20171 (the
parties that their legal presence as parties to the proceeding is an absolute necessity
Motion) filed by petitioner Jose M. Roy III (movant) seeking the reversal and setting
and a complete and efficient determination of the equities and rights of the parties is
aside of the Decision dated November 22, 20162 (the Decision) which denied the
not possible if they are not joined.
movant's petition, and declared that the Securities and Exchange Commission (SEC)
did not commit grave abuse of discretion in issuing Memorandum Circular No. 8,
Other than PLDT, the petitions failed to join or implead other public utility
Series of 2013 (SEC-MC No. 8) as the same was in compliance with, and in fealty to,
corporations subject to the same restriction imposed by Section 11, Article XII of the
the decision of the Court in Gamboa v. Finance Secretary Teves,3 (Gamboa Decision)
Constitution. These corporations are in danger of losing their franchise and property
and the resolution4 denying the Motion for Reconsideration therein (Gamboa
if they are found not compliant with the restrictive interpretation of the
Resolution).
constitutional provision under review which is being espoused by petitioners. They
should be afforded due notice and opportunity to be heard, lest they be deprived of
The Motion presents no compelling and new arguments to justify the
their property without due process.
reconsideration of the Decision.

Not only are public utility corporations other than PLDT directly and materially
The grounds raised by movant are: (1) He has the requisite standing because this
affected by the outcome of the petitions, their shareholders also stand to suffer in
case is one of transcendental importance; (2) The Court has the constitutional duty
case they will be forced to divest their shareholdings to ensure compliance with the
to exercise judicial review over any grave abuse of discretion by any instrumentality
said restrictive interpretation of the term "capital". As explained by SHAREPHIL, in
of government; (3) He did not rely on an obiter dictum; and (4) The Court should
five corporations alone, more than Php158 Billion worth of shares must be divested
have treated the petition as the appropriate device to explain the Gamboa Decision.
by foreign shareholders and absorbed by Filipino investors if petitioners' position is
upheld.
The Decision has already exhaustively discussed and directly passed upon these
grounds. Movant's petition was dismissed based on both procedural and substantive
Petitioners' disregard of the rights of these other corporations and numerous
grounds.
shareholders constitutes another fatal procedural flaw, justifying the dismissal of
their petitions. Without giving all of them their day in court, they will definitely be
Regarding the procedural grounds, the Court ruled that petitioners (movant and
deprived of their property without due process of law.6
petitioners-in-intervention) failed to sufficiently allege and establish the existence of
1
This is highlighted to clear any m1s1mpression that the Gamboa Decision and
Gamboa Resolution made a categorical ruling on the meaning of the word "capital"
under Section 11, Article XII of the Constitution only in respect of, or only confined
to, respondent Philippine Long Distance Telephone Company (PLDT). Nothing is
further from the truth. Indeed, a fair reading of the Gamboa Decision and Gamboa
Resolution shows that the Court's pronouncements therein would affect all public
utilities, and not just respondent PLDT.
On the substantive grounds, the Court disposed of the issue on whether the SEC
gravely abused its discretion in ruling that respondent PLDT is compliant with the
limitation on foreign ownership under the Constitution and other relevant laws as
without merit. The Court reasoned that "in the absence of a definitive ruling by the
SEC on PLDT's compliance with the capital requirement pursuant to the Gamboa
Decision and Resolution, any question relative to the inexistent ruling is
premature."7
In resolving the other substantive issue raised by petitioners, the Court held
that:chanRoblesvirtualLawlibrary
[E]ven if the resolution of the procedural issues were conceded in favor of
petitioners, the petitions, being anchored on Rule 65, must nonetheless fail because
the SEC did not commit grave abuse of discretion amounting to lack or excess of
jurisdiction when it issued SEC-MC No. 8. To the contrary, the Court finds SEC-MC
No. 8 to have been issued in fealty to the Gamboa Decision and Resolution.8
To belabor the point, movant's petition is not a continuation of the Gamboa case as
the Gamboa Decision attained finality on October 18, 2012, and thereafter Entry of
Judgment was issued on December 11, 2012.9
As regards movant's repeated invocation of the transcendental importance of the
Gamboa case, this does not ipso facto accord locus standi to movant. Being a new
petition, movant had the burden to justify his locus standi in his own petition. The
Court, however, was not persuaded by his justification.
Pursuant to the Court's constitutional duty to exercise judicial review, the Court has
conclusively found no grave abuse of discretion on the part of SEC in issuing SEC-MC
No. 8.
The Decision has painstakingly explained why it considered as obiter dictum that
pronouncement in the Gamboa Resolution that the constitutional requirement on
Filipino ownership should "apply uniformly and across the board to all classes of
shares, regardless of nomenclature and category, comprising the capital of a
corporation."9-a The Court stated that:chanRoblesvirtualLawlibrary
[T]he fallo or decretal/dispositive portions of both the Gamboa Decision and
Resolution are definite, clear and unequivocal. While there is a passage in the body
of the Gamboa Resolution that might have appeared contrary to the fallo of the
Gamboa Decision xxx the definiteness and clarity of the fallo of the Gamboa Decision
must control over the obiter dictum in the Gamboa Resolution regarding the
application of the 60-40 Filipino-foreign ownership requirement to "each class of
shares, regardless of differences in voting rights, privileges and restrictions."10
To the Court's mind and, as exhaustively demonstrated in the Decision, the
dispositive portion of the Gamboa Decision was in no way modified by the Gamboa
Resolution.
The heart of the controversy is the interpretation of Section 11, Article XII of the
Constitution, which provides: "No franchise, certificate, or any other form of
authorization for the operation of a public utility shall be granted except to citizens
of the Philippines or to corporations or associations organized under the laws of the
Philippines at least sixty per centum of whose capital is owned by such citizens xxx."
The Gamboa Decision already held, in no uncertain terms, that what the Constitution
requires is "[f]ull [and legal] beneficial ownership of 60 percent of the outstanding
capital stock, coupled with 60 percent of the voting rights xxx must rest in the hands
of Filipino nationals xxx."11And, precisely that is what SEC-MC No. 8 provides, viz.:
"xxx For purposes of determining compliance [with the constitutional or statutory
ownership], the required percentage of Filipino ownership shall be applied to BOTH
(a) the total number of outstanding shares of stock entitled to vote in the election of
directors; AND (b) the total number of outstanding shares of stock, whether or not
entitled to vote xxx."12
In construing "full beneficial ownership," the Implementing Rules and Regulations of
the Foreign Investments Act of 1991 (FIA-IRR) provides:chanRoblesvirtualLawlibrary
For stocks to be deemed owned and held by Philippine citizens or Philippine
nationals, mere legal title is not enough to meet the required Filipino equity. Full
2
beneficial ownership of the stocks, coupled with appropriate voting rights is
essential. Thus, stocks, the voting rights of which have been assigned or transferred
to aliens cannot be considered held by Philippine citizens or Philippine nationals.13
In tum, "beneficial owner" or "beneficial ownership" is defined in the Implementing
Rules and Regulations of the Securities Regulation Code (SRC-IRR)
as:chanRoblesvirtualLawlibrary
[A]ny person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power (which includes
the power to vote or direct the voting of such security) and/or investment returns or
power (which includes the power to dispose of, or direct the disposition of such
security) xxx.14
Thus, the definition of "beneficial owner or beneficial ownership" in the SRC-IRR,
which is in consonance with the concept of "full beneficial ownership" in the FIA-IRR,
is, as stressed in the Decision, relevant in resolving only the question of who is the
beneficial owner or has beneficial ownership of each "specific stock" of the public
utility company whose stocks are under review. If the Filipino has the voting power
of the "specific stock", i.e., he can vote the stock or direct another to vote for him, or
the Filipino has the investment power over the "specific stock", i.e., he can dispose of
the stock or direct another to dispose of it for him, or both, i.e., he can vote and
dispose of that "specific stock" or direct another to vote or dispose it for him, then
such Filipino is the "beneficial owner" of that "specific stock." Being considered
Filipino, that "specific stock" is then to be counted as part of the 60% Filipino
ownership requirement under the Constitution. The right to the dividends, jus
fruendi - a right emanating from ownership of that "specific stock" necessarily
accrues to its Filipino "beneficial owner."
Once more, this is emphasized anew to disabuse any notion that the dividends
accruing to any particular stock are determinative of that stock's "beneficial
ownership." Dividend declaration is dictated by the corporation's unrestricted
retained earnings. On the other hand, the corporation's need of capital for expansion
programs and special reserve for probable contingencies may limit retained earnings
available for dividend declaration.15 It bears repeating here that the Court in the
Gamboa Decision adopted the foregoing definition of the term "capital" in Section
11, Article XII of the 1987 Constitution in express recognition of the sensitive and
vital position of public utilities both in the national economy and for national
security, so that the evident purpose of the citizenship requirement is to prevent
aliens from assuming control of public utilities, which may be inimical to the national
interest.16 This purpose prescinds from the "benefits"/dividends that are derived
from or accorded to the particular stocks held by Filipinos vis-a-vis the stocks held by
aliens. So long as Filipinos have controlling interest of a public utility corporation,
their decision to declare more dividends for a particular stock over other kinds of
stock is their sole prerogative - an act of ownership that would presumably be for the
benefit of the public utility corporation itself. Thus, as explained in the
Decision:chanRoblesvirtualLawlibrary
In this regard, it would be apropos to state that since Filipinos own at least 60% of
the outstanding shares of stock entitled to vote directors, which is what the
Constitution precisely requires, then the Filipino stockholders control the
corporation, i.e., they dictate corporate actions and decisions, and they have all the
rights of ownership including, but not limited to, offering certain preferred shares
that may have greater economic interest to foreign investors as the need for capital
for corporate pursuits (such as expansion), may be good for the corporation that
they own. Surely, these "true owners" will not allow any dilution of their ownership
and control if such move will not be beneficial to them.17
Finally, as to how the SEC will classify or treat certain stocks with voting rights held
by a trust fund that is created by the public entity whose compliance with the
limitation on foreign ownership under the Constitution is under scrutiny, and how
the SEC will determine if such public utility does, in fact, control how the said stocks
will be voted, and whether, resultantly, the trust fund would be considered as
Philippine national or not - lengthily discussed in the dissenting opinion of Justice
Carpio - is speculative at this juncture. The Court cannot engage in guesswork. Thus,
there is need of an actual case or controversy before the Court may exercise its
power of judicial review. The movant's petition is not that actual case or controversy.
Thus, the discussion of Justice Carpio's dissenting opinion as to the voting preferred
shares created by respondent PLDT, their acquisition by BTF Holdings, Inc., which
appears to be a wholly-owned company of the PLDT Beneficial Trust Fund (BTF), and
whether or not it is respondent PLDT's management that controls BTF and BTF
Holdings, Inc. all these are factual matters that are outside the ambit of this Court's
review which, as stated in the beginning, is confined to determining whether or not
the SEC committed grave abuse of discretion in issuing SEC-MC No. 8; that is,
whether or not SEC-MC No.8 violated the ruling of the Court in Gamboa v. Finance
Secretary Teves,18 and the resolution in Heirs of Wilson P. Gamboa v. Finance Sec.
3
Teves19 denying the Motion for Reconsideration therein as to the proper
understanding of "capital".

To be sure, it would be more prudent and advisable for the Court to await the SEC's
prior determination of the citizenship of specific shares of stock held in trust - based
on proven facts - before the Court proceeds to pass upon the legality of such
determination.

As to whether respondent PLDT is currently in compliance with the Constitutional

provision regarding public utility entities, the Court must likewise await the SEC's
determination thereof applying SEC-MC No. 8. After all, as stated in the Decision, it is
the SEC which is the government agency with the competent expertise and the
mandate of law to make such determination.

In conclusion, the basic issues raised in the Motion having been duly considered and
passed upon by the Court in the Decision and no substantial argument having been
adduced to warrant the reconsideration sought, the Court resolves to DENY the
Motion with FINALITY.

WHEREFORE, the subject Motion for Reconsideration is hereby DENIED WITH

FINALITY. No further pleadings or motions shall be entertained in this case. Let entry
of final judgment be issued immediately.

SO ORDERED.

