Primary Purposes To Corporation by Estoppel (coRPORATION)

Primary Purposes
FIRST DIVISION
[G.R. No. 156819. December 11, 2003]
ALICIA E. GALA, GUIA G. DOMINGO and RITA G.

BENSON, petitioners, vs. ELLICE AGRO-INDUSTRIAL
CORPORATION, MARGO MANAGEMENT AND DEVELOPMENT
CORPORATION, RAUL E. GALA, VITALIANO N. AGUIRRE II,
ADNAN V. ALONTO, ELIAS N. CRESENCIO, MOISES S.
MANIEGO, RODOLFO B. REYNO, RENATO S. GONZALES,
VICENTE C. NOLAN, NESTOR N. BATICULON, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45 of the Rules of Court, seeking the
reversal of the decision dated November 8, 2002 and the resolution dated December
[1]
27, 2002 of the Court of Appeals in CA-G.R. SP No. 71979.

[2]
On March 28, 1979, the spouses Manuel and Alicia Gala, their
children Guia Domingo, Ofelia Gala, Raul Gala, and Rita Benson, and
their encargados Virgilio Galeon and Julian Jaderformed and organized the Ellice Agro-
Industrial Corporation. The total subscribed capital stock of the corporation was
[3]
apportioned as follows:
Name Number of Shares Amount

Manuel R. Gala 11, 700 1,170,000.00
Alicia E. Gala 23,200 2,320,000.00
Guia G. Domingo 16 1,600.00
Ofelia E. Gala 40 4,000.00
Raul E. Gala 40 4,000.00
Rita G. Benson 2 200.00
Virgilio Galeon 1 100.00
Julian Jader 1 100.00
TOTAL 35,000 P3,500,000.00 [4]
As payment for their subscriptions, the Gala spouses transferred several parcels of
land located in the provinces of Quezon and Laguna to Ellice.[5]
In 1982, Manuel Gala, Alicia Gala and Ofelia Gala subscribed to an additional 3,299
shares, 10,652.5 shares and 286.5 shares, respectively. [6]
On June 28, 1982, Manuel Gala and Alicia Gala acquired an additional 550 shares
and 281 shares, respectively.[7]
Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul

Gala, Virgilio Galeon and Julian Jader incorporated the Margo Management and
Development Corporation (Margo). The total subscribed capital stock of Margo was
[8]
apportioned as follows:
Raul E. Gala 6,640 66,400.00
Ofelia E. Gala 6,640 66,400.00
Guia G. Domingo 6,640 66,400.00
TOTAL 20,000 P200,000.00 [9]
On November 10, 1982, Manuel Gala sold 13,314 of his shares in Ellice to Margo. [10]
Alicia Gala transferred 1,000 of her shares in Ellice to a certain Victor de Villa
on March 2, 1983. That same day, de Villa transferred said shares to Margo. A few [11]
months later, onAugust 28, 1983, Alicia Gala transferred 854.3 of her shares to Ofelia
Gala, 500 to Guia Domingo and 500 to Raul Gala. [12]
Years later, on February 8, 1988, Manuel Gala transferred all of his remaining
holdings in Ellice, amounting to 2,164 shares, to Raul Gala. [13]
On July 20, 1988, Alicia Gala transferred 10,000 of her shares to Margo. [14]
Thus, as of the date on which this case was commenced, the stockholdings
in Ellice were allocated as follows:

Margo 24,312.5 2,431,250.00
Alicia Gala 21,480.2 2,148,020.00
Raul Gala 2,704.5 270,450.00
Ofelia Gala 980.8 98,080.00
Gina Domingo 516 51,600.00
Rita Benson 2 200.00
Adnan Alonto 1 100.00
Elias Cresencio 1 100.00
TOTAL 50,000 P5,000,000.00
On June 23, 1990, a special stockholders meeting of Margo was held, where a new
board of directors was elected. That same day, the newly-elected board elected a new
[15]
set of officers. Raul Gala was elected as chairman, president and general
manager. During the meeting, the board approved several actions, including the
commencement of proceedings to annul certain dispositions of Margos property made
by Alicia Gala. The board also resolved to change the name of the corporation to MRG
Management and Development Corporation. [16]
Similarly, a special stockholders meeting of Ellice was held on August 24, 1990 to
elect a new board of directors. In the ensuing organizational meeting later that day, a
new set of corporate officers was elected. Likewise, Raul Gala was elected as
chairman, president and general manager.
On March 27, 1990, respondents filed against petitioners with the Securities and
Exchange Commission (SEC) a petition for the appointment of a management
committee or receiver, accounting and restitution by the directors and officers, and the
dissolution of Ellice Agro-Industrial Corporation for alleged mismanagement, diversion
of funds, financial losses and the dissipation of assets, docketed as SEC Case No.
3747. The petition was amended to delete the prayer for the appointment of a
[17]
management committee or receiver and for the dissolution of Ellice. Additionally,

respondents prayed that they be allowed to inspect the corporate books and documents
of Ellice. [18]
In turn, petitioners initiated a complaint against the respondents on June 26, 1991,
docketed as SEC Case No. 4027, praying for, among others, the nullification of the
elections of directors and officers of both Margo Management and Development
Corporation and Ellice Industrial Corporation; the nullification of all board resolutions
issued by Margo from June 23, 1990 up to the present and all board resolutions issued
by Ellice from August 24, 1990 up to the present; and the return of all titles to real
property in the name of Margo and Ellice, as well as all corporate papers and records of
both Margo and Ellice which are in the possession and control of the respondents. [19]
The two cases were consolidated in an Order dated November 23, 1993. [20]
Meanwhile, during the pendency of the SEC cases, the shares of stock of Alicia and
Ofelia Gala in Ellice were levied and sold at public auction to satisfy a judgment
rendered against them by he Regional Trial Court of Makati, Branch 66, in Civil Case
No. 42560, entitled Regines Condominium v. Ofelia (Gala) Panes and Alicia Gala. [21]
On November 3, 1998, the SEC rendered a Joint Decision in SEC Cases Nos. 3747
and 4027, the dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Dismissing the petition in SEC Case No. 3747,
2. Issuing the following orders in SEC Case No. 4027;
(a) Enjoining herein respondents to perform corporate acts of both Ellice

and Margo, as directors and officers thereof.
(b) Nullifying the election of the new sets of Board of Directors and
Officers of Ellice and Margo from June 23, 1990 to the present,
and that of Ellice from August 24, 1990 to the present.
(c) Ordering the respondent Raul Gala to return all the titles of real
properties in the names of Ellice and Margo which were
unlawfully taken and held by him.
(d) Directing the respondents to return to herein petitioners all corporate