4
FIRST DIVISION unpaid rentals for the months of June, July, August, and September 2003. ATSI
alleged that CMCI was consistently paying the rents until June 2003 when the latter
G.R. No. 202454, April 25, 2017 defaulted on its obligation without just cause. ATSI also claimed that CMCI ignored all
the billing statements and its demand letter. Hence, in addition to the unpaid rents
CALIFORNIA MANUFACTURING COMPANY, INC., Petitioner, v. ADVANCED
ATSI sought payment for the contingent attorney's fee equivalent to 30% of the
TECHNOLOGY SYSTEM, INC., Respondent.
judgment award.
DECISION
CMCI moved for the dismissal of the complaint on the ground of extinguishment of
SERENO, C.J.: obligation through legal compensation. The RTC, however, ruled that the conflicting
claims of the parties required trial on the merits. It therefore dismissed the motion
Before us is a Petition for Review on Certiorari assailing the Decision1 of the Court of
to dismiss and directed CMCI to file an Answer. 7
Appeals (CA) in CA-G.R. CV No. 94409, which denied the appeal filed by California
Manufacturing Company, Inc. (CMCI) from the Decision2 of Regional Trial Court (RTC)
In its Answer,8 CMCI averred that ATSI was one and the same with Processing
of Pasig City, Branch 268, in the Complaint for Sum of Money3 filed by Advanced
Partners and Packaging Corporation (PPPC), which was a toll packer of CMCI
Technology Systems, Inc. (ATSI) against the former.
products. To support its allegation, CMCI submitted copies of the Articles of
Incorporation and General Information Sheets (GIS)9 of the two corporations. CMCI
The RTC ordered CMCI to pay ATSI the amount of P443,729.39 for the unpaid rentals
pointed out that ATSI was even a stockholder of PPPC as shown in the latter's GIS. 10
for a Prodopak machine, plus legal interest from the date of extra-judicial demand
until full payment; 30% of the judgment award as attorney's fees; and the costs of
CMCI alleged that in 2000, PPPC agreed to transfer the processing of CMCI's product
litigation. The CA affirmed the trial court's decision, but it deleted the award of
line from its factory in Meycauayan to Malolos, Bulacan. Upon the request of PPPC,
attorney's tees for Jack of tactual and legal basis and ordered CMCI to pay the costs
through its Executive Vice President Felicisima Celones, CMCI advanced P4 million as
of litigation.
mobilization fund. PPPC President and Chief Executive Officer Francis Celones
allegedly committed to pay the amount in 12 equal instalments deductible from
THE ANTECEDENT FACTS PPPC's monthly invoice to CMCI beginning in October 2000.11 CMCI likewise claims
that in a letter dated 30 July 2001,12 Felicisima proposed to set off PPPC's obligation
to pay the mobilization fund with the rentals for the Prodopak machine.
Petitioner CMCI is a domestic corporation engaged in the food and beverage
manufacturing business. Respondent ATSI is also a domestic corporation that CMCI argued that the proposal was binding on both PPPC and ATSI because
fabricates and distributes food processing machinery and equipment, spare parts, Felicisima was an officer and a majority stockholder of the two corporations.
and its allied products.4 Moreover, in a letter dated 16 September 2003,13 she allegedly represented to the
new management of CMCI that she was authorized to request the offsetting of
In August 2001, CMCI leased from ATSI a Prodopak machine which was used to pack PPPC's obligation with ATSI's receivable from CMCI. When ATSI filed suit in
products in 20-ml. pouches.5 The parties agreed to a monthly rental of P98,000 November 2003, PPPC's debt arising from the mobilization fund allegedly amounted
exclusive of tax. Upon receipt of an open purchase order on 6 August 2001, ATSI to P10,766,272.24.
delivered the machine to CMCI's plant at Gateway Industrial Park, General Trias,
Cavite on 8 August 2001. Based on the above, CMCI argued that legal compensation had set in and that ATSI
was even liable for the balance of PPPC's unpaid obligation after deducting the
In November 2003, ATSI filed a Complaint for Sum of Money 6 against CMCI to collect rentals for the Prodopak machine.
5
 Moreover, the CA rejected CMCI's argument that ATSI is barred by estoppel as it
After trial, the RTC rendered a Decision in favor of ATSI with the following dispositive found no indication that ATSI had created any appearance of false fact.18 CA also
portion: held that estoppel did not apply to PPPC because the latter was not even a party to
this case.

WHEREFORE, foregoing premises considered, judgment is hereby rendered in favor The CA, however, deleted the trial court's award of attorney's fees and costs of
of plaintiff and against the defendant, ordering the latter to pay the former, the litigation in favor of ATSI as it found no discussion in the body of the decision of the
following sums: factual and legal justification for the award.

1. Php443,729.39 representing the unpaid rental for the prodopak machine plus CMCI filed a Motion for Reconsideration of the CA Decision, but the appellate court
legal interest from the date of extra judicial demand (October 13, 2003 - Exh. "E") denied the motion for lack of merit.19 Hence, this petition.20
until satisfaction of this judgment;

2. 30% of the judgment award as and by way of attorney's fees; and

THE ISSUE
14
3. costs of litigation.

The trial court ruled that legal compensation did not apply because PPPC had a The assignment of errors raised by CMCI all boil down to the question of whether the
separate legal personality from its individual stockholders, the Spouses Celones, and CA erred in affirming the ruling of the RTC that legal compensation between ATSI's
ATSI. Moreover, there was no board resolution or any other proof showing that claim against CMCI on the one hand, and the latter's claim against PPPC on the other
Felicisima's proposal to set-off the unpaid mobilization fund with CMCI 's rentals to hand, has not set in.
ATSI for the Prodopak Machine had been authorized by the two corporations.
Consequently, the RTC ruled that CMCI's financial obligation to pay the rentals for
the Prodopak machine stood and that its claim against PPPC could be properly
ventilated in the proper proceeding upon payment of the required docket fees.15 OUR RULING

On appeal by CMCI, the CA affirmed the trial court's ruling that legal compensation
We affirm the CA Decision in toto.
had not set in because the element of mutuality of parties was lacking. Likewise, the
appellate court sustained the trial court's refusal to pierce the corporate veil. It ruled
CMCI argues that both the RTC and the CA overlooked the circumstances that it has
that there must be clear and convincing proof that the Spouses Celones had used the
proven to justify the piercing of corporate veil in this case, i.e., (1) the interlocking
separate personalities of ATSI or PPPC as a shield to commit fraud or any wrong
board of directors, incorporators, and majority stockholder of PPPC and ATSI; (2)
against CMCI, which was not existing in this case.16
control of the two corporations by the Spouses Celones; and (3) the two
corporations were mere alter egos or business conduits of each other. CMCI now
Aside from the absence of a board resolution issued by ATSI, the CA observed that
asks us to disregard the separate corporate personalities of ATSI and PPPC based on
the letter dated 30 July 2001 clearly showed that Felicisima's proposal to effect the
those circumstances and to enter judgment in favor of the application of legal
offsetting of debts was limited to the obligation of PPPC. 17 The appellate court thus
compensation.
sustained the trial court's finding that ATSI was not bound by Felicisima's conduct.

Whether one corporation is merely an alter ego of another, a sham or subterfuge,

6
and whether the requisite quantum of evidence has been adduced to warrant the
puncturing of the corporate veil are questions of fact. 21 Relevant to this point is the
settled rule that in a petition for review on certiorari like this case, this Court's
jurisdiction is limited to reviewing errors of law in the absence of any showing that
the factual findings complained of are devoid of support in the records or are
glaringly erroneous.22 This rule alone warrants the denial of the petition, which
essentially asks us to reevaluate the evidence adduced by the parties and the
credibility of the witnesses presented.
We have reviewed the evidence on record and have found no cogent reason to
disturb the findings of the courts a quo that ATSI is distinct and separate from PPPC,
or from the Spouses Celones.
Any piercing of the corporate veil must be done with caution.23 As the CA had
correctly observed, it must be certain that the corporate fiction was misused to such
an extent that injustice, fraud, or crime was committed against another, in disregard
of rights. Moreover, the wrongdoing must be clearly and convincingly established.
Sarona v. NLRC24 instructs, thus:
Whether the separate personality of the corporation should be pierced hinges on
obtaining facts appropriately pleaded or proved. However, any piercing of the
corporate veil has to be done with caution. albeit the Court will not hesitate to
disregard the corporate veil when it is misused or when necessary in the interest of
justice. After all the concept of corporate entity was not meant to promote unfair
objectives.
The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation: 2) fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.25
CMCI's alter ego theory rests on the alleged interlocking boards of directors and
stock ownership of the two corporations. The CA, however, rejected this theory
based on the settled rule that mere ownership by a single stockholder of even all or
nearly all of the capital stocks of a corporation, by itself, is not sufficient ground to
disregard the corporate veil. We can only sustain the CA's ruling. The instrumentality
or control test of the alter ego doctrine requires not mere majority or complete
stock control, but complete domination of finances, policy and business practice with
respect to the transaction in question. The corporate entity must be shown to have
no separate mind, will, or existence of its own at the time of the transaction.26
Without question, the Spouses Celones are incorporators, directors, and majority
stockholders of the ATSI and PPPC. But that is all that CMCI has proven. There is no
proof that PPPC controlled the financial policies and business practices of ATSI either
in July 2001 when Felicisima proposed to set off the unpaid P3.2 million mobilization
fund with CMCI's rental of Prodopak machines; or in August 2001 when the lease
agreement between CMCI and ATSI commenced. Assuming arguendo that Felicisima
was sufficiently clothed with authority to propose the offsetting of obligations, her
proposal cannot bind ATSI because at that time the latter had no transaction yet with
CMCI. Besides, CMCI had leased only one Prodopak machine. Felicisima's reference
to the Prodopak machines in its letter in July 2001 could only mean that those were
different from the Prodopak machine that CMCI had leased from ATSI.
Contrary to the claim of CMCI, none of the letters from the Spouses Celones tend to
show that ATSI was even remotely involved in the proposed offsetting of the
outstanding debts of CMCI and PPPC. Even Felicisima's letter to the new
management of CMCI in 2003 contains nothing to support CMCI's argument that
Felicisima represented herself to be clothed with authority to propose the offsetting.
For clarity, we quote below the relevant portions of her letter:
Gentlemen:
I apologize for writing this letter. But kindly spare me your time and allow to
ventilate my grievances against California Manufacturing Corporation x x x. I had
formally lodged my grievances with the management of CMC, but until now, no
action has been done yet. It is on this spirit and time tested principle of diplomacy
that I write this letter.
I am the Executive Vice President of Processing Partners & Packaging Corporation
(PPPC), a duly organized domestic corporation, engaged in the toll packing business.
7
 grievances first to your attention to exhaust available venues for amicable
Sometime in November of 1996, CMC availed of the toll packing services of PPPC. At settlement.
the outset, business relationship between the two was going smoothly. In due time,
PPPC proved its name to CMC in delivering quality toll packing services. As a matter Though PPPC's grievances are ripe for judicial action, we still hope that we can settle
of fact, after the expiration of the toll packing contract, CMC still retained the [the] same amicably. However, if we run out or choices, we will [be] constrained to
services of PPPC. Thus, sometime in the year 2000, CMC executed another toll invoke the aid of the appropriate court. (Emphases supplied)27
packing contract with PPC.
Nothing in the narration above supports CMCI's claim that it had been led to believe
However, the business relationship unexpectedly turned sour when CMC changed its that ATSI and PPPC were one and the same or, that ATSI 's collectible was
Management in the latter part of 2002. Since then CMC's new management has intertwined with the business transaction of PPPC with CMCI.
been committing unsound business practices prejudicial to the interests of PPPC.
In all its pleadings, CMCI averred that the P4 million mobilization fund was in
furtherance of its agreement with PPPC in 2000. Prior thereto, PPPC had been a toll
x x x x packer of its products as early as 1996. Clearly, CMCI had been dealing with PPPC as
a distinct juridical person acting through its own corporate officers from 1996 to
Failure of CMC to honor its agreement with PPC anent the pickling machinery 2003. CMCI's dealing with ATSI began only in August 2001. It appears, however, that
CMCI now wants the Court to gloss over the separate corporate existence ATSI and
x x x x PPPC notwithstanding the dearth of evidence showing that either PPPC or ATSI had
used their corporate cover to commit fraud or evade their respective obligations to
Leapfrog Plant/Jasmine and Rose Plant CMCI. It even appears that CMCI faithfully discharged its obligation to ATSI for a good
two years without raising any concern about its relationship to PPPC.
x x x x
The fraud test, which is the second of the three-prong test to determine the
Pre-termination of toll [p]acking [a]greement for KLS Spaghetti Sauce without just application of the alter ego doctrine, requires that the parent corporation's conduct
cause in using the subsidiary corporation be unjust, fraudulent or wrongful. Under the third
prong, or the harm test, a causal connection between the fraudulent conduct
x x x x committed through the instrumentality of the subsidiary and the injury suffered or
the damage incurred by the plaintiff has to be established.28 None of these elements
Unpaid rentals for the lease of machinery from Advanced Technology Systems, Inc. have been demonstrated in this case. Hence, we can only agree with the CA and RTC
in ruling out mutuality of patties to justify the application of legal compensation in
CMC has been leasing a machinery of Advanced Technology Systems, Inc. (Advanced this case.
Tech), a domestic corporation of which I am also the majority stockholder. CMC owes
Advanced Tech. unpaid rentals in the amount of P443,729.37, but despite various Article 1279 of the Civil Code provides:
demands, CMC refused to pay Advanced Tech.

We have already formally lodged our grievances concerning the foregoing with the ARTICLE 1279. In order that compensation may be proper, it is necessary:
management of CMC. However, until now. no action has been done. We believe that
before we take coercive actions available under the law, it is wise to bring said (1) That each one of the obligors be bound principally, and that he be at the same

8
time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

The law, therefore, requires that the debts be liquidated and demandable.
Liquidated debts are those whose exact amounts have already been determined. 29

CMCI has not presented any credible proof, or even just an exact computation, of
the supposed debt of PPPC. It claims that the mobilization fund that it had advanced
to PPPC was in the amount of P4 million. Yet, Felicisima's proposal to conduct
offsetting in her letter dated 30 July 2001 pertained to a P3.2 million debt of PPPC to
CMCI. Meanwhile, in its Answer to ATSI's complaint, CMCI sought to set off its unpaid
rentals against the alleged P10 million debt of PPPC. The uncertainty in the supposed
debt of PPPC to CMCI negates the latter's invocation of legal compensation as
justification for its non-payment of the rentals for the subject Prodopak machine.

WHEREFORE, the Decision dated 25 August 2011 and Resolution dated 21 June 2012
issued by the Court of Appeals in CA-G.R. CV No. 94409 are AFFIRMED. The instant
Petition is DENIED for lack of merit.

SO ORDERED.

9
G.R. No. 224099, June 21, 2017
ROMMEL M. ZAMBRANO, ROMEO O. CALIPAY, JESUS L. CHIN, LYNDON B. APOSAGA,
BONIFACIO A. CASTAÑEDA, ROSEMARIE P. FALCUNIT, ROMEO A. FINALLA, LUISITO G.
GELLIDO, JOSE ALLI L. MABUHAY, VICENTE A. MORALES, RAUL L. REANZARES, DIODITO
I. TACUD, ERNAN D. TERCERO, LARRY V. MUTIA, ROMEO A. GURON, DIOSDADO S.
AZUSANO, BENEDICTO D. GIDAYAWAN, LOWIS M. LANDRITO, NARCISO R. ASI,
TEODULO BORAC, SANTOS J. CRUZADO, JR., ROLANDO DELA CRUZ, RAYMUNDO, MILA
Y. ABLAY, ERMITY F. GABUCAY, PABLITO M. LACANARIA, MELCHOR PEÑAFLOR,
ARSENIO B. PICART III, ROMEO M. SISON, JOSE VELASCO JR., ERWIN M. VICTORIA,
PRISCO J. ABILO, WILFREDO D. ARANDIA, ALEXANDER Y. HILADO, JAIME M. CORALES,
GERALDINE C. MAUHAY, MAURO P. MARQUEZ, JONATHAN T. BARQUIN, RICARDO M.
CALDERON JR., RENATOR. RAMIREZ, VIVIAN P. VIRTUDES, DOMINGO P. COSTANTINO
JR., RENATO A. MANAIG, RAFAEL D. CARILLO, Petitioners, v. PHILIPPINE CARPET
MANUFACTURING CORPORATION/PACIFIC CARPET MANUFACTURING CORPORATION,
DAVID E. T. LIM, AND EVELYN LIM FORBES, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking
to reverse and set aside the January 8, 2016 Decision1 and April 11, 2016 Resolution2
of the Court of Appeals (CA) in CA-G.R. SP No. 140663, which affirmed the February
27, 2015 Decision3 and March 31, 2015 Resolution4 of the National Labor Relations
Commission (NLRC) in NLRC NCR Case No. 01-00109-14; 01-00230-14; 01-00900-14;
01-01025-14; and 01-01133-14, for five (5) consolidated complaints for illegal
dismissal and unfair labor practice.
The Antecedents
The petitioners averred that they were employees of private respondent Philippine
Carpet Manufacturing Corporation (Phil Carpet). On January 3, 2011, they were
notified of the termination of their employment effective February 3, 2011 on the
ground of cessation of operation due to serious business losses. They were of the
belief that their dismissal was without just cause and in violation of due process
because the closure of Phil Carpet was a mere pretense to transfer its operations to
its wholly owned and controlled corporation, Pacific Carpet Manufacturing
Corporation (Pacific Carpet). They claimed that the job orders of some regular clients
of Phil Carpet were transferred to Pacific Carpet; and that from October to
November 2011, several machines were moved from the premises of Phil Carpet to
Pacific Carpet. They asserted that their dismissal constituted unfair labor practice as
it involved the mass dismissal of all union officers and members of the Philippine
Carpet Manufacturing Employees Association (PHILCEA).
In its defense, Phil Carpet countered that it permanently closed and totally ceased its
operations because there had been a steady decline in the demand for its products
due to global recession, stiffer competition, and the effects of a changing market.
Based on the Audited Financial Statements5 conducted by SGV & Co., it incurred
losses of P4.1M in 2006; P12.8M in 2007; P53.28M in 2008; and P47.79M in 2009. As
of the end of October 2010, unaudited losses already amounted to P26.59M. Thus,
in order to stem the bleeding, the company implemented several cost-cutting
measures, including voluntary redundancy and early retirement programs. In 2007,
the car carpet division was closed. Moreover, from a high production capacity of
about 6,000 square meters of carpet a month in 2002, its final production capacity
steadily went down to an average of 350 square meters per month for 2009 and
2010. Subsequently, the Board of Directors decided to approve the recommendation
of its management to cease manufacturing operations. The termination of the
petitioners' employment was effective as of the close of office hours on February 3,
2011. Phil Carpet likewise faithfully complied with the requisites for closure or
cessation of business under the Labor Code. The petitioners and the Department of
Labor and Employment (DOLE) were served written notices one (1) month before
the intended closure of the company. The petitioners were also paid their separation
pay and they voluntarily executed their respective Release and Quitclaim 6 before the
DOLE officials.
The LA Ruling
In the September 29, 2014 Decision,7 the Labor Arbiter (LA) dismissed the complaints
for illegal dismissal and unfair labor practice. It ruled that the termination of the
petitioners' employment was due to total cessation of manufacturing operations of
Phil Carpet because it suffered continuous serious business losses from 2007 to
2010. The LA added that the closure was truly dictated by economic necessity as
evidenced by its audited financial statements. It observed that written notices of
termination were served on the DOLE and on the petitioners at least one (1) month
10
before the intended date of closure. The LA further found that the petitioners was clearly due to economic necessity. It determined that there was no convincing
voluntarily accepted their separation pay and other benefits and eventually executed evidence to show that the regular clients of Phil Carpet secretly transferred their job
their individual release and quitclaim in favor of the company. Finally, it declared orders to Pacific Carpet; and that Phil Carpet's machines were not transferred to
that there was no showing that the total closure of operations was motivated by any Pacific Carpet but were actually sold to the latter after the closure of business as
specific and clearly determinable union activity of the employees. The dispositive shown by the several sales invoices and official receipts issued by Phil Carpet. The CA
portion reads: adjudged that the dismissal of the petitioners who were union officers and members
of PHILCEA did not constitute unfair labor practice because Phil Carpet was able to
show that the closure was due to serious business losses.
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the
complaint of Domingo P. Constantino, Jr. on ground of prescription of cause of action The CA opined that the petitioners' claim that their termination was a mere pretense
and the consolidated complaints of the rest of complainants for lack of merit. because Phil Carpet continued operation through Pacific Carpet was unfounded
because mere ownership by a single stockholder or by another corporation of all or
SO ORDERED.8 nearly all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality. The CA disposed the petition in this
Unconvinced, the petitioners elevated an appeal before the NLRC.
wise:

The NLRC Ruling

WHEREFORE, premises considered, the instant petition for certiorari is hereby
In its February 27, 2015 Decision, the NLRC affirmed the findings of the LA. It held DISMISSED.
that the Audited Financial Statements show that Phil Carpet continuously incurred
net losses starting 2007 leading to its closure in the year 2010. The NLRC added that SO ORDERED.10
Phil Carpet complied with the procedural requirements of effecting the closure of
business pursuant to the Labor Code. The fallo reads: The petitioners moved for reconsideration, but their motion was denied by the CA in
its assailed resolution, dated April 11, 2016.

WHEREFORE, premises considered, complainants' appeal from the Decision of the Hence, this present petition.
Labor Arbiter Marita V. Padolina is hereby DISMISSED for lack of merit.

SO ORDERED.9 ISSUES

Undeterred, the petitioners filed a motion for reconsideration thereof. In its

resolution, dated March 31,2015, the NLRC denied the same. WHETHER THE PETITIONERS WERE DISMISSED FROM EMPLOYMENT FOR A LAWFUL
CAUSE
Aggrieved, the petitioners filed a petition for certiorari with the CA.
WHETHER THE PETITIONERS' TERMINATION FROM EMPLOYMENT CONSTITUTES
The CA Ruling UNFAIR LABOR PRACTICE

In its assailed decision, dated January 8, 2016, the CA ruled that the total cessation of WHETHER PACIFIC CARPET MAY BE HELD LIABLE FOR PHIL CARPET'S OBLIGATIONS
Phil Carpet's manufacturing operations was not made in bad faith because the same
11

WHETHER THE QUITCLAIMS SIGNED BY THE PETITIONERS ARE VALID AND BINDING
The petitioners argue that Phil Carpet did not totally cease its operations; that most
of the job orders of Phil Carpet were transferred to its wholly owned subsidiary,
Pacific Carpet; and that the signing of quitclaims did not bar them from pursuing
their case because they were made to believe that the closure was legal.
In its Comment,11 dated August 26, 2016, Phil Carpet averred that the termination of
the petitioners' employment as a consequence of its total closure and cessation of
operations was in accordance with law and supported by substantial evidence; that
the petitioners could only offer bare and self-serving claims and sham evidence such
as financial statements that did not pertain to Phil Carpet; and that under the Labor
Code, any compromise settlement voluntarily agreed upon by the parties with the
assistance of the regional office of the DOLE was final and binding upon the parties.
In their Reply,12 dated November 8, 2016, the petitioners alleged that the losses of
Phil Carpet were almost proportionate to the net income of its subsidiary, Pacific
Carpet; and that the alleged sale, which transpired between Phil Carpet and Pacific
Carpet, was simulated.
The Court's Ruling
The petition is bereft of merit.
The petitioners were terminated from employment for an authorized cause
Under Article 298 (formerly Article 283) of the Labor Code, closure or cessation of
operation of the establishment is an authorized cause for terminating an employee,
viz.:
Article 298. Closure of establishment and reduction of personnel. - The employer may
also terminate the employment of any employee due to the installation of labor-
saving devices, redundancy, retrenchment to prevent losses or the closing or
cessation of operations of the establishment or undertaking unless the closing is for
the purpose of circumventing the provisions of this Title, by serving a written notice
on the workers and the Department of Labor and Employment at least one (1)
month before the intended date thereof. In case of termination due to the
installation of labor-saving devices or redundancy, the worker affected thereby shall
be entitled to a separation pay equivalent to at least one (1) month pay or to at least
one (1) month pay for every year of service, whichever is higher. In case of
retrenchment to prevent losses and in cases of closure or cessation of operations of
establishment or undertaking not due to serious business losses or financial reverses,
the separation pay shall be equivalent to at least one (1) month pay or at least one-
half (1/2) month pay for every year of service, whichever is higher. A fraction of at
least six (6) months shall be considered as one (1) whole year. [Emphases supplied]
Closure of business is the reversal of fortune of the employer whereby there is a
complete cessation of business operations and/or an actual locking-up of the doors
of establishment, usually due to financial losses. Closure of business, as an
authorized cause for termination of employment, aims to prevent further financial
drain upon an employer who cannot pay anymore his employees since business has
already stopped. In such a case, the employer is generally required to give separation
benefits to its employees, unless the closure is due to serious business losses.13
Further, in Industrial Timber Corporation v. Ababon,14 the Court held:
A reading of the foregoing law shows that a partial or total closure or cessation of
operations of establishment or undertaking may either be due to serious business
losses or financial reverses or otherwise. Under the first kind, the employer must
sufficiently and convincingly prove its allegation of substantial losses, while under
the second kind, the employer can lawfully close shop anytime as long as cessation
of or withdrawal from business operations was bona fide in character and not
impelled by a motive to defeat or circumvent the tenurial rights of employees, and as
long as he pays his employees their termination pay in the amount corresponding to
their length of service. Just as no law forces anyone to go into business, no law can
compel anybody to continue the same. It would be stretching the intent and spirit of
the law if a court interferes with management's prerogative to close or cease its
business operations just because the business is not suffering from any loss or
because of the desire to provide the workers continued employment.
In sum, under Article 283 of the Labor Code, three requirements are necessary for a
12
valid cessation of business operations: (a) service of a written notice to the
employees and to the DOLE at least one month before the intended date thereof; (b)
the cessation of business must be bona fide in character; and (c) payment to the
employees of termination pay amounting to one month pay or at least one-half
month pay for every year of service, whichever is higher.15 [citations omitted]
In this case, the LA's findings that Phil Carpet suffered from serious business losses
which resulted in its closure were affirmed in toto by the NLRC, and subsequently by
the CA. It is a rule that absent any showing that the findings of fact of the labor
tribunals and the appellate court are not supported by evidence on record or the
judgment is based on a misapprehension of facts, the Court shall not examine anew
the evidence submitted by the parties.16 In Alfaro v. Court of Appeals,17 the Court
explained the reasons therefor, to wit:
The Supreme Court is not a trier of facts, and this doctrine applies with greater force
in labor cases. Factual questions are for the labor tribunals to resolve. In this case,
the factual issues have already been determined by the labor arbiter and the
National Labor Relations Commission. Their findings were affirmed by the CA. Judicial
review by this Court does not extend to a reevaluation of the sufficiency of the
evidence upon which the proper labor tribunal has based its determination.
Further, even if the petitioners refuse to consider these losses as serious enough to
warrant Phil Carpet's total and permanent closure, it was a business judgment on the
part of the company's owners and stockholders to cease operations, a judgment
which the Court has no business interfering with. The only limitation provided by law
is that the closure must be "bona fide in character and not impelled by a motive to
defeat or circumvent the tenurial rights of employees." 21 Thus, when an employer
complies with the foregoing conditions, the Court cannot prohibit closure "just
because the business is not suffering from any loss or because of the desire to
provide the workers continued employment."22
Finally, Phil Carpet notified DOLE23 and the petitioners24 of its decision to cease
manufacturing operations on January 3, 2011, or at least one (1) month prior to the
intended date of closure on February 3, 2011. The petitioners were also given
separation pay equivalent to 100% of their monthly basic salary for every year of
service.
The dismissal of the petitioners did not amount to unfair labor practice
Article 259 (formerly Article 248) of the Labor Code enumerates the unfair labor
practices of employers, to wit:

Indeed, factual findings of labor officials who are deemed to have acquired expertise Art. 259. Unfair Labor Practices of Employers. - It shall be unlawful for an employer
in matters within their respective jurisdictions are generally accorded not only to commit any of the following unfair labor practices:
respect, but even finality, and are binding on the Supreme Court. Verily, their
conclusions are accorded great weight upon appeal, especially when supported by (a) To interfere with, restrain or coerce employees in the exercise of their right to
substantial evidence. Consequently, the Supreme Court is not duty-bound to delve self-organization;
into the accuracy of their factual findings, in the absence of a clear showing that the
same were arbitrary and bereft of any rational basis.18 (b) To require a:s a condition of employment that a person or an employee shall not
join a labor organization or shall withdraw from one to which he belongs;
Even after perusal of the records, the Court finds no reason to take exception from
the foregoing rule. Phil Carpet continuously incurred losses starting 2007, as shown
(c) To contract out services or functions being performed by union members when
by the Audited Financial Statements19 which were offered in evidence by the
such will interfere with, restrain or coerce employees in the exercise of their right to
petitioners themselves. The petitioners, in claiming that Phil Carpet continued to
self-organization;
earn profit in 2011 and 2012, disregarded the reason for such income, which was
Phil Carpet's act of selling its remaining inventories. Notwithstanding such income,
(d) To initiate, dominate, assist or otherwise interfere with the formation or
Phil Carpet continued to incur total comprehensive losses in the amounts of
administration of any labor organization, including the giving of financial or other
9,559,716 and 12,768,277 for the years 2011 and 2012, respectively.20
support to it or its organizers or supporters;

13
 Chartered Bank Employees Union (NUBE) v. Confesor,29 this Court elaborated:
(e) To discriminate in regard to wages, hours of work and other terms and conditions
of employment in order to encourage or discourage membership in any labor
organization. Nothing in this Code or in any other law shall stop the parties from In order to show that the employer committed ULP under the Labor Code, substantial
requiring membership in a recognized collective bargaining agent as a condition for evidence is required to support the claim. Substantial evidence has been defined as
employment, except those employees who are already members of another union at such relevant evidence as a reasonable mind might accept as adequate to support a
the time of the signing of the collective bargaining agreement. Employees of an conclusion.30 [Emphasis supplied]
appropriate bargaining unit who are not members of the recognized collective
Moreover, good faith is presumed and he who alleges bad faith has the duty to
bargaining agent may be assessed a reasonable fee equivalent to the dues and other
prove the same.31
fees paid by members of the recognized collective bargaining agent, if such non-
union members accept the benefits under the collective bargaining agreement:
The petitioners miserably failed to discharge the duty imposed upon them. They did
Provided, That the individual authorization required under Article 242, paragraph (o)
not identify the acts of Phil Carpet which, they claimed, constituted unfair labor
of this Code shall not apply to the non-members of the recognized collective
practice. They did not even point out the specific provisions which Phil Carpet
bargaining agent;
violated. Thus, they would have the Court pronounce that Phil Carpet committed
unfair labor practice on the ground that they were dismissed from employment
(f) To dismiss, discharge or otherwise prejudice or discriminate against an employee
simply because they were union officers and members. The constitutional
for having given or being about to give testimony under this Code;
commitment to the policy of social justice, however, cannot be understood to mean
that every labor dispute shall automatically be decided in favor of labor.32
(g) To violate the duty to bargain collectively as prescribed by this Code;

In this case, as far as the pieces of evidence offered by the petitioners are
(h) To pay negotiation or attorney's fees to the union or its officers or agents as part
concerned, there is no showing that the closure of the company was an attempt at
of the settlement of any issue in collective bargaining or any other dispute; or
union-busting. Hence, the charge that Phil Carpet is guilty of unfair labor practice
must fail for lack of merit.
(i) To violate a collective bargaining agreement.
Pacific Carpet has a personality separate and distinct from Phil Carpet
The provisions of the preceding paragraph notwithstanding, only the officers and
agents of corporations, associations or partnerships who have actually participated
The petitioners, in asking the Court to disregard the separate corporate personality
in, authorized or ratified unfair labor practices shall be held criminally liable.
of Pacific Carpet and to make it liable for the obligations of Phil Carpet, rely heavily
Unfair labor practice refers to acts that violate the workers' right to organize.25 There on the former being a subsidiary of the latter.
should be no dispute that all the prohibited acts constituting unfair labor practice in
essence relate to the workers' right to self-organization.26 Thus, an employer may A corporation is an artificial being created by operation of law. It possesses the right
only be held liable for unfair labor practice if it can be shown that his acts affect in of succession and such powers, attributes, and properties expressly authorized by
whatever manner the right of his employees to self-organize.27 law or incident to its existence. It has a personality separate and distinct from the
persons composing it, as well as from any other legal entity to which it may be
The general principle is that one who makes an allegation has the burden of proving related.33
it. Although there are exceptions to this general rule, in the case of unfair labor
practice, the alleging party has the burden of proving it.28 In the case of Standard Equally well-settled is the principle that the corporate mask may be removed or the

14
corporate veil pierced when the corporation is just an alter ego of a person or of
another corporation. For reasons of public policy and in the interest of justice, the (2) Such control must have been used by the defendant to commit fraud or wrong,
corporate veil will justifiably be impaled only when it becomes a shield for fraud, to perpetuate the violation of a statutory or other positive legal duty, or dishonest
illegality or inequity committed against third persons.34 and unjust act in contravention of plaintiff's legal right; and

Hence, any application of the doctrine of piercing the corporate veil should be done
with caution. A court should be mindful of the milieu where it is to be applied. It
must be certain that the corporate fiction was misused to such an extent that
injustice, fraud, or crime was committed against another, in disregard of rights. The
wrongdoing must be clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may result from an erroneous
application.35
Further, the Court's ruling in Philippine National Bank v. Hydro Resources Contractors
Corporation36 is enlightening, viz.:
The doctrine of piercing the corporate veil applies only in three (3) basic areas,
namely: 1) defeat of public convenience as when the corporate fiction is used as a
vehicle for the evasion of an existing obligation; 2) fraud cases or when the corporate
entity is used to justify a wrong, protect fraud, or defend a crime; or 3) alter ego
cases, where a corporation is merely a farce since it is a mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.
xxxx
In this connection, case law lays down a three-pronged test to determine the
application of the alter ego theory, which is also known as the instrumentality
theory, namely:
(3) The aforesaid control and breach of duty must have proximately caused the injury
or unjust loss complained of.
The first prong is the "instrumentality" or "control" test. This test requires that the
subsidiary be completely under the control and domination of the parent. It
examines the parent corporation's relationship with the subsidiary. It inquires
whether a subsidiary corporation is so organized and controlled and its affairs are so
conducted as to make it a mere instrumentality or agent of the parent corporation
such that its separate existence as a distinct corporate entity will be ignored. It seeks
to establish whether the subsidiary corporation has no autonomy and the parent
corporation, though acting through the subsidiary in form and appearance, "is
operating the business directly for itself."
The second prong is the "fraud" test. This test requires that the parent corporation's
conduct in using the subsidiary corporation be unjust, fraudulent or wrongful. It
examines the relationship of the plaintiff to the corporation. It recognizes that
piercing is appropriate only if the parent corporation uses the subsidiary in a way
that harms the plaintiff creditor. As such, it requires a showing of "an element of
injustice or fundamental unfairness."
The third prong is the "harm" test. This test requires the plaintiff to show that the
defendant's control, exerted in a fraudulent, illegal or otherwise unfair manner
toward it, caused the harm suffered. A causal connection between the fraudulent
conduct committed through the instrumentality of the subsidiary and the injury
suffered or the damage incurred by the plaintiff should be established. The plaintiff
must prove that, unless the corporate veil is pierced, it will have been treated
unjustly by the defendant's exercise of control and improper use of the corporate
form and, thereby, suffer damages.

(1) Control, not mere majority or complete stock control, but complete domination, To summarize, piercing the corporate veil based on the alter ego theory requires the
not only of finances but of policy and business practice in respect to the transaction concurrence of three elements: control of the corporation by the stockholder or
attacked so that the corporate entity as to this transaction had at the time no parent corporation, fraud or fundamental unfairness imposed on the plaintiff, and
separate mind, will or existence of its own; harm or damage caused to the plaintiff by the fraudulent or unfair act of the
15
corporation. The absence of any of these elements prevents piercing the corporate
veil.37 [Citations omitted]
The Court finds that none of the tests has been satisfactorily met in this case.
Although ownership by one corporation of all or a great majority of stocks of another
corporation and their interlocking directorates may serve as indicia of control, by
themselves and without more, these circumstances are insufficient to establish an
alter ego relationship or connection between Phil Carpet on the one hand and Pacific
Carpet on the other hand, that will justify the puncturing of the latter's corporate
cover.38
This Court has declared that "mere ownership by a single stockholder or by another
corporation of all or nearly all of the capital stock of a corporation is not of itself
sufficient ground for disregarding the separate corporate personality." 39 It has
likewise ruled that the "existence of interlocking directors, corporate officers and
shareholders is not enough justification to pierce the veil of corporate fiction in the
absence of fraud or other public policy considerations." 40
In this case, the petitioners question the validity of the quitclaims they signed on the
ground that Phil Carpet's closure was a mere pretense. As the closure of Phil Carpet,
however, was supported by substantial evidence, the petitioners' reason for seeking
the invalidation of the quitclaims must necessarily fail. Further, as aptly observed by
the CA, the contents of the quitclaims, which were in Filipino, were clear and simple,
such that it was unlikely that the petitioners did not understand what they were
signing.45 Finally, the amount they received was reasonable as the same complied
with the requirements of the Labor Code.
WHEREFORE, the petition is DENIED. The January 8, 2016 Decision and April 11, 2016
Resolution of the Court of Appeals in CA-G.R. SP No. 140663, are AFFIRMED in toto.
SO ORDERED.

It must be noted that Pacific Carpet was registered with the Securities and Exchange
Commission on January 29, 1999,41 such that it could not be said that Pacific Carpet
was set up to evade Phil Carpet's liabilities. As to the transfer of Phil Carpet's
machines to Pacific Carpet, settled is the rule that "where one corporation sells or
otherwise transfers all its assets to another corporation for value, the latter is not, by
that fact alone, liable for the debts and liabilities of the transferor." 42

All told, the petitioners failed to present substantial evidence to prove their
allegation that Pacific Carpet is a mere alter ego of Phil Carpet.

The quitclaims were valid and binding upon the petitioners

Where the person making the waiver has done so voluntarily, with a full
understanding thereof, and the consideration for the quitclaim is credible and
reasonable, the transaction must be recognized as being a valid and binding
undertaking.43 Not all quitclaims are per se invalid or against policy, except (1) where
there is clear proof that the waiver was wangled from an unsuspecting or gullible
person, or (2) where the terms of settlement are unconscionable on their face; in
these cases, the law will step in to annul the questionable transactions.44