papers, records of both Ellice and Margo which are in their
possession and control.
SO ORDERED. [22]
Respondents appealed to the SEC En Banc, which, on July 4, 2002, rendered its
Decision, the decretal portion of which reads:
WHEREFORE, the Decision of the Hearing Officer dated November 3, 1998 is

hereby REVERSED and SET ASIDE and a new one hereby rendered granting the
appeal, upholding the Amended Petition in SEC Case No. 3747, and dismissing the
Petition with Prayer for Issuance of Preliminary Restraining Order and granting the
Compulsory Counterclaim in SEC Case No. 4027.
Accordingly, appellees Alicia Gala and Guia G. Domingo are ordered as follows:
(1) jointly and solidarily pay ELLICE and/or MARGO the amount of
P700,000.00 representing the consideration for the unauthorized sale of a
parcel of land to Lucky Homes and Development Corporation (Exhs. N
and CCC);
(2) jointly and severally pay ELLICE and MARGO the proceeds of sales of
agricultural products averaging P120,000.00 per month from February
17, 1988;
(3) jointly and severally indemnify the appellants P90,000.00 as attorneys

fees;
(4) jointly and solidarily pay the costs of suit;
(5) turn over to the individual appellants the corporate records of ELLICE and
MARGO in their possession; and
(6) desist and refrain from interfering with the management of ELLICE and
MARGO.
SO ORDERED. [23]
Petitioners filed a petition for review with the Court of Appeals which dismissed the
petition for review and affirmed the decision of the SEC En Banc. [24]
Hence, this petition, raising the following issues:

I
WHETHER OR NOT THE LOWER COURT ERRED IN NOT DECLARING AS
ILLEGAL AND CONTRARY TO PUBLIC POLICY THE PURPOSES AND MANNER
IN WHICH RESPONDENT CORPORATIONS WERE ORGANIZED WHICH WERE,
E.G. TO (1) PREVENT THE GALA ESTATE FROM BEING BROUGHT UNDER THE
COVERAGE (SIC) OF THE COMPREHENSIVE AGRARIAN REFORM PROGRAM
(CARP) AND (2) PURPORTEDLY FOR ESTATE PLANNING.
II
WHETHER OR NOT THE LOWER COURT ERRED (1) IN SUSPICIOUSLY
RESOLVING THE CASE WITHIN TWO (2) DAYS FROM RECEIPT OF
RESPONDENTS COMMENT; AND (2) INNOT MAKING A DETERMINATION OF
THE ISSUES OF FACTS AND INSTEAD RITUALLY CITING THE FACTUAL
FINDINGS OF THE COMMISSION A QUO WITHOUT DISCUSSION AND
ANALYSIS;
III
WHETHER OR NOT THE LOWER COURT ERRED IN RULING THAT THE
ORGANIZATION OF RESPONDENT CORPORATIONS WAS NOT ILLEGAL FOR
DEPRIVING PETITIONER RITA G. BENSON OF HER LEGITIME.
IV
WHETHER OR NOT THE LOWER COURT ERRED IN NOT PIERCING THE VEILS
OF CORPORATE FICTION OF RESPONDENTS CORPORATIONS ELLICE AND
MARGO. [25]
In essence, petitioners want this Court to disregard the separate juridical
personalities of Ellice and Margo for the purpose of treating all property purportedly
owned by said corporations as property solely owned by the Gala spouses.
The petitioners first contention in support of this theory is that the purposes for
which Ellice and Margo were organized should be declared as illegal and contrary to
public policy. They claim that the respondents never pursued exemption from land
reform coverage in good faith and instead merely used the corporations as tools to
circumvent land reform laws and to avoid estate taxes. Specifically, they point out that
respondents have not shown that the transfers of the land in favor of Ellice were
executed in compliance with the requirements of Section 13 of R.A. 3844.
Furthermore, they alleged that respondent corporations were run without any of the
[26]
conventional corporate formalities. [27]
At the outset, the Court holds that petitioners contentions impugning the legality of
the purposes for which Ellice and Margo were organized, amount to collateral attacks
which are prohibited in this jurisdiction. [28]
The best proof of the purpose of a corporation is its articles of incorporation and by-
laws. The articles of incorporation must state the primary and secondary purposes of
the corporation, while the by-laws outline the administrative organization of the
corporation, which, in turn, is supposed to insure or facilitate the accomplishment of said
purpose. [29]
In the case at bar, a perusal of the Articles of Incorporation of Ellice and Margo
shows no sign of the allegedly illegal purposes that petitioners are complaining of. It is
well to note that, if a corporations purpose, as stated in the Articles of Incorporation, is
lawful, then the SEC has no authority to inquire whether the corporation has purposes
other than those stated, and mandamus will lie to compel it to issue the certificate of
incorporation. [30]
Assuming there was even a grain of truth to the petitioners claims regarding the
legality of what are alleged to be the corporations true purposes, we are still precluded
from granting them relief. We cannot address here their concerns regarding
circumvention of land reform laws, for the doctrine of primary jurisdiction precludes a
court from arrogating unto itself the authority to resolve a controversy the jurisdiction
over which is initially lodged with an administrative body of special competence. Since
[31]
primary jurisdiction over any violation of Section 13 of Republic Act No. 3844 that may
have been committed is vested in the Department of Agrarian Reform Adjudication
Board (DARAB), then it is with said administrative agency that the petitioners must first
[32]
plead their case. With regard to their claim that Ellice and Margo were meant to be used
as mere tools for the avoidance of estate taxes, suffice it say that the legal right of a
taxpayer to reduce the amount of what otherwise could be his taxes or altogether avoid
them, by means which the law permits, cannot be doubted. [33]
The petitioners allegation that Ellice and Margo were run without any of the typical
corporate formalities, even if true, would not merit the grant of any of the relief set forth
in their prayer.We cannot disregard the corporate entities of Ellice and Margo on this
ground. At most, such allegations, if proven to be true, should be addressed in an
administrative case before the SEC. [34]
Thus, even if Ellice and Margo were organized for the purpose of exempting the
properties of the Gala spouses from the coverage of land reform legislation and
avoiding estate taxes, we cannot disregard their separate juridical personalities.
Next, petitioners make much of the fact that the Court of Appeals promulgated its
assailed Decision a mere two days from the time the respondents filed their
Comment. They alleged that the appellate court could not have made a deliberate study
of the factual questions in the case, considering the sheer volume of evidence
available. In support of this allegation, they point out that the Court of Appeals merely
[35]
adopted the factual findings of the SEC En Banc verbatim, without deliberation and
analysis.[36]
In People v. Mercado, we ruled that the speed with which a lower court disposes
[37]
of a case cannot thus be attributed to the injudicious performance of its