16
G.R. No. 191525, December 13, 2017
INTERNATIONAL ACADEMY OF MANAGEMENT AND ECONOMICS (I/AME), Petitioner,
v. LITTON AND COMPANY, INC., Respondent.
DECISION
SERENO, C.J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Court of Appeals (CA) Decision1 and Resolution2 in CA-G.R. SP No.
107727.
The CA affirmed the Judgment3 and Order4 of the Regional Trial Court (RTC) of
Manila in Special Civil Action No. 06-115547 reinstating the Order5 of the
Metropolitan Trial Court (MeTC) of Manila in favor of Litton and Company, Inc.
(Litton).
THE FACTS
The facts, as culled from the records, are as follows:
Atty. Emmanuel T. Santos (Santos), a lessee to two (2) buildings owned by Litton,
owed the latter rental arrears as well as his share of the payment of realty taxes.6
Consequently, Litton filed a complaint for unlawful detainer against Santos before
the MeTC of Manila. The MeTC ruled in Litton's favor and ordered Santos to vacate
A.I.D. Building and Litton Apartments and to pay various sums of money representing
unpaid arrears, realty taxes, penalty, and attorney's fees.7
It appears however that the judgment was not executed. Litton subsequently filed an
action for revival of judgment, which was granted by the RTC.8 Santos then appealed
the RTC decision to the CA, which nevertheless affirmed the RTC. 9 The said CA
decision became final and executory on 22 March 1994.10
On 11 November 1996, the sheriff of the MeTC of Manila levied on a piece of real
property covered by Transfer Certificate of Title (TCT) No. 187565 and registered in
the name of International Academy of Management and Economics Incorporated
(I/AME), in order to execute the judgment against Santos. 11 The annotations on TCT
No. 187565 indicated that such was "only up to the extent of the share of Emmanuel
T. Santos."12
I/AME filed with MeTC a "Motion to Lift or Remove Annotations Inscribed in TCT No.
187565 of the Register of Deeds of Makati City." 13 I/AME claimed that it has a
separate and distinct personality from Santos; hence, its properties should not be
made to answer for the latter's liabilities. The motion was denied in an Order dated
29 October 2004.
Upon motion for reconsideration of I/AME, the MeTC reversed its earlier ruling and
ordered the cancellation of the annotations of levy as well as the writ of execution.
Litton then elevated the case to the RTC, which in turn reversed the Order granting
I/AME's motion for reconsideration and reinstated the original Order dated 29
October 2004.
I/AME then filed a petition with the CA to contest the judgment of the RTC, which
was eventually denied by the appellate court.
THE CA RULING
The CA upheld the Judgment and Order of the RTC and held that no grave abuse of
discretion was committed when the trial court pierced the corporate veil of I/AME.14
It took note of how Santos had utilized I/AME to insulate the Makati real property
covered by TCT No. 187565 from the execution of the judgment rendered against
him, for the following reasons:
First, the Deed of Absolute Sale dated 31 August 1979 indicated that Santos, being
the .President, was representing I/AME as the vendee.15 However, records show that
it was only in 1985 that I/AME was organized as a juridical entity.16 Obviously, Santos
could not have been President of a non-existent corporation at that time.17
Second, the CA noted that the subject real property was transferred to I/AME during
the pendency of the appeal for the revival of the judgment in the ejectment case in
the CA.18
Finally, the CA observed that the Register of Deeds of Makati City issued TCT No.
187565 only on 17 November 1993, fourteen (14) years after the execution of the
Deed of Absolute Sale and more than eight (8) years after I/AME was incorporated. 19
Thus, the CA concluded that Santos merely used I/AME as a shield to protect his
property from the coverage of the writ of execution; therefore, piercing the veil of
corporate fiction is proper.20
17
THE ISSUES
The issues boil down to the alleged denial of due process when the court pierced the
corporate veil of I/AME and its property was made to answer for the liability of
Santos.
OUR RULING
We deny the petition.
There was no violation of due process against I/AME
Petitioner avers that its right to due process was violated when it was dragged into
the case and its real property made an object of a writ of execution in a judgment
against Santos. It argues that since it was not impleaded in the main case, the court a
quo never acquired jurisdiction over it. Indeed, compliance with the recognized
modes of acquisition of jurisdiction cannot be dispensed with even in piercing the
veil of corporation.21
In a petition for review on certiorari under Rule 45, only questions of law shall be
entertained. This Court considers the determination of the existence of any of the
circumstances that would warrant the piercing of the veil of corporate fiction as a
question of fact which ordinarily cannot be the subject of a petition for review on
certiorari under Rule 45. We will only take cognizance of factual issues if the findings
of the lower court are not supported by the evidence on record or are based on a
misapprehension of facts.22 Once the CA affirms the factual findings of the trial court,
such findings are deemed final and conclusive and thus, may not be reviewed on
appeal, unless the judgment of the CA depends on a misapprehension of facts, which
if properly considered, would justify a different conclusion. 23 Such exception
however, is not applicable in this case.
The 29 October 2004 MeTC judgment, the RTC judgment, and the CA decision are
one in accord on the matters presented before this Court.
In general, corporations, whether stock or non-stock, are treated as separate and
distinct legal entities from the natural persons composing them. The privilege of
being considered a distinct and separate entity is confined to legitimate uses, and is
subject to equitable limitations to prevent its being exercised for fraudulent, unfair
or illegal purposes.24 However, once equitable limitations are breached using the
coverture of the corporate veil, courts may step in to pierce the same.
As we held in Lanuza, Jr. v. BF Corporation:25
Piercing the corporate veil is warranted when "[the separate personality of a
corporation] is used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, or to confuse
legitimate issues." It is also warranted in alter ego cases "where a corporation is
merely a farce since it is a mere alter ego or business conduit of a person, or where
the corporation is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of another
corporation."
When [the] corporate veil is pierced, the corporation and persons who are normally
treated as distinct from the corporation are treated as one person, such that when
the corporation is adjudged liable, these persons, too, become liable as if they were
the corporation.
The piercing of the corporate veil is premised on the fact that the corporation
concerned must have been properly served with summons or properly subjected to
the jurisdiction of the court a quo. Corollary thereto, it cannot be subjected to a writ
of execution meant for another in violation of its right to due process.26
There exists, however, an exception to this rule: if it is shown "by clear and
convincing proof that the separate and distinct personality of the corporation was
purposefully employed to evade a legitimate and binding commitment and
perpetuate a fraud or like wrongdoings."27
The resistance of the Court to offend the right to due process of a corporation that is
a nonparty in a main case, may disintegrate not only when its director, officer,
shareholder, trustee or member is a party to the main case, but when it finds facts
which show that piercing of the corporate veil is merited.28
Thus, as the Court has already ruled, a party whose corporation is vulnerable to
piercing of its corporate veil cannot argue violation of due process.29
In this case, the Court confirms the lower courts' findings that Santos had an existing
obligation based on a court judgment that he owed monthly rentals and unpaid
realty taxes under a lease contract he entered into as lessee with the Littons as
lessor. He was not able to comply with this particular obligation, and in fact, refused
to comply therewith.
18
This Court agrees with the CA that Santos used I/AME as a means to defeat judicial
processes and to evade his obligation to Litton.30 Thus, even while I/AME was not
impleaded in the main case and yet was so named in a writ of execution to satisfy a
court judgment against Santos, it is vulnerable to the piercing of its corporate veil.
We will further expound on this matter.
Piercing the Corporate Veil may Apply to Non-stock Corporations
Petitioner I/AME argues that the doctrine of piercing the corporate veil applies only
to stock corporations, and not to non-stock, nonprofit corporations such as I/AME
since there are no stockholders to hold liable in such a situation but instead only
members. Hence, they do not have investments or shares of stock or assets to
answer for possible liabilities. Thus, no one in a non-stock corporation can be held
liable in case the corporate veil is disregarded or pierced.31
The CA disagreed. It ruled that since the law does not make a distinction between a
stock and non-stock corporation, neither should there be a distinction in case the
doctrine of piercing the veil of corporate fiction has to be applied. While I/AME is an
educational institution, the CA further ruled, it still is a registered corporation
conducting its affairs as such.32
This Court agrees with the CA.
In determining the propriety of applicability of piercing the veil of corporate fiction,
this Court, in a number of cases, did not put in issue whether a corporation is a stock
or non-stock corporation. In Sulo ng Bayan, Inc. v. Gregorio Araneta, Inc.,33 we
considered but ultimately refused to pierce the corporate veil of a non-stock non-
profit corporation which sought to institute an action for reconveyance of real
property on behalf of its members. This Court held that the non-stock corporation
had no personality to institute a class suit on behalf of its members, considering that
the non-stock corporation was not an assignee or transferee of the real property in
question, and did not have an identity that was one and the same as its members.
In another case, this Court did not put in issue whether the corporation is a non-
stock, non-profit, non-governmental corporation in considering the application of
the doctrine of piercing of corporate veil. In Republic of the Philippines v. Institute for
Social Concern,34 while we did not allow the piercing of the corporate veil, this Court
affirmed the finding of the CA that the Chairman of the Institute for Social Concern
cannot be held jointly and severally liable with the aforesaid non-governmental
organization (NGO) at the time the Memorandum of Agreement was entered into
with the Philippine Government. We found no fraud in that case committed by the
Chairman that would have justified the piercing of the corporate veil of the NGO.35
In the United States, from which we have adopted our law on corporations, non-
profit corporations are not immune from the doctrine of piercing the corporate veil.
Their courts view piercing of the corporation as an equitable remedy, which justifies
said courts to scrutinize any organization however organized and in whatever
manner it operates. Moreover, control of ownership does not hinge on stock
ownership.
As held in Barineau v. Barineau:36
[t]he mere fact that the corporation involved is a nonprofit corporation does not by
itself preclude a court from applying the equitable remedy of piercing the corporate
veil. The equitable character of the remedy permits a court to look to the substance
of the organization, and its decision is not controlled by the statutory framework
under which the corporation was formed and operated. While it may appear to be
impossible for a person to exercise ownership control over a nonstock, not-for-profit
corporation, a person can be held personally liable under the alter ego theory if the
evidence shows that the person controlling the corporation did in fact exercise
control, even though there was no stock ownership.
In another U.S. case, Public Interest Bounty Hunters v. Board of Governors of Federal
Reserve System,37 the U.S. Court allowed the piercing of the corporate veil of the
Foundation headed by the plaintiff, in order to avoid inequitable results. Plaintiff was
found to be the sole trustee, the sole member of the board, and the sole financial
contributor to the Foundation. In the end, the Court found that the plaintiff used the
Foundation to avoid paying attorneys' fees.
The concept of equitable ownership, for stock or non-stock corporations, in piercing
of the corporate veil scenarios, may also be considered. An equitable owner is an
individual who is a non-shareholder defendant, who exercises sufficient control or
considerable authority over the corporation to the point of completely disregarding
the corporate form and acting as though its assets are his or her alone to manage
and distribute.38
Given the foregoing, this Court sees no reason why a non-stock corporation such as
I/AME, may not be scrutinized for purposes of piercing the corporate veil or fiction.
19
 Piercing the Corporate Veil may Apply to Natural Persons
The petitioner also insists that the piercing of the corporate veil cannot be applied to
a natural person - in this case, Santos - simply because as a human being, he has no
corporate veil shrouding or covering his person.39
a) When the Corporation is the Alter Ego of a Natural Person
As cited in Sulo ng Bayan, Inc. v. Araneta, Inc.,40 "[t]he doctrine of alter ego is based
upon the misuse of a corporation by an individual for wrongful or inequitable
purposes, and in such case the court merely disregards the corporate entity and
holds the individual responsible for acts knowingly and intentionally done in the
name of the corporation." This, Santos has done in this case. Santos formed I/AME,
using the non-stock corporation, to evade paying his judgment creditor, Litton.
The piercing of the corporate veil may apply to corporations as well as natural
persons involved with corporations. This Court has held that the "corporate mask
may be lifted and the corporate veil may be pierced when a corporation is just but
the alter ego of a person or of another corporation.”41
We have considered a deceased natural person as one and the same with his
corporation to protect the succession rights of his legal heirs to his estate. In Cease v.
Court of Appeals,42 the predecessor-in-interest organized a close corporation which
acquired properties during its existence. When he died intestate, trouble ensued
amongst his children on whether or not to consider his company one and the same
with his person. The Court agreed with the trial court when it pierced the corporate
veil of the decedent's corporation. It found that said corporation was his business
conduit and alter ego. Thus, the acquired properties were actually properties of the
decedent and as such, should be divided among the decedent's legitimate children in
the partition of his estate.43
In another instance, this Court allowed the piercing of the corporate veil against
another natural person, in Arcilla v. Court of Appeals.44 The case stemmed from a
complaint for sum of money against Arcilla for his failure to pay his loan from the
private respondent. Arcilla, in his defense, alleged that the loan was in the name of
his family corporation, CSAR Marine Resources, Inc. He further argued that the CA
erred in holding CSAR Marine Resources liable to the private respondent since the
latter was not impleaded as a party in the case. This Court allowed the piercing of
the corporate veil and held that Arcilla used "his capacity as President, x x x [as] a
sanctuary for a defense x x x to avoid complying with the liability adjudged against
him x x x.''45 We held that his liability remained attached even if he was impleaded as
a party, and not the corporation, to the collection case and even if he ceased to be
corporate president.46 Indeed, even if Arcilla had ceased to be corporate president,
he remained personally liable for the judgment debt to pay his personal loan, for we
treated him and the corporation as one and the same. CSAR Marine was deemed his
alter ego.
We find similarities with Arcilla and the instant case. Like Arcilla, Santos: (1) was
adjudged liable to pay on a judgment against him; (2) he became President of a
corporation; (3) he formed a corporation to conceal assets which were supposed to
pay for the judgment against his favor; (4) the corporation which has Santos as its
President, is being asked by the court to pay on the judgment; and (5) he may not
use as a defense that he is no longer President of I/AME (although a visit to the
website of the school shows he is the current President).47
This Court agrees with the CA that I/AME is the alter ego of Santos and Santos - the
natural person - is the alter ego of I/AME. Santos falsely represented himself as
President of I/AME in the Deed of Absolute Sale when he bought the Makati real
property, at a time when I/AME had not yet existed. Uncontroverted facts in this
case also reveal the findings of MeTC showing Santos and I/AME as being one and
the same person:
(1) Santos is the conceptualizer and implementor of I/AME;
(2) Santos' contribution is P1,200,000.00 (One Million Two Hundred Thousand Pesos)
out of the P1,500,000.00 (One Million Five Hundred Thousand Pesos), making him
the majority contributor of I/AME; and,
(3) The building being occupied by I/AME is named after Santos using his known
nickname (to date it is called, the "Noli Santos International Tower").48
This Court deems I/AME and Santos as alter egos of each other based on the
former's own admission in its pleadings before the trial court. In its Answer (to
Amended Petition) with the RTC entitled Litton and Company, Inc. v. Hon. Hernandez-
Calledo, Civil Case No. 06-115547, I/AME admitted the allegations found in
paragraphs 2, 4 and 5 of the amended petition of Litton, particularly paragraph
number 4 which states:
20
4. Respondent, International Academy of Management and Economics Inc.
(hereinafter referred to as Respondent I/AME), is a corporation organized and
existing under Philippine laws with address at 1061 Metropolitan Avenue, San
Antonio Village, Makati City, where it may be served with summons and other
judicial processes. It is the corporate entity used by Respondent Santos as his alter
ego for the purpose of shielding his assets from the reach of his creditors, one of
which is herein Petitioner.49 (Emphases ours)
Hence, I/AME is the alter ego of the natural person, Santos, which the latter used to
evade the execution on the Makati property, thus frustrating the satisfaction of the
judgment won by Litton.
b) Reverse Piercing of the Corporate Veil
This Court in Arcilla pierced the corporate veil of CSAR Marine Resources to satisfy a
money judgment against its erstwhile President, Arcilla.
We borrow from American parlance what is called reverse piercing or reverse
corporate piercing or piercing the corporate veil "in reverse."
As held in the U.S. Case, C.F. Trust, Inc., v. First Flight Limited Partnership,50 "in a
traditional veil-piercing action, a court disregards the existence of the corporate
entity so a claimant can reach the assets of a corporate insider. In a reverse piercing
action, however, the plaintiff seeks to reach the assets of a corporation to satisfy
claims against a corporate insider."
"Reverse-piercing flows in the opposite direction (of traditional corporate veil-
piercing) and makes the corporation liable for the debt of the shareholders."51
It has two (2) types: outsider reverse piercing and insider reverse piercing. Outsider
reverse piercing occurs when a party with a claim against an individual or
corporation attempts to be repaid with assets of a corporation owned or
substantially controlled by the defendant.52 In contrast, in insider reverse piercing,
the controlling members will attempt to ignore the corporate fiction in order to take
advantage of a benefit available to the corporation, such as an interest in a lawsuit or
protection of personal assets.53
Outsider reverse veil-piercing is applicable in the instant case. Litton, as judgment
creditor, seeks the Court's intervention to pierce the corporate veil of I/AME in order
to make its Makati real property answer for a judgment against Santos, who formerly
owned and still substantially controls I/AME.
In the U.S. case Acree v. McMahan,54 the American court held that "[o]utsider
reverse veil-piercing extends the traditional veil-piercing doctrine to permit a third-
party creditor to pierce the veil to satisfy the debts of an individual out of the
corporation's assets."
The Court has pierced the corporate veil in a reverse manner in the instances when
the scheme was to avoid corporate assets to be included in the estate of a decedent
as in the Cease case and when the corporation was used to escape a judgment to
pay a debt as in the Arcilla case.
In a 1962 Philippine case, this Court also employed what we now call reverse-
piercing of the corporate veil. In Palacio v. Fely Transportation Co.,55 we found that
the president and general manager of the private respondent company formed the
corporation to evade his subsidiary civil liability resulting from the conviction of his
driver who ran over the child of the petitioner, causing injuries and medical
expenses. The Court agreed with the plaintiffs that the president and general
manager, and Fely Transportation, may be regarded as one and the same person.
Thus, even if the president and general manager was not a party to the case, we
reversed the lower court and declared both him and the private respondent
company, jointly and severally liable to the plaintiffs. Thus, this Court allowed the
outsider-plaintiffs to pierce the corporate veil of Fely Transportation to run after its
corporate assets and pay the subsidiary civil liability of the company's president and
general manager.
This notwithstanding, the equitable remedy of reverse corporate piercing or reverse
piercing was not meant to encourage a creditor's failure to undertake such remedies
that could have otherwise been available, to the detriment of other creditors.56
Reverse corporate piercing is an equitable remedy which if utilized cavalierly, may
lead to disastrous consequences for both stock and non-stock corporations. We are
aware that ordinary judgment collection procedures or other legal remedies are
preferred over that which would risk damage to third parties (for instance, innocent
stockholders or voluntary creditors) with unprotected interests in the assets of the
beleaguered corporation.57
21
Thus, this Court would recommend the application of the current 1997 Rules on Civil
Procedure on Enforcement of Judgments. Under the current Rules of Court on Civil
Procedure, when it comes to satisfaction by levy, a judgment obligor is given the
option to immediately choose which property or part thereof may be levied upon to
satisfy the judgment. If the judgment obligor does not exercise the option, personal
properties, if any, shall be first levied and then on real properties if the personal
properties are deemed insufficient to answer for the judgment.58

In the instant case, it may be possible for this Court to recommend that Litton run
after the other properties of Santos that could satisfy the money judgment - first
personal, then other real properties other than that of the school. However, if we
allow this, we frustrate the decades-old yet valid MeTC judgment which levied on the
real property now titled under the name of the school. Moreover, this Court will
unwittingly condone the action of Santos in hiding all these years behind the
corporate form to evade paying his obligation under the judgment in the court a
quo. This we cannot countenance without being a party to the injustice.

Thus, the reverse piercing of the corporate veil of I/AME to enforce the levy on
execution of the Makati real property where the school now stands is applied.

WHEREFORE, in view of the foregoing, the instant petition is DENIED. The CA Decision
in CA-G.R. SP No. 107727 dated 30 October 2009 and its Resolution on 12 March
2010 are hereby AFFIRMED. The MeTC Order dated 29 October 2004 is hereby
REINSTATED.

Accordingly, the MeTC of Manila, Branch 2, is hereby DIRECTED to execute with

dispatch the MeTC Order dated 29 October 2004 against Santos.

SO ORDERED.

22
G.R. No. 185024, April 24, 2017
JOSELITO HERNAND M. BUSTOS, Petitioner, v. MILLIANS SHOE, INC., SPOUSES
FERNANDO AND AMELIA CRUZ, AND THE REGISTER OF DEEDS OF MARIKINA CITY,
Respondents.
DECISION
SERENO, C.J.:
Before this Court is a Rule 45 Petition1 assailing the Decision and the Resolution2 of
the Court of Appeals (CA). The CA did not find any grave abuse of discretion on the
part of the Regional Trial Court, Imus, Cavite, Branch 21 (RTC). The RTC had issued
Orders3 refusing to exclude the subject property in the Stay Order pertaining to
assets under rehabilitation of respondent Millians Shoe, Inc. (MSI).
FACTS OF THE CASE
Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by
Transfer Certificate of Title (TCT) No. N-126668.4 On 6 January 2004, the City
Government of Marikina levied the property for nonpayment of real estate taxes.
The Notice of Levy was annotated on the title on 8 January 2004. On 14 October
2004, the City Treasurer of Marikina auctioned off the property, with petitioner
Joselito Hernand M. Bustos emerging as the winning bidder.
Petitioner then applied for the cancellation of TCT No. N-126668. On 13 July 2006,
the Regional Trial Court, Marikina City, Branch 273, rendered a final and executory
Decision ordering the cancellation of the previous title and the issuance of a new one
under the name of petitioner.5
Meanwhile, notices of lis pendens were annotated on TCT No. N-126668 on 9
February 2005.6 These markings indicated that SEC Corp. Case No. 036-04, which
was filed before the RTC and involved the rehabilitation proceedings for MSI,
covered the subject property and included it in the Stay Order issued by the RTC
dated 25 October 2004.7
On 26 September 2006, petitioner moved for the exclusion of the subject property
from the Stay Order.8 He claimed that the lot belonged to Spouses Cruz who were
mere stockholders and officers of MSL He further argued that since he had won the
bidding of the property on 14 October 2004, or before the annotation of the title on
9 February 2005, the auctioned property could no longer be part of the Stay Order.
The RTC denied the entreaty of petitioner. It ruled that because the period of
redemption up to 15 October 2005 had not yet lapsed at the time of the issuance of
the Stay Order on 25 October 2004, the ownership thereof had not yet been
transferred to petitioner.9
Petitioner moved for reconsideration,10 but to no avail.11 He then filed an action for
certiorari before the CA. He asserted that the Stay Order undermined the taxing
powers of the local government unit. He also reiterated his arguments that Spouses
Cruz owned the property, and that the lot had already been auctioned to him.
In the assailed Decision dated 12 June 2008, the CA brushed aside the claim that the
suspension orders undermined the power to tax. As regards petitioner's main
contention, the CA ruled as follows:
In the case at bar, the delinquent tax payers were the Cruz Spouses who were the
registered owners of the said parcel of land at the time of the delinquency sale. The
sale was held on October 14, 2004 and the Cruz Spouses had until October 15, 2005
within which to redeem the parcel of land. The stay order was issued on October 25,
2004 and inscribed at the back of the title on February 9, 2005, which is within the
redemption period. The Cruz Spouses were still the owners of the land at the time of
the issuance of the stay order. The said parcel of land which secured several
mortgage liens for the account of MSI remains to be an asset of the Cruz Spouses,
who are the stockholders and/or officers of MSI, a close corporation. Incidentally, as
an exception to the general rule, in a close corporation, the stockholders and/or
officers usually manage the business of the corporation and are subject to all
liabilities of directors, i.e. personally liable for corporate debts and obligations. Thus,
the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt
and obligations.
Petitioner unsuccessfully moved for reconsideration. The CA maintained its ruling
and even held that his prayer to exclude the property was time-barred by the 10-day
reglementary period to oppose rehabilitation petitions under Rule 4, Section 6 of the
23
Interim Rules of Procedure on Corporate Rehabilitation. out in Section 96 of the Corporation Code, which reads:

Before this Court, petitioner maintains three points: (1) the Spouses Cruz are not
liable for the debts of MSI; (2) the Stay Order undermines the taxing power of Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning
Marikina City; and (3) the time bar rule does not apply to him, because he is not a of this Code, is one whose articles of incorporation provide that: (1) All the
creditor of MSI.12 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);
In their Comment,13 respondents do not contest that Spouses Cruz own the subject (2) all the issued stock of all classes shall be subject to one or more specified
property. Rather, respondents assert that as stockholders and officers of a close restrictions on transfer permitted by this Title; and (3) The corporation shall not list
corporation, they are personally liable for its debts and obligations. Furthermore, in any stock exchange or make any public offering of any of its stock of any class.
they argue that since the Rehabilitation Plan of MSI has been approved, petitioner Notwithstanding the foregoing, a corporation shall not be deemed a close
can no longer assail the same. 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. x x x. (Emphasis supplied)

ISSUE OF THE CASE In San Juan Structural and Steel Fabricators. Inc. v. Court of Appeals,14 this Court held
that a narrow distribution of ownership does not, by itself, make a close corporation.
Courts must look into the articles of incorporation to find provisions expressly stating
The controlling issue in this case is whether the CA correctly considered the that (1) the number of stockholders shall not exceed 20; or (2) a preemption of
properties of Spouses Cruz answerable for the obligations of MSI. shares is restricted in favor of any stockholder or of the corporation; or (3) the listing
of the corporate stocks in any stock exchange or making a public offering of those
If the answer is in the affirmative, then the courts a quo correctly ruled that the Stay stocks is prohibited.
Order involving the assets of MSI included the property covered by TCT No. N-
126668. Petitioner would also be considered a creditor of MSI who must timely file Here, neither the CA nor the RTC showed its basis for finding that MSI is a close
an opposition to the proposed rehabilitation plan of the corporation. corporation. The courts a quo did not at all refer to the Articles of Incorporation of
MSI. The Petition submitted by respondent in the rehabilitation proceedings before
the RTC did not even include those Articles of Incorporation among its
attachments.15
RULING OF THE COURT
In effect, the CA and the RTC deemed MSI a close corporation based on the
allegation of Spouses Cruz that it was so. However, mere allegation is not evidence
We set aside rulings of the CA for lack of basis.
and is not equivalent to proof.16For this reason alone, the CA rulings should be set
aside.
In finding the subject property answerable for the obligations of MSI, the CA
characterized respondent spouses as stockholders of a close corporation who, as
Furthermore, we find that the CA seriously erred in portraying the import of Section
such, are liable for its debts. This conclusion is baseless.
97 of the Corporation Code. Citing that provision, the CA concluded that "in a close
corporation, the stockholders and/or officers usually manage the business of the
To be considered a close corporation, an entity must abide by the requirements laid
corporation and are subject to all liabilities of directors, i.e. personally liable for

24
corporate debts and obligations." 17 rehabilitation proceedings.

However, Section 97 of the Corporation Code only specifies that "the stockholders of In rehabilitation proceedings, claims of creditors are limited to demands of whatever
the corporation shall be subject to all liabilities of directors." Nowhere in that nature or character against a debtor or its property, whether for money or
provision do we find any inference that stockholders of a close corporation are otherwise.23 In several cases,24 we have already held that stay orders should only
automatically liable for corporate debts and obligations. cover those claims directed against corporations or their properties, against their
guarantors, or their sureties who are not solidarily liable with them, to the exclusion
Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly of accommodation mortgagors.25 To repeat, properties merely owned by
provides for personal liability of stockholders of close corporation, viz: stockholders cannot be included in the inventory of assets of a corporation under
rehabilitation.

Sec. 100. Agreements by stockholders. - Given that the true owner the subject property is not the corporation, petitioner
cannot be considered a creditor of MSI but a holder of a claim against respondent
x x x x spouses.26

5. To the extent that the stockholders are actively engaged in the management or Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation,
operation of the business and affairs of a close corporation, the stockholders shall be directs creditors of the debtor to file an opposition to petitions for rehabilitation
held to strict fiduciary duties to each other and among themselves. Said stockholders within 10 days before the initial hearing of rehabilitation proceedings. Since
shall be personally liable for corporate torts unless the corporation has obtained petitioner does not hold any claim over the properties owned by MSI, the time-bar
reasonably adequate liability insurance. (Emphasis supplied) rule does not apply to him.

As can be read in that provision, several requisites must be present for its
WHEREFORE, the Petition for review on certiorari filed by petitioner Joselito Hernand
applicability. None of these were alleged in the case of Spouses Cruz. Neither did the
M. Bustos is GRANTED. The Decision dated 12 June 2008 and Resolution dated 27
RTC or the CA explain the factual circumstances for this Court to discuss the
October 2008 of the Court of Appeals in C.A.-G.R. SP. No. 100298 are REVERSED and
personally liability of respondents to their creditors because of "corporate torts."18
SET ASIDE.