function. Indeed, magistrates are not supposed to study a case only after all the
pertinent pleadings have been filed. It is a mark of diligence and devotion to duty that
jurists study a case long before the deadline set for the promulgation of their decision
has arrived. The two-day period between the filing of petitioners Comment and the
promulgation of the decision was sufficient time to consider their arguments and to
incorporate these in the decision. As long as the lower court does not sacrifice the
orderly administration of justice in favor of a speedy but reckless disposition of a case, it
cannot be taken to task for rendering its decision with due dispatch. The Court of
Appeals in this intra-corporate controversy committed no reversible error and,
consequently, its decision should be affirmed. Verily, if such swift disposition of a case
[38]
is considered a non-issue in cases where the life or liberty of a person is at stake, then
we see no reason why the same principle cannot apply when only private rights are
involved.
Furthermore, well-settled is the rule that the factual findings of the Court of Appeals
are conclusive on the parties and are not reviewable by the Supreme Court. They carry
even more weight when the Court of Appeals affirms the factual findings of a lower fact-
finding body. Likewise, the findings of fact of administrative bodies, such as the SEC,
[39]
will not be interfered with by the courts in the absence of grave abuse of discretion on
the part of said agencies, or unless the aforementioned findings are not supported by
substantial evidence. [40]
However, in the interest of equity, this Court has reviewed the factual findings of the
SEC En Banc, which were affirmed in toto by the Court of Appeals, and has found no
cogent reason to disturb the same. Indeed, we are convinced that the arguments raised
by the petitioners are nothing but unwarranted conclusions of law. Specifically, they
insist that the Gala spouses never meant to part with the ownership of the shares which
are in the names of their children and encargados, and that all transfers of property to
these individuals are supposedly void for being absolutely simulated for lack of
consideration. However, as correctly held by the SEC En Banc, the transfers were only
[41]
relatively simulated, inasmuch as the evident intention of the Gala spouses was to
donate portions of their property to their children and encargados. [42]
In an attempt to bolster their theory that the organization of the respondent

corporations was illegal, the petitioners aver that the legitime pertaining to petitioners
Rita G. Benson andGuia G. Domingo from the estate of their father had been subject to
unwarranted reductions as a result thereof. In sum, they claim that stockholdings
in Ellice which the late Manuel Gala had assigned to them were insufficient to cover
their legitimes, since Benson was only given two shares while Domingo received only
sixteen shares out of a total number of 35,000 issued shares. [43]
Moreover, the reliefs sought by petitioners should have been raised in a proceeding
for settlement of estate, rather than in the present intra-corporate controversy. If they
are genuinely interested in securing that part of their late fathers property which has
been reserved for them in their capacity as compulsory heirs, then they should simply
exercise their actio adsupplendam legitimam, or their right of completion of legitime.
Such relief must be sought during the distribution and partition stage of a case for the
[44]
settlement of the estate of Manuel Gala, filed before a court which has taken jurisdiction
over the settlement of said estate. [45]
Finally, the petitioners pray that the veil of corporate fiction that shroud
both Ellice and Margo be pierced, consistent with their earlier allegation that both
corporations were formed for purposes contrary to law and public policy. In sum, they
submit that the respondent corporations are mere business conduits of the deceased
Manuel Gala and thus may be disregarded to prevent injustice, the distortion or hiding
of the truth or the letting in of a just defense.
[46]
However, to warrant resort to the extraordinary remedy of piercing the veil of