We thus apply the general doctrine of separate juridical personality, which provides
SO ORDERED.
that a corporation has a legal personality separate and distinct from that of people
comprising it.19 By virtue of that doctrine, stockholders of a corporation enjoy the
principle of limited liability: the corporate debt is not the debt of the stockholder. 20
Thus, being an officer or a stockholder of a corporation does not make one's
property the property also of the corporation.21

Situs Development Corp. v. Asiatrust Bank22 is analogous to the case at bar. We held
therein that the parcels of land mortgaged to creditor banks were owned not by the
corporation. but by the spouses who were its stockholders. Applying the doctrine of
separate juridical personality, we ruled that the parcels of land of the spouses could
not be considered part of the corporate assets that could be subjected to

25
G.R. No. 202364, August 30, 2017 months and a penalty of ONE (1%) percent per month on the principal sum in case of
delay in payment."11 The terms of the loan also provided that the first monthly
ARTURO C. CALUBAD, Petitioner, v. RICARCEN DEVELOPMENT CORPORATION, interest payment of P200,000.00 would be deducted from the loan proceeds.12
Respondent.
On December 6, 2001, Ricarcen, through Marilyn, and Calubad amended and
DECISION
increased the loan to P5,000,000.00 in the Amendment of Deed of Mortgage
LEONEN, J.: (Additional Loan of P1,000,000.00),13 with the same property used as security and
under the same terms and conditions as those of the original Deed of Real Estate
When a corporation intentionally or negligently clothes its agent with apparent Mortgage.
authority to act in its behalf, it is estopped from denying its agent's apparent
authority as to innocent third parties who dealt with this agent in good faith. 1 On May 8, 2002, Ricarcen, again acting through Marilyn, took out an additional loan
of 2,000,000.00 from Calubad, as evidenced by the executed Second Amendment of
This resolves the Petition for Review on Certiorari2 filed by petitioner Arturo C. Deed of Mortgage (Additional Loan of P2,000,000.00).14
Calubad (Calubad), assailing the January 25, 2012 Decision3 and June 20, 2012
Resolution4 of the Court of Appeals in CA-GR. CV No. 93185, which upheld the To prove her authority to execute the three (3) mortgage contracts in Ricarcen's
January 6, 2009 Decision5 of Branch 218, Regional Trial Court, Quezon City in Civil behalf, Marilyn presented Calubad with a Board Resolution dated October 15,
Case No. Q-03-50584. 2001.15 This Resolution empowered her to borrow money and use the Quezon City
property covered by TCT No. RT-84937 (166018) as collateral for the loans. Marilyn
Respondent Ricarcen Development Corporation (Ricarcen) was a domestic also presented two (2) Secretary's Certificates dated December 6, 200116 and May 8,
corporation engaged in renting out real estate. It was the registered owner of a 2002,17 executed by Marilyn's sister and Ricarcen's corporate secretary, Elizabeth.
parcel of land located at 53 Linaw St., Sta. Mesa Heights, Quezon City. 6 This parcel of
land was covered by Transfer Certificate of Title (TCT) No. RT-84937 (166018)7 and Sometime in 2003, after Ricarcen failed to pay its loan, Calubad initiated extrajudicial
was subdivided into two (2) lots.8 foreclosure proceedings on the real estate mortgage. The auction sale was set on
March 19, 2003.18
Ricarcen was a family corporation. Marilyn R. Soliman (Marilyn) was its president
from 2001 to August 2003. The other members of the board of directors during that Calubad was the highest bidder during the scheduled auction sale; thus, on March
time were Marilyn's mother, Erlinda Villanueva (Erlinda), her brother, Josefelix R. 27, 2003, he was issued a Certificate of Sale.19
Villanueva (Josefelix), her aunt, Maura Rico, and her sisters, Ma. Elizabeth V.
Chamorro (Elizabeth), Ma. Theresa R. Villanueva, and Annabelle R. Villanueva.9 On April 10, 2003, the Certificate of Sale was annotated on TCT No. RT-84937
(166018).20
On October 15, 2001, Marilyn, acting on Ricarcen's behalf as its president, took out a
P4,000,000.00 loan from Calubad. This loan was secured by a real estate mortgage Ricarcen claimed that it only learned of Marilyn's transactions with Calubad
over Ricarcen's Quezon City property covered by TCT No. RT-84937 (166018), as sometime in July 2003.21
evidenced by a Deed of Real Estate Mortgage.10
Upon confirming that the Quezon City property had indeed been mortgaged,
The terms of the loan provided that Ricarcen would pay the P4,000,000.00 loan foreclosed, and sold to Calubad as a result of Marilyn's actions, Ricarcen's board of
within a period of six (6) months with "a compounded interest at the rate of FIVE directors removed her as president and appointed Josefelix as its new president.
(5%) percent for the first month and THREE (3%) percent for [the] succeeding Josefelix was also authorized to initiate the necessary court actions to protect
26
Ricarcen's interests over the Quezon City property.22 The Regional Trial Court also ruled that the Board Resolution and Secretary's
Certificates, which were supposedly executed by Ricarcen's Board of Directors, had
On September 9, 2003, Ricarcen filed its Complaint for Annulment of Real Estate been unmasked to be merely fabricated. Furthermore, Atty. William S. Merginio,
Mortgage and Extrajudicial Foreclosure of Mortgage and Sale with Damages against who purportedly notarized the Board Resolution and Secretary's Certificates, denied
Marilyn, Calubad, and employees of the Registry of Deeds of Quezon City and of the that he notarized those documents since they did not appear in his notarial
Regional Trial Court of Quezon City.23 register.30

On October 9, 2003, the Clerk of Court and Ex-Officio Sheriff of the Regional Trial The Regional Trial Court then dismissed the complaint against the Registry of Deeds
Court of Quezon City. Atty. Mercedes S. Gatmaytan, was discharged as party- employees for Ricarcen's failure to show any irregularity in the performance of their
defendant.24 duties.31 The dispositive portion of the Regional Trial Court Decision read:

In its Complaint, Ricarcen claimed that it never authorized its former president WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff
Marilyn to obtain loans from Calubad or use the Quezon City property as collateral Ricarcen Development Corporation and further:
for the loans.25
1. Declaring as null and void the following:
On the other hand, Calubad insisted that the incidents which led to the foreclosure
and sale of the Quezon City property were all above board and were not marked
 Deed of Real Estate Mortgage dated 15 October 2001;
with irregularity. Furthermore, he asserted that he exercised the necessary diligence
required under the circumstances by requiring Marilyn to submit the necessary
documents to prove her authority from Ricarcen. Calubad likewise argued that even  Amendment of Real Estate Mortgage dated 06 December 2001;
if Ricarcen did not authorize Marilyn, it was already estopped from denying her
authority since the loan proceeds had been released and Ricarcen had benefited
from them.26  Second Amendment of Deed of Mortgage dated 08 May 2002;and

For their part, spouses Marilyn and Napoleon Soliman denied any knowledge of or
participation in the allegedly falsified documents and claimed that the falsification  Extrajudicial Foreclosure of Mortgage and Sale by public auction in favor of
was perpetrated by their broker, Nena leo, and Calubad's broker, a certain Malou, Arturo Calubad[;]
without their permission.27
2. Canceling TCT No. 261881 in the name of Arturo Calubad and reinstating TCT No.
RT-84937 (166018), both by the Regist[ry] of Deeds of Quezon City; and
On January 6, 2009, the Regional Trial Court28 granted Ricarcen's complaint and
annulled the mortgage contracts, extrajudicial foreclosure, and sale by public
3. Ordering defendants spouses Solimans and Calubad to pay jointly and severally
auction.
damages in the amount of Two Hundred Fifty Thousand Pesos (Php250,000.00) as
attorney's fees and costs of litigation.
The Regional Trial Court held that Marilyn failed to present a special power of
attorney as evidence of her authority from Ricarcen. The lack of a special power of
SO ORDERED.32
attorney should have been enough for Calubad to be put on guard and to require
further evidence of Marilyn's authority from Ricarcen.29 Only Calubad appealed the Regional Trial Court Decision to the Court of Appeals.

27
On January 25, 2012, the Court of Appeals dismissed Calubad's appeal and affirmed On August 10, 2012, Calubad filed his Petition38 before this Court.
the Regional Trial Court Decision. The Court of Appeals emphasized that the rule on
the presumption of validity of a notarized board resolution and of a secretary's Petitioner claims that Ricarcen is barred by estoppel from denying Marilyn's
certificate is not absolute and may be validly overcome by contrary evidence; 33 thus: authority to enter into a contract of loan and mortgage with Calubad for several
reasons. He argues that Ricarcen clothed Marilyn in apparent authority to act in its
behalf.39 that it benefited from the loans proceeds,40 and that it impliedly agreed to
In order to defeat the presumption, it is incumbent upon RICARCEN to prove "with the mortgage loans by paying the monthly interest payments.41
clear, convincing, strong and irrefutable proof' that the board resolution and
secretary's certificates purportedly authorizing Marilyn Soliman to secure a loan and Petitioner avers that Elizabeth executed four (4) separate document which gave
mortgage the subject property in behalf of the corporation are, in fact, invalid. Marilyn the authority to secure loans, use the Quezon City property as collateral, and
execute all documents needed for those purposes.42
In the case at bench, RICARCEN was able to discharge this burden. The truth of the
contents of the board resolution and secretary's certificates relied upon by Calubad The four (4) documents which petitioner claimed to have proved Marilyn's authority
had been overthrown by the records of this case which clearly show that such to act in behalf of Ricarcen were:
documents were not in fact executed by the board of directors of RICARCEN, and
are, therefore, fabricated.34 a) Board Resolution dated October 15, 2001, which read:

The Court of Appeals also disregarded Calubad's argument that Ricarcen was guilty
of laches, ruling that Ricarcen's board of directors only found out about the RESOLVED, AS IT IS HEREBY RESOLVED, that the President MARILYN R. SOLIMAN, is
mortgage contracts in July 2003, when they received a copy of the notice of the authorized signatory of the corporation to transact any and all documents
foreclosure of mortage. Upon verifying with the Registry of Deeds of Quezon City, necessary for the purpose of securing monetary loan using a parcel of land owned by
Ricarcen took immediate action by removing Marilyn as president and instituting a the corporation located at No. 53 Linaw St., Quezon City covered by TCT No. RT
case for annulment and cancellation of mortgage against Calubad and Marilyn.35 84937 (166018) of the Registry of Deeds of [Quezon City] with a total area of 840
square meters more or less, as collateral/security.
The Court of Appeals likewise set aside Calubad's argument that Ricarcen was
estopped from denying the contracts. The Court of Appeals held that since Ricarcen RESOLVED FURTHER, AS IT IS HEREBY RESOLVED, that she is authorized to sign all
did not know about the existence of the contracts of mortgage between Caluband documents required for the monetary loan for and in behalf of the corporation.43
and Marilyn, it could not have ratified them or knowingly accepted any benefits from
the loan proceeds.36 b) Secretary's Certificate dated October 15, 2001, which read:

The dispositive portion of the Court of Appeals Decision read:

BE IT RESOLVED, AS IT IS HEREBY RESOLVED, that the corporation will borrow from
ARTURO CALUBAD, Filipino, of legal age, and residing at 89 East Maya Philam Homes
WHEREFORE, in view of the foregoing premises, the instant appeal is hereby ordered Village, Quezon City.
DISMISSED, and the appealed decision is AFFIRMED in toto.
FURTHERMORE, BE IT RESOLVED, that the corporation is authorizing MARILYN R.
SO ORDERED.37 (Emphasis in the original) SOLIMAN, President, to sign for and in behalf of the corporation.44

28
c) Secretary's Certificate dated December 6, 2001, which read:
RESOLVED, as it is hereby resolved that the President, MARILYN R. SOLIMAN, is
hereby authorized to secure ADDITIONAL LOAN OF [P]1,000,000.00 from MR.
ARTURO CALUBAD, using as collateral two (2) parcels of land with the improvements
existing thereon, situated in Quezon City, Metro Manila, covered and embraced by
Transfer Certificate of Title No. RT-84937 (166018) of the Registry of Deeds of
Quezon City, Metro Manila, and in such amount that she deems it most proper and
beneficial to the corporation.
RESOLVED FINALLY, that the President is hereby authorized to sign Amendment of
Deed of Real Estate Mortgage, Acknowledgment Receipt and other pertinent
documents and get and receive the loan either in cash or check/s with any bank
lawfully doing business in the Philippines for and in behalf of the corporation.45
d) Secretary's Certificate dated May 8, 2002, which read:
BE IT RESOLVED, AS IT IS HEREBY RESOLVED, that the corporation will secure
additional monetary loan of P2,000,000.00 from ARTURO CALUBAD, Filipino, of legal
age, and residing at 89 East Maya Philam Homes Village, Quezon City, using a parcel
of land owned by the corporation located at No. 53 Linaw St., Quezon City covered
by TCT No. RT-84937 (166018) of the Registry of Deeds of [Quezon City] with a total
area of 840 square meters more or less, as collateral/security.
FURTHERMORE, BE IT RESOLVED, that the corporation is authorizing MARILYN R.
SOLIMAN, President, to sign for and in behalf of the corporation.46
All these four (4) documents were signed by Elizabeth in her capacity as Ricarcen's
corporate secretary.
Elizabeth later on denied signing any of these four (4) documents cited by petitioner,
saying that she regularly signed blank documents and left them with her sister
Marilyn. She opined that the Board Resolution and Secretary's Certificates, which
purportedly gave Marilyn the authority to transact with petitioner in Ricarcen's
behalf, might have been some of the blank documents she had earlier signed. 47
However, petitioner asserts that the fact that Elizabeth entrusted signed, blank
documents to Marilyn proved that Ricarcen authorized her to secure loans and use
its properties as collateral for the loans.48
Petitioner also points out that Marilyn had possession of the owner's duplicate copy
of TCT No. RT-84937 (166018), and thus, he had no reason but to believe that she
was authorized by Ricarcen to deal and transact in its behalf. 49
Additionally, the loan proceeds were issued through checks payable to Ricarcen,
which were deposited in its bank account and were cleared. As further evidence of
Ricarcen's receipt of the loan proceeds, petitioner presented several checks drawn
and issued by Elizabeth or Erlinda, jointly with Marilyn, representing loan
payments.50
Petitioner also presented several withdrawal slips signed by either Elizabeth or
Erlinda, jointly with Marilyn, authorizing a certain Lilydale Ombina to repeatedly
withdraw from Ricarcen's bank account.51
Petitioner likewise presented several checks drawn from Ricarcen's bank account,
issued by Elizabeth or Erlinda, jointly with Marilyn, payable to third persons or to
cash.52 Petitioner maintains that the foregoing evidence is indubitable proof that the
loan proceeds have been used by Ricarcen.53
Petitioner then claims that Ricarcen, in a check drawn and issued by Erlinda and
Marilyn, paid the 3% monthly interest for the first loan of P4,000,000.00. This
bolstered his belief that Ricarcen and its officers knew of and approved that loan,
and induced him to grant Ricarcen, through Marilyn, additional loans.54
Petitioner asserts that the acts of Elizabeth and Erlinda are equivalent to clothing
Marilyn with apparent authority to deal with him and use the Quezon City property
as collateral:
Their acts are also a manifestation of their acquiescence to Marilyn Soliman's
availment of loans and execution of real estate mortgage with petitioner.
Thus, even if Marilyn Soliman had acted without or in excess of her actual authority,
if she acted within the scope of an apparent authority with which [Ricarcen] has
clothed her by holding her out or permitting her to appear as having such authority,
29
[Ricarcen] is bound thereby in favor of petitioner who in good faith relied on such questions of fact in his Petition since the issue raised was "the law and jurisprudence
apparent authority.55 applicable to the facts of this case, or whether the conclusion drawn by the Court of
Appeals from those facts is correct or not."66
On November 12, 2012, this Court required Ricarcen to comment on the Petition. 56
Petitioner likewise claims that the findings of the Court of Appeals were contradicted
On February 4, 2013, Ricarcen filed its Comment,57 where it claims that the Petition by the evidence on record, and hence, were not conclusive or binding on the
raised questions of fact, which are not proper in a petition for review on certiorari. It parties.67
also avers that petitioner failed to raise any exceptional circumstances, and thus,
should be dismissed outright.58 On April 6, 2016, this Court noted Calubad's motion for early decision dated March
21, 2016.68
Ricarcen asserts that while the documents it purportedly issued enjoy the
presumption of validity, this presumption is not absolute and it has shown convincing The only issue presented for this Court's resolution is whether or not Ricarcen
evidence as to the invalidity of the Board Resolution and of the Secretary's Development Corporation is estopped from denying or disowning the authority of
Certificates.59 Marilyn R. Soliman, its former President, from entering into a contract of loan and
mortgage with Arturo C. Calubad.
Ricarcen points out that Marilyn clearly acted without authority when she entered
into a loan and mortgage agreement with petitioner. Being void, the contracts of The petition is meritorious.
loan and mortgage can never be ratified.60