corporate fiction, there must be proof that the corporation is being used as a cloak or
cover for fraud or illegality, or to work injustice, and the petitioners have failed to prove
[47]
that Ellice and Margo were being used thus. They have not presented any evidence to
show how the separate juridical entities of Ellice and Margo were used by the
respondents to commit fraudulent, illegal or unjust acts. Hence, this contention, too,
must fail.
On June 5, 2003, the petitioners filed a Reply, where, aside from reiterating the
contentions raised in their Petition, they averred that there is no proof that either capital
gains taxes or documentary stamp taxes were paid in the series of transfers
of Ellice and Margo shares. Thus, they invoke Sections 176 and 201 of the National
Internal Revenue Code, which would bar the presentation or admission into evidence of
any document that purports to transfer any benefit derived from certificates of stock if
the requisite documentary stamps have not been affixed thereto and cancelled.
Curiously, the petitioners never raised this issue before the SEC Hearing Officer, the
SEC En Banc or the Court of Appeals. Thus, we are precluded from passing upon the
same for, as a rule, no question will be entertained on appeal unless it has been raised
in the court below, for points of law, theories, issues and arguments not brought to the
attention of the lower court need not be, and ordinarily will not be, considered by a
reviewing court, as they cannot be raised for the first time at that late stage. Basic
considerations of due process impel this rule. Furthermore, even if these allegations
[48]
were proven to be true, such facts would not render the underlying transactions void, for
these instruments would not be the sole means, much less the best means, by which
the existence of these transactions could be proved. For this purpose, the books and
records of a corporation, which include the stock and transfer book, are generally
admissible in evidence in favor of or against the corporation and its members. They can
be used to prove corporate acts, a corporations financial status and other matters,
including ones status as a stockholder. Most importantly, these books and records are,
ordinarily, the best evidence of corporate acts and proceedings. Thus, reference to
[49]
these should have been made before the SEC Hearing Officer, for this Court will not
entertain this belated questioning of the evidence now.
It is always sad to see families torn apart by money matters and property
disputes. The concept of a close corporation organized for the purpose of running a
family business or managing family property has formed the backbone of Philippine
commerce and industry. Through this device, Filipino families have been able to turn
their humble, hard-earned life savings into going concerns capable of providing them
and their families with a modicum of material comfort and financial security as a reward
for years of hard work. A family corporation should serve as a rallying point for family
unity and prosperity, not as a flashpoint for familial strife. It is hoped that people
reacquaint themselves with the concepts of mutual aid and security that are the original
driving forces behind the formation of family corporations and use these tenets in order
to facilitate more civil, if not more amicable, settlements of family corporate disputes.
WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision
dated November 8, 2002 and the Resolution dated December 27, 2002, both of the
Court of Appeals, are AFFIRMED. Costs against petitioners.
SO ORDERED.
Davide, Jr., C.J., Panganiban, Carpio, and Azcuna, JJ., concur.
[1]
CA Rollo, p. 452; penned by Associate Justice Martin S. Villarama, Jr., concurred in by Associate
Justices Godardo A. Jacinto and Mario L. Guaria III.
[2]
Id.
[3]
CA Rollo, pp. 101-101, 452.
[4]
Id., p. 102.
[5]
Id., p. 91.
[6]
Id., p. 454.
[7]
Id.
[8]
Id., pp. 111, 453.
[9]
Id., p. 112.
[10]
Id., p. 454.
[11]
Id.
[12]
Id.
[13]
Id.
[14]
Id.
[15]
Id., p. 136.
[16]
Id., p. 140.
[17]
Id., p. 455..
[18]
Id., p. 155-156..
[19]
Id., p. 180..
[20]
Id., p. 208; penned by SEC Hearing Officer Alberto P. Atas..
[21]
Id., p. 455..
[22]
Rollo, pp. 144-145; penned by SEC Hearing Officer Juanito B. Almosa, Jr.
[23]
Id., pp. 170-171; docketed as SEC AC No. 642. Singed by Chairperson Lilia R. Bautista,
Commissioners Fe Eloisa C. Gloria, Josela J. Poblador, Ma. Juanita A. Cueto and Jesus
G. Martinez Enrique.
[24]
CA Rollo, p. 466.
[25]
Rollo, p. 37 (Emphasis in the original).
[26]
Id., pp. 40-41.
Section 13, of R.A. 3844 provides:
SEC. 13. Affidavit Required in Sale of Land Subject to Right to Preemption.- No deed of sale of
agricultural land under cultivation by an agricultural lessee or lessees shall be recorded in the
Registry of Property unless accompanied by an affidavit of the vendor that he has given the
written notice required in Section eleven of this chapter or that the land is not worked by an
agricultural lessee.
[27]
Rollo, p. 40..
[28]
CORPORATION CODE, SEC 20.
[29]
Jesus Sacred Heart College v. Collector of Internal Revenue, 95 Phil. 16, 22 (1954); cited in
Commissioner of Internal Revenue v. Court of Appeals, 358 Phil. 562, 584 (1998), dissenting
opinion of Senior Associate JusticeJosue N. Bellosillo.
[30]
I CAMPOS, THE CORPORATION CODE: COMMENTS, NOTES AND SELECTED CASES 75-76
(1990 ed.); citing Asuncion v. Yriarte, 28 Phil. 67 (1914).
[31]
Machete v. Court of Appeals, 320 Phil. 227 (1995); citing Vidad v. Regional Trial Court
of Negros Oriental, G.R. No. 98084, 18 October 1993, 227 SCRA 271.
CORPORATION CODE, sec. 144; Pres. Dec. No. 902-A, sec. 6 (i), Rep. Act No. 8799, sec. 5 (d) and (f).
[32]
Rep. Act No. 6657, sec. 50.
[33]
Delpher Trades Corporation v. Intermediate Appellate Court, G.R. No. 69259, 26 January 1988, 157
SCRA 349, 356; citing Liddell & Co., Inc. v. The Collector of Internal Revenue, G.R. No. 9687, 30
June 1961, 2 SCRA 632, 641.
[34]
Corporation Code, sec. 144; Pres Dec. No. 902-A, sec 6 (i), Rep. Act No. 8799, sec. 5 (d) and (f).
[35]
Rollo, p. 43.
[36]
Id., p. 45.
[37]
G.R. No. 116239, 29 November 2000, 346 SCRA 256.
[38]
People v. Mercado, G.R. No, 116239, 29 November 2000. 346 SCRA 256.
[39]
Collegio de San Juan de Letran-Calamba v. Villas, G.R. No. 137795, 26 March 2003; citing
Spouses Uy v. Court of Appeals, 411 Phil. 788 (2001).
[40]
Gokongwei v. Securities and Exchange Commission, G.R. No. 52129, 21 April 1980, 97 SCRA 78;
citing Central Bank v. Cloribel, G.R. No. 26971, 11 April 1972, 44 SCRA 307.
[41]
Id.
[42]
CA Rollo, p. 89.
[43]
Rollo, pp. 54-55, 287.
[44]
CIVIL CODE, art. 906; RUBEN F. BALANE, JOTTINGS AND JURISPRUDENCE IN CIVIL LAW:
SUCCESSION 328-329 (1998).
[45]
Rules of Court, Rule 73, sec. 1 and Rule 90, sec. 1.
[46]
Rollo, p. 56.
[47]
Ong Yong v. Tiu, G.R. No. 144476, 8 April 2003.
[48]
Del Rosario v. Bonga, G.R. No. 136308, 23 January 2001, 350 SCRA 101 cited in Twin Towers
Condominium Corporation v. Court of Appeals, G.R. No. 123552 27 February 2003.
[49]
Bitong v. Court of Appeals, 354 Phil. 516, 536 (1998).
FIRST DIVISION
[G.R. No. 133547. December 7, 2001]

HEIRS OF ANTONIO PAEL and ANDREA ALCANTARA and CRISANTO
PAEL, petitioners, vs. COURT OF APPEALS, JORGE H. CHIN and
RENATO B. MALLARI, respondents.
[G.R. No. 133843. December 7, 2001]
MARIA DESTURA, petitioner, vs. COURT OF APPEALS, JORGE H. CHIN

and RENATO MALLARI, respondents.
R E S O LUTIO N
For resolution are the Motions for Reconsideration of our Decision dated February 10, 2000,
filed by petitioners Heirs of Antonio Pael, Andrea Alcantara and Crisanto Pael in G.R. No
133547, and petitioner Maria Destura in G.R. No 133843 Likewise, the University of the
Philippines filed a motion for intervention.
It is at once apparent that no new issues are raised in the motions for reconsideration. The
arguments presented are a mere rehash of what have been said and reiterated in the pleadings, all
of which have been considered and found without merit in the Decision now assailed.
Be that as it may, it bears reiterating that the title of PFINA Properties, Inc., Transfer
Certificate of Title No. 186662, was irregularly and illegally issued. As such, the reinstatement of
the titles of privaterespondents was proper and did not constitute a collateral attack on the title of
PFINA. It should be recalled that the transfer of title from the Heirs of Pael in favor of PFINA
was replete with badges of fraud and irregularities which rendered nugatory and inoperative the
existing doctrines on land registration and land titles. More important, the Heirs of Pael had
earlier disposed of their rights. There was nothing to transfer to PFINA. The transfer was not
only fictitious, it was void.
PFINA claims that it acquired the properties from the Heirs of Pael by virtue of a deed of
assignment dated January 25, 1983, hence, it filed a motion to intervene before the Court of
Appeals. It is worthy to note, however, that before it filed its motion for intervention, or for a
long period of fifteen (15) years, PFINA and the Heirs of Pael were totally silent about the
alleged deed of assignment. No steps were taken by either of them to register the deed or secure
transfer certificate of title evidencing the change of ownership during this long period of time.
Furthermore, at the time PFINA acquired the disputed properties in 1983, its corporate name
was PFINA Mining and Exploration, Inc., a mining company which had no valid grounds to
engage in the highly speculative business of urban real estate development.
Both the decisions of the Court of Appeals and this Court show that the alleged transfer in
1983 was not only dubious and fabricated; it could produce no legal effect. As stated above, the
Paels were no longer owners of the land they allegedly assigned.
In the Decision, we affirmed the factual findings of the Court of Appeals because they are
amply supported by the evidence on record. Well established is the rule that if there is no
showing of error in the appreciation of facts by the Court of Appeals, this Court treats them as
conclusive. The conclusions of law which the Court of Appeals drew from those facts are
likewise accurate and convincing.
Insofar as the original parties in G.R. Nos. 133547 and 133843 are concerned, the motions
for reconsideration are, therefore, denied with finality. No further pleadings from them will be
entertained.
During the pendency of the motions for reconsideration, the University of the Philippines
filed a motion for intervention, alleging that the properties covered by TCT No. 52928 and No.
52929 in the name of respondents Chin and Mallari form part of the vast tract of land that is the
U.P. Campus, which is registered in the name of U.P. under TCT No. 9462. Therefore, any
pronouncement by this Court affecting the properties would create a cloud over U.P.s title, for
which reason it had a right to intervene in these proceedings.
While as a rule, the intervention of a new party at this late stage should no longer be
allowed, there is in the cases at bar an inescapable issue waiting to be resolved, and which issue
can be taken up herein without the necessity of separate proceedings.
In Director of Lands vs. Court of Appeals,[1] this Court stated:
But Rule 12 of the Rules of Court like all other Rules therein promulgated, is simply a
rule of procedure, the whole purpose and object of which is to make the powers of the
Court fully and completely available for justice. The purpose of procedure is not to
thwart justice. Its proper aim is to facilitate the application of justice to the rival
claims of contending parties. It was created not to hinder and delay but to facilitate
and promote the administration of justice. It does not constitute the thing itself which
courts are always striving to secure to litigants. It is designed as the means best
adopted to obtain that thing. In other words, it is a means to an end.
The denial of the motions for intervention arising from the strict application of the
rule due to alleged lack of notice to, or the alleged failure of, movants to act
seasonably will lead the Court to commit an act of injustice to the movants, to their
successors-in-interest and to all purchasers for value and in good faith and thereby
open the door to fraud, falsehood and misrepresentation, should intervenors claims be
proven to be true. For it cannot be gainsaid that if the petition for reconstitution is
finally granted, the chaos and confusion arising from a situation where the certificates
of title of the movants covering large areas of land overlap or encroach on properties
the title to which is being sought to be reconstituted by private respondent, who
herself indicates in her Opposition that, according to the Director of Lands, the
overlapping embraces some 87 hectares only, is certain and inevitable. xxx xxx xxx.
Likewise in the case of Mago v. Court of Appeals,[2] it was held:

These matters should have been taken into account by the courts a quo for being of
utmost importance in ruling on petitioners motion for intervention. The permissive
tenor of the provision on intervention shows the intention of the Rules to give to the
court the full measure of discretion in permitting or disallowing the same. But
needless to say, this discretion should be exercised judiciously and only after
consideration of all the circumstances obtaining in the case.
But it is apparent that the courts a quo only considered the technicalities of the rules
on intervention and of the petition for relief from judgment. The denial of their motion
to intervene arising from the strict application of the rule was an injustice to
petitioners whose substantial interest in the subject property cannot be disputed. It
must be stressed that the trial court granted private respondents petition for prohibition
with injunction without petitioners being impleaded, in total disregard of their right to
be heard, when on the face of the resolution of the Community Relations and
Information Office (CRIO) sought to be enjoined, petitioners were the ones directly to
be affected. We need not belabor the point that petitioners are indeed indispensable
parties with such an interest in the controversy or subject matter that a final
adjudication cannot be made in their absence without affecting, nay injuring, such
interest.
Therefore, notwithstanding its belated filing, the motion for intervention of U.P. is granted,
albeit the adjudication thereof shall be limited to a determination of the alleged overlapping or
encroachment between U.P.s title, on the one hand, and respondents TCT Nos. 52928 and 52929,
on the other hand.
In its comment, intervenor U.P. cites several cases decided by this Court wherein its title to
the property contested in these cases has long been upheld, namely:
1) Tiburcio v. PHHC and U.P., 106 Phil. 477;
2) Galvez and Tiburcio v. Tuason, dela Paz, U.P. and PHHC, 10 SCRA 344;
3) PHHC and U.P. v. Mencias, 20 SCRA 1031;
4) Katigbak v. IAC, Director of Lands and U.P., G.R. No. L67414, December 7, 1988;
5) Varsity Hills, Inc. v. Mariano, 163 SCRA 132;
6) Roberto A. Pael, et al. v. Court of Appeals, et al., G.R. No. 97277, April 15, 1992; and
7) Krus na Ligas Farmers Multi-Purpose Cooperative v. U.P. and Office of the Presidential
Legal Assistant, G.R. No. 107622, March 23, 1993.
Intervenor U.P. specifically cites the decision in Roberto A. Pael et al. v. Court of Appeals,
et al., supra, wherein the title of the Paels was declared to be of dubious origin and a fabrication.
Hence, since respondents derive their titles from a defective title, their titles should also be null
and void.
By way of historical backgrounder, intervenor U.P. narrates that its titles previously covered
by TCT No. 9462 emanated from a sale by the Commonwealth of the Philippines to the
University in 1949. Prior to that, the U.P. title can be traced back to OCT No. 730 in the name of
Mariano Severo Tuason and others as early as 1914.
On the other hand, respondents Chin and Mallari contend that their titles, TCT Nos. 52928
and 52929, cover lands which are outside of the properties validly and legitimately owned by,
and titled in the name of, U.P. They claim that there is neither encroachment nor overlapping.
Considering the conflicting claims by U.P. and respondents, the ascertainment of boundaries
of the lands they respectively claim becomes imperative. The instant cases have altogether taken
more than eight (8) years. Despite the exceedingly voluminous records, the boundaries of the
properties covered by the disputed titles of respondents and the boundaries of the lands covered
by the title of U.P. are not discussed therein. In order to avoid the institution of new cases and
thus obviate further litigation, we deem it best to have any conflict and dispute on this matter
speedily resolved through an intervention. Concomitantly, there is a need for reception of further
evidence which, however, can not be done before this Court. Hence, this case should be
remanded to the Court of Appeals for reception of evidence relevant to determining the
boundaries of the conflicting claims between U.P. and respondents Chin and Mallari over the
property in dispute.
WHEREFORE, in view of the foregoing, the motion for intervention of the University of
the Philippines is GRANTED. The case is REMANDED to the Court of Appeals for reception of
evidence on the conflicting claims over the property covered by TCT Nos. 52928 and 52929
between the intervernor University of the Philippines, on the one hand, and respondents Jorge H.
Chin and Renato B. Mallari, on the other hand. The motions for reconsideration filed by
petitioners are DENIED for lack of merit. This denial is FINAL and no further pleadings from
petitioners will be entertained.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
[1]
93 SCRA 238 [1979].
[2]
303 SCRA 600 [1999].
Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-15429 December 1, 1919