Ricarcen also denied that it was guilty of laches since it only learned about Marilyn's
loan with Calubad in July 2003, when it received a notice of foreclosure. Upon I
lean1ing of the extrajudicial foreclosure and sale by public auction, it immediately
removed Marilyn as president and authorized Josefelix to file the necessary actions
to protect Ricarcen's interests.61 The Rules of Court categorically state that a review of appeals filed before this Court
is "not a matter of right, but of sound judicial discretion."69 The Rules of Court
Ricarcen likewise claims that it cannot be held guilty of estoppel in pais since it never further require that only questions of law should be raised in petitions filed under
induced nor led petitioner to believe that Marilyn was duly authorized to take out a Rule 4570 since factual questions are not the proper subject of an appeal by
loan and to mortgage the Quezon City property as collateral. Additionally, "it did not certiorari. It is not this Court's function to analyze or weigh all over again evidence
knowingly accept any benefit" from the loan proceeds.62 that has already been considered in the lower courts.71

Ricarcen declares that petitioner either connived with Marilyn or, at the very least, However, these rules admit exceptions. Medina v. Mayor Asistio, Jr.72 listed down 10
failed to exercise reasonable diligence and prudence in ascertaining Marilyn's recognized exceptions:
supposed agency from Ricarcen.63

(1) When the conclusion is a finding grounded entirely on speculation, surmises or

On March 11, 2013, this Court noted Ricarcen's Comment and required Calubad to
conjectures . . .; (2) When the inference made is manifestly mist en, absurd or
reply to the Comment,64
impossible . . .; (3) Where there is a grave abuse of discretion . . .; (4) When the
judgment is based on a misapprehension of facts . . .; (5) When the findings of fact
On May 9, 2013, Calubad filed his Reply,65 where he denied that he raised purely
are conflicting . . .; (6) When the Court of Appeals, in making its findings, went
30
beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee . . .; (7) The findings of the Court of Appeals are contrary to
those of the trial court . . .; (8) When the findings of fact are conclusions without
citation of specific evidence on which they are based . . .; (9) When the facts set forth
in the petition as well as in the petitioners' main and reply briefs are not disputed by
the respondents . . .; and (10) The finding of fact of the Court of Appeals is premised
on the supposed absence of evidence and is contradicted by the evidence on
record...73
Pascual v. Burgos74 instructed that parties must demonstrate by convincing evidence
that the case clearly falls under the exceptions to the rule:
of stocks, or where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors are elected and qualified.
However, the board of directors may validly delegate its functions and powers to its
officers or agents. The authority to bind the corporation is derived from law, its
corporate by-laws, or directly from the board of directors, "either expressly or
impliedly by habit, custom or acquiescence in the general course of business."77
The general principles of agency govern the relationship between a corporation and
its representatives.78 Article 131779 of the Civil Code similarly provides that the
principal must delegate the necessary authority before anyone can act on his or her
behalf.

Parties praying that this court review the factual findings of the Court of Appeals Nonetheless, law and jurisprudence recognize actual authority and apparent
must demonstrate and prove that the case clearly falls under the exceptions to the authority as the two (2) types of authorities conferred upon a corporate officer or
rule. They have the burden of proving to this court that a review of the factual agent in dealing with third persons.80
findings is necessary. Mere assertion and claim that the case falls under the
exceptions do not suffice.75 Actual authority can either be express or implied. Express actual authority refers to
the power delegated to the agent by the corporation, while an agent's implied
Petitioner claims that his case falls under the exceptions to the general rule on a Rule
authority can be measured by his or her prior acts which have been ratified by the
45 appeal since the findings of the lower courts are contradicted by the evidence on
corporation or whose benefits have been accepted by the corporation. 81
record.76 After a careful study of the records, this Court is convinced that this case
falls under the exceptions cited in Medina, particularly in that "the inference made is
On the other hand, apparent authority is based on the principle of estoppel. The Civil
manifestly mistaken," making a Rule 45 appeal proper.
Code provides:

Article 1431. Through estoppel an admission or representation is rendered

II
conclusive upon the person making it, and cannot be denied or disproved as against
the person relying thereon.
As a corporation, Ricarcen exercises its powers and conducts its business through its
board of directors, as provided for by Section 23 of the Corporation Code: . . . .

Article 1869. Agency may be express, or implied from the acts of the principal, from
Section 23. The board of directors or trustees. - Unless otherwise provided in this his silence or lack of action, or his failure to repudiate the agency, knowing that
Code, the corporate powers of all corporations formed under this Code shall be another person is acting on his behalf without authority.
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 Agency may be oral, unless the law requires a specific form.

31
Yao Ka Sin Trading v. Court of Appeals82 instructed that an agent's apparent authority On December 6, 2001, Marilyn negotiated for an additional P1,000,000.00 loan with
from the principal may also be ascertained through: Calubad, under the same terms and conditions.88

From December 15, 2001 to April 15, 2002, Ricarcen paid and issued several checks
(1) the general manner by which the corporation holds out an officer or agent as payable to Calubad, which he claimed were the monthly interest payments of the
having power to act or, in other words, the apparent authority with which it clothes mortgage loans. The following checks were drawn by Erlinda and Marilyn for
him to act in general, or (2) the acquiescence in his acts of a particular nature, with Ricarcen:
actual or constructive knowledge thereof, whether within or without the scope of his
ordinary powers.
(a) Banco de Oro check number 0000067624 dated December 15, 2001 for
The doctrine of apparent authority provides that even if no actual authority has been
P120,000.00;
conferred on an agent, his or her acts, as long as they are within his or her apparent
scope of authority, bind the principal. However, the principal's liability is limited to
third persons who are reasonably led to believe that the agent was authorized to act (b) Banco de Oro check number 0000067622 dated January 15, 2002 for
for the principal due to the principal's conduct.83 P120,000.00;

Apparent authority is determined by the acts of the principal and not by the acts of (c) Banco de Oro check number 000067626 dated February 15, 2002 for
the agent.84 Thus, it is incumbent upon Calubad to prove how Ricarcen's acts led him P120,000.00;
to believe that Marilyn was duly authorized to represent it.
(d) Banco de Oro check number 0000067673 dated March 6, 2002 for P30,000.00;

(e) Banco de Oro check number 0000067625 dated March 15, 2002 for
III P120,000.00;

As the former president of Ricarcen, it was within Marilyn's scope of authority to act (f) Banco de Oro check number 0000067674 dated April 6, 2002 for P30,000.00;
for and enter into contracts in Ricarcen's behalf. Her broad authority from Ricarcen and
can be seen with how the corporate secretary entrusted her with blank yet signed
sheets of paper to be used at her discretion.85 She also had possession of the (g) Banco de Oro check number 0002422 dated April 15, 2002 for P120,000.00.89
owner's duplicate copy of the land title covering the property mortgaged to Calubad,
further proving her authority from Ricarcen.86
Calubad deposited the January 15, 2002 check into his Metrobank, EDSA-Caloocan
The records show that on October 15, 2001, Calubad drew and issued two (2) checks Branch account, while the rest of the checks were deposited in his bank account with
payable to Ricarcen representing the loan proceeds for the first mortgage. The first Equitable PCI Bank, A. De Jesus-EDSA Branch. All the checks from Ricarcen cleared.90
check was Equitable PCI Bank check number 0024416 for P2,920,000.00 and the
second check was Equitable PCI Bank check number 0000461 for P600,000.00. Both For the additional loan of P2,000,000.00 obtained on May 8, 2002, Ricarcen again
checks were deposited in Ricarcen 's bank account with Banco de Oro, Banawe issued several Banco de Oro checks dated June 15, 2002 to December 6, 2002 as
Branch, and were honored by the drawee bank. 87 payments for this loan and its monthly interest. These checks were made to
Calubad's order and were drawn by either Erlinda or Elizabeth with Marilyn. 91

32

However, Banco de Oro check number 0082424 dated June 15, 2002 for
P120,000.00, Banco de Oro check number 0082425 dated July 15, 2002 for
P120,000.00, and Banco de Oro check number 0082426 dated August 15, 2002 for
P120,000 were all dishonored by the drawee bank for insufficiency of funds. 92
Calubad states that he no longer deposited the following checks from Ricarcen upon
Marilyn's request, since she claimed that Ricarcen's funds were by then insufficient
to pay the issued checks:
(a) Banco de Oro check number 0082467 dated July 6, 2002 for P30,000.00;
(b) Banco de Oro check number 0082447 dated July 8, 2002 for P60,000.00;
(c) Banco de Oro check number 0082448 dated August 8, 2002 for P2,000,000.00;
(d) Banco de Oro check number 0082469 dated September 6, 2002 for P30,000.00;
(e) Banco de Oro check number 0082427 dated September 15, 2002 for
P120,000.00;
(f) Banco de Oro check number 0082470 dated October 6, 2002 for P30,000.00;
(g) Banco de Oro check number 0082428 dated October 15, 2002 for
P4,000,000.00;
(h) Banco de Oro check number 0082471 dated November 6, 2002 for P30,000.00;
and
(i) Banco de Oro check number 0082472 dated December 6, 2002 for
P1,000,000.00.93
Calubad could not be faulted for continuing to transact with Marilyn, even agreeing
to give out additional loans, because Ricarcen clearly clothed her with apparent
authority. Likewise, it reasonably appeared that Ricarcen's officers knew of the
mortgage contracts entered into by Marilyn in Ricarcen's behalf as proven by the
issued Banco De Oro checks as payments for the monthly interest and the principal
loan.
Ricarcen claimed that it never granted Marilyn authority to transact with Calubad or
use the Quezon City property as collateral for the loans, but its actuations say
otherwise. It appears as if Ricarcen and its officers gravely erred in putting too much
trust in Marilyn. However, Calubad, as an innocent third party dealing in good faith
with Marilyn, should not be made to suffer because of Ricarcen's negligence in
conducting its own business affairs. This finds support in Yao Ka Sin Trading:94
Also, "if a private corporation intentionally or negligently clothes its officers or agents
with apparent power to perform acts for it, the corporation will be estopped to deny
that such apparent authority is real, as to innocent third persons dealing in good
faith with such officers or agents."95
IV
Nonetheless, petitioner's prayer for the award of damages must be denied for failing
to provide factual or legal basis for the award.
Moral damages are not automatically awarded when there is a breach of contract. It
must also be proven that the party who breached the contract acted fraudulently or
in bad faith, in wanton disregard of the contracted obligation. 96 In addition, the
following conditions must be met before moral damages may be awarded:
(1) first, there must be an injury, whether physical, mental or psychological, clearly
sustained by the claimant; (2) second, there must be culpable act or omission
factually established; (3) third, the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) fourth, the award of
damages is predicated on any of the cases stated in Article 2219 of the Civil Code. 97
(Emphasis supplied)
Petitioner failed to allege that Ricarcen acted fraudulently or wantonly when it
breached the loan Md mortgage contract. Neither is this Court convinced that fraud,
bad faith, or wanton disregard of its obligation can be imputed to Ricarcen due to its
33
bad business judgment and negligence in putting too much trust in Marilyn. It was
not sufficiently shown that Ricarcn was spurred by a dishonest purpose or was
motivated by ill will or fraud when it assailed the contract entered into by Marilyn
and Calubad.

In the same manner, exemplary damages98 cannot be awarded in the absence of

evidence that Ricarcen acted fraudulently or wantonly. Finally, in the absence of
exemplary damages, attorney's fees, and costs of suit also cannot be recovered.99

VHEREFORE, the Petition is GRANTED. The assailed January 25, 2012 Decision and
June 20, 2012 Resolution of the Court of Appeals in CA-GR. CV No. 93185 are
REVERSED and SET ASIDE. Ricarcen Development Corporation's Amended Complaint
in. Civil Case No. Q-03-50584 before Branch 218, Regional Trial Court, Quezon City is
hereby DISMISSED for lack of merit.

SO ORDERED.

34