UY SIULIONG, MARIANO LIMJAP, GACU UNG JIENG, EDILBERTO CALIXTO and UY CHO
YEE, petitioners,
vs.
THE DIRECTOR OF COMMERCE AND INDUSTRY, respondent.
Kincaid and Perkins for petitioners.

Attorney-General Paredes for respondent.
JOHNSON, J.:
The purpose of this action is to obtain the writ of mandamus to require the respondent
to file and register, upon the payment of the lawful fee, articles of incorporation, and to issue to the
petitioners as the incorporators of a certain corporation to be known as "Siuliong y Compaia, Inc.,"
a certificate under the seal of the office of said respondent, certifying that the articles of incorporation
have been duly filed and registered in his office in accordance with the law.
To the petition the respondent demurred and the cause was finally submitted upon the petition and
demurrer.
The important facts necessary for the solution of the question presented, which are found in the
petition, may be stated as follows:
1. That prior to the presentation of the petition the petitioners had been associated together as
partners, which partnership was known as "mercantil regular colectiva, under the style and firm
name of "Siuliong y Cia.;"
2. That the petitioners herein, who had theretofore been members of said partnership of "Siuliong y
Cia.," desired to dissolve said partnership and to form a corporation composed of the same persons
as incorporators, to be known as "Siulong y Compaia, Incorporada;"
3. That the purpose of said corporation, "Siuliong y Cia., Inc.," is (a) to acquire the business of the
partnership theretofore known as Siuliong & Co., and (b) to continue said business with some of its
objects or purposes;
4. That an examination of the articles of incorporation of the said "Siuliong y Compaia, Incorporada"
(Exhibit A) shows that it is to be organized for the following purposes:
(a) The purchase and sale, importation and exportation, of the products of the country as well as of
foreign countries;
(b) To discount promissory notes, bills of exchange, and other negotiable instruments;
(c) The purchase and sale of bills of exchange, bonds, stocks, or "participaciones de sociedades
mercantiles e industriales [joint account of mercantile and industrial associations]," and of all classes
of mercantile documents; "comisiones [commissions];" "consignaciones [consignments];"
(d) To act as agents for life, marine and fire insurance companies; lawphi1.net
(e) To purchase and sell boats of all classes "y fletamento de los mismos [and charterage of same];"
and
(f) To purchase and sell industrial and mercantile establishments.
While the articles of incorporation of "Siuliong y Cia., Inc." states that its purpose is to acquire and
continue the business, with some of its objects or purposes, of Siuliong & Co., it will be found upon
an examination of the purposes enumerated in the proposed articles of incorporation of "Siuliong y
Cia., Inc.," that some of the purposes of the original partnership of "Siuliong y Cia." have been
omitted. For example, the articles of partnership of "Siuliong y Cia." gave said company the authority
to purchase and sell all classes "de fincas rusticas y urbanas [of rural and city real estate]" as well as
the right to act as agents for the establishment of any other business which it might esteem
convenient for the interests of "la compaia [the company]." (Exhibit C).
The respondent in his argument in support of the demurrer contends (a) that the proposed articles of
incorporation presented for file and registry permitted the petitioners to engage in a business which
had for its end more than one purpose; (b) that it permitted the petitioners to engage in the banking
business, and (c) to deal in real estate, in violation of the Act of Congress of July 1, 1902.
The petitioners, in reply to said argument of the respondent, while insisting that said proposed
articles of incorporation do not permit it to enter into the banking business nor to engage in the
purchase and sale of real estate in violation of said Act of Congress, expressly renounced in open
court their right to engage in such business under their articles of incorporation, even though said
articles might be interpreted in a way to authorize them to so to do. That renouncement on the part
of the petitioners eliminates from the purposes of said proposed corporation (of "Siuliong y Cia.,
Inc.") any right to engage in the banking business as such, or in the purchase and sale of real estate.
We come now to the consideration of the principal question raised by the respondent, to wit: that the
proposed articles of incorporation of "Siuliong y Cia., Inc.," permits it to engage in a business with
more than one purpose.
If upon an examination of the articles of incorporation we find that its purpose is to engage in a
business with butone principal purpose, then that contention of the respondent will have been
answered and it will be unnecessary to discuss at length the question whether or not a corporation
organized for commercial purposes in the Philippine Islands can be organized for more than one
purpose.
The attorney for the respondent, at the time of the argument, admitted in open court that
corporations in the Philippine Islands might be organized for both the "importation and exportation"
of merchandise and that there might be no relation between the kind of merchandise imported with
the class of merchandise exported.
Referring again to be proposed articles of incorporation, a copy of which is united with the original
petition and marked Exhibit A, it will be seen that the only purpose of said corporation are those
enumerated in subparagraphs (a), (b), (c), (d), (e) and ( f ) of paragraph 4 above. While said articles
of incorporation are somewhat loosely drawn, it is clear from a reading of the same that the principal
purpose of said corporation is to engage in amercantile business, with the power to do and perform
the particular acts enumerated in said subparagraphs above referred to.
Without discussing or deciding at this time whether a corporation organized under the laws of the
Philippine Islands may be organized for more than one purpose, we are of the opinion and so decide
that a corporation may be organized under the laws of the Philippine Islands for mercantile
purposes, and to engage in such incidental business as may be necessary and advisable to give
effect to, and aid in, the successful operation and conduct of the principal business. 1awphi1.net
In the present case we are fully persuaded that all of the power and authority included in the articles
of incorporation of "Siuliong y Cia., Inc.," enumerated above in paragraph 4 (Exhibit A) are
only incidental to the principal purpose of said proposed incorporation, to wit: "mercantile
business." The purchase and sale, importation and exportation of the products of the country, as well
as of foreign countries, might make it necessary to purchase and discount promissory notes, bills of
exchange, bonds, negotiable instruments, stock, and interest in other mercantile and industrial
associations. It might also become important and advisable for the successful operation of the
corporation to act as agent for insurance companies as well as to buy, sell and equip boats and to
buy and sell other establishments, and industrial and mercantile businesses.
While we have arrived at the conclusion that the proposed articles of incorporation do not authorize
the petitioners to engage in a business with more than one purpose, we do not mean to be
understood as having decided that corporations under the laws of the Philippine Islands may not
engage in a business with more than one purpose. Such an interpretation might work a great
injustice to corporations organized under the Philippine laws. Such an interpretation would give
foreign corporations, which are permitted to be registered under the laws here and which may be
organized for more than one purpose, a great advantage over domestic corporations. We do not
believe that it was the intention of the legislature to give foreign corporations such an advantage
over domestic corporations.
Considering the particular purposes and objects of the proposed articles of incorporation which are
specially enumerated above, we are of the opinion that it contains nothing which violates in the
slightest degree any of the provisions of the laws of the Philippine Islands, and the petitioners are,
therefore, entitled to have such articles of incorporation filed and registered as prayed for by them
and to have issued to them a certificate under the seal of the office of the respondent, setting forth
that such articles of incorporation have been duly filed in his office. (Sec. 11, Act No. 1459.)
Therefore, the petition prayed for is hereby granted, and without any finding as to costs, it is so
ordered.
Arellano, C.J., Torres and Avancea, JJ., concur.
Separate Opinions
STREET, J., concurring:

The petitioners in this case are desirous of forming a corporation to take over and continue a
business which for a number of years has been conducted in the city of Manila as an ordinary
collective mercantile partnership under the name of "Siuliong y Compaia." To this end it is
necessary that the articles of incorporation should be filed in the office of the Director of Commerce
and Industry, who, it appears, has withheld approval of the articles submitted to him and has refused
to file the same in his office.
The position taken by the Director of Commerce and Industry is that the articles of the proposed
corporation state more than one corporate purpose, contrary to the provisions of Act No. 1459 (the
Corporation Law). In order to ascertain whether this contention is sound it becomes necessary to
examine the provisions contained in the proposed articles in relation with the requirements of the Act
mentioned.
The purposes for which the corporation is to be formed are stated in the second clause of the
proposed articles in the following language:
Second. That the object for which said corporation is organized are: to acquire the business
of the regular partnership "Siuliong y Compaia," and to continue operating said business in
all its parts, and incidental to the principal object, the corporation shall have powers to
transact the following: the buying and selling, importation and exportation, of native as well
as foreign merchandise; the discount of promissory notes, bills of exchange and other
negotiable instruments; the buying and selling of bills of exchange, bonds, shares, and
interests in mercantile and industrial partnerships; commissions; consignments; life,
maritime, and fire insurance: the buying and selling of vessels of all kinds and charterage of
same; and the buying and selling of industrial or mercantile plants.
This language is substantially a reproduction of the fourth clause of the partnership articles under
which the business of Siuliong & Company is being now conducted, as may be seen by a
comparison with the wording of said fourth clause, which is as follows:
Fourth. The object of the partnership shall be the continuation of all the business of the
partnership "Siuliong y Compaia" which is dissolved on this date, June 30, 1916, or rather
the buying and selling, the importation and exportation, of native as well as foreign products;
the buying and selling is bills of exchange and of all kinds of commercial documents;
commissions; consignments; maritime and fire insurance; the buying and selling of all kinds
of rural and city real estate, as well as vessels of all kinds and their charterage; and the
manager is hereby authorized to organize any other kind of business which he may deem
convenient for the company's interest.
It must be admitted that the second clause of the proposed articles of incorporation is expressed in a
way which invites criticism; and if I my be permitted so to suggest the provision would have been
better conceived if it had started off something like this:
The general object of this corporation is to engage in commercial activities, such as the buying and
selling of merchandise and commodities of every kind; the importation and exportation thereof; the
conduct of the business of commission merchants, consignees, and insurance agencies; the buying
and selling of boats and the chartering thereof, as well as the buying and selling of industrial and
mercantile plants; etc., etc.
In setting out the corporate purpose with a view to defining the legitimate range of the faculties of the
corporation, it is undesirable to state that its primary purpose is to take over the business of some
existing concern. Undoubtedly a corporation may obtain its capital and draw its resources from a
prior enterprise, but it acquires such business by transfer; and the nature of the activities of the older
business has no bearing on the faculties of the new corporation. All the powers that a corporation
can lawfully exercise are derived from the state by virtue of the laws governing the creation and
conduct of corporations.
Now, what are limits upon the activities for which a corporation may be created? The answer is to be
found, if anywhere, in the Corporation Law. The first chapter of that law deals with corporations in
general and contains the provisions common to all corporations. In the second chapter are found
various special provisions applicable to particular forms of corporate activities. Of these there are
several varieties, to wit, railroad corporations, savings and mortgage banks, banking corporations,
trust corporations, domestic insurance corporations, religious corporations, colleges and institutions
of learning, and building and loan corporations.
It is obvious that no single corporation can be permitted to exercise the mixed functions of more than
one of these classes; and the Director of Commerce and Industry would be clearly acting within his
power in rejecting any proposed articles of a corporation which confers or appears to confer powers
particularly appropriate to more than one of these forms of corporate enterprise.
Aside from the lines that are laid down in the fundamental classification contained in the Corporation
Law, there seems to be no limit upon the legitimate activities of corporate enterprise. For instance, a
corporation organized for commercial purposes can lawfully engage in any one of the thousand or
more activities which may be imagined under the head of commercial; but it must abstain from
activities peculiar to the forms of corporate enterprise for which special provisions are made.
This implies that the word "purpose" as used in the expression "the purpose for which the
corporation is formed," in subsection 2 of section 6 of the Corporation Law, may properly be
conceived as including the plural as well as the singular. But the purposes, when there are more
than one, must be capable of being lawfully combined, that is not obnoxious to the classification
created by the law.
It is not necessary, and indeed will rarely be found desirable, to attempt to set out in the articles of
incorporation the multitude of activities in which the corporation can engage incidentally, as
reasonably necessary to accomplish the purpose or purposes for which the corporation was
primarily formed. There is general authority for the exercise of all such implied powers in section 13
of the Corporation Law, and they need not be expressed.
Returning now to the second clause of the proposed articles of incorporation for "Siuliong y
Compaia, Incorporated," I entertain a doubt as to the propriety of admitting into that document the
words "discounts of notes, bills, and other negotiable documents" and "the buying and selling of bills,
bonds, stocks, and shares of mercantile and industrial partnership, as well as mercantile documents
of every sort." The reason simply is that in so far as it is necessary to engage in these activities for
the accomplishment of the general purposes of the corporation, it may all be done in the exercise of
the implied power expressed in section 13; and the insertion into the articles of the words quoted
may give rise to the inference that the incorporators may desire to engage in a line of business
appropriate only to corporations created for banking purposes. (See sec. 116 of Act No. 1459.) On
the other hand, it may be said that the activities expressed in the words quoted are those peculiar to
the business of stock-brokers; and one reason is apparent why the business of stock-broking might
not be lawfully combined under one corporate chapter with the other mercantile activities mentioned
in the second clause of the articles.
On the whole, as I understand the opinion written by Justice Johnson, this court intends to hold that
the second clause of the proposed articles, when property interpreted, means that the company to
be formed intends primarily to dedicate itself to industrial and mercantile activities, as its principal
object and that the other activities mentioned are purely subordinate. I have no special criticism to
make of this view; and inasmuch as the interpretation which the court thus places upon the proposed
charter removes the possibility that the corporation may, under the protection thereof, engage in
illegitimate lines of enterprise, I am content to express my concurrence in the result reached by the
court. But I really think the proposed articles ought to be amended.
MALCOLM, J., concurs in the result, reserving his opinion concerning the suggestion in the third
paragraph from the last of the principal decision.

SUPREME COURT
Manila
EN BANC
G.R. No. 9321 September 24, 1914
NORBERTO ASUNCION, ET AL., petitioners-appellants,

vs.
MANUEL DE YRIARTE, respondent-appellee.
Modesto Reyes for appellants.

Attorney-General Villamor for appellee.
MORELAND, J.:
This is an action to obtain a writ of mandamus to compel the chief of the division of achieves of the
Executive Bureau to file a certain articles of incorporation.
The chief of the division of archives, the respondent, refused to file the articles of incorporation,
hereinafter referred to, upon the ground that the object of the corporation, as stated in the articles,
was not lawful and that, in pursuance of section 6 of Act No. 1459, they were not registerable.
The proposed incorporators began an action in the Court of First Instance of the city of Manila to
compel the chief of the division of archives to receive and register said articles of incorporation and
to do any and all acts necessary for the complete incorporation of the persons named in the articles.
The court below found in favor of the defendant and refused to order the registration of the articles
mentioned, maintaining ad holding that the defendant, under the Corporation Law, had authority to
determine both the sufficiency of the form of the articles and the legality of the object of the proposed
corporation. This appeal is taken from that judgment.
The first question that arises is whether or not the chief of the division of archives has authority,
under the Corporation for registration, to decide not only as to the sufficiency of the form of the
articles, but also as to the lawfulness of the purpose of the proposed corporation.
It is strongly urged on the part of the appellants that the duties of the defendant are purely ministerial
and that he has no authority to pass upon the lawfulness of the object for which the incorporators
propose to organize. No authorities are cited to support this proposition and we are of the opinion
that it is not sound.
Section 6 of the Corporation Law reads in part as follows:
Five or more persons, not exceeding fifteen, a majority of whom are residents of the
Philippine Islands, may form a private corporation for any lawful purpose by filing with the
division of archives, patents, copyrights, and trademarks if the Executive Bureau articles of
incorporation duly executed and acknowledged before a notary public, . . . .
Simply because the duties of an official happens to be ministerial, it does not necessarily follow that
he may not, in the administration of his office, determine questions of law. We are of the opinion that
it is the duty of the division of archives, when articles of incorporation are presented for registration,
to determine whether the objects of the corporation as expressed in the articles are lawful. We do
not believe that, simply because articles of incorporation presented foe registration are perfect in
form, the division of archives must accept and register them and issue the corresponding certificate
of incorporation no matter what the purpose of the corporation may be as expressed in the articles.
We do not believe it was intended that the division of archives should issue a certificate of
incorporation to, and thereby put the seal of approval of the Government upon, a corporation which
was organized for base of immoral purposes. That such corporation might later, if it sought to carry
out such purposes, be dissolved, or its officials imprisoned or itself heavily fined furnished no reason
why it should have been created in the first instance. It seems to us to be not only the right but the
duty of the divisions of archives to determine the lawfulness of the objects and purposes of the
corporation before it issues a certificate of incorporation.
It having determined that the division of archives, through its officials, has authority to determine not
only the sufficiency as to form of the articles of incorporation offered for registration, but also the
lawfulness of the purposes of leads us to the determination of the question whether or not the chief
of the division of archives, who is the representative thereof and clothed by it with authority to deal
subject to mandamus in the performance of his duties.
We are of the opinion that he may be mandamused if he act in violation of law or if he refuses,
unduly, to comply with the law. While we have held that defendant has power to pass upon the
lawfulness of the purposes of the proposed corporation and that he may, in the fulfillment of his
duties, determine the question of law whether or not those purposes are lawful and embraced within
that class concerning which the law permits corporations to be formed, that does not necessarily
mean, as we have already intimated, that his duties are not ministerial. On the contrary, there is no
incompatibility in holding, as we do hold, that his duties are ministerial and that he has no authority
to exercise discretion in receiving and registering articles of incorporation. He may exercise
judgment that is, the judicial function in the determination of the question of law referred to, but
he may not use discretion. The question whether or not the objects of a proposed corporation are
lawful is one that can be decided one way only. If he err in the determination of that question and
refuse to file articles which should be filed under the law, the decision is subject to review and
correction and, upon proper showing, he will be ordered to file the articles. This is the same kind of
determination which a court makes when it decides a case upon the merits, the court makes when it
decides a case upon the merits. When a case is presented to a court upon the merits, the court can
decide only one way and be right. As a matter of law, there is only one way and be right. As a matter
of law, there is only one course to pursue. In a case where the court or other official has discretion in
the resolution of a question, then, within certain limitations, he may decide the question either way
and still be right. Discretion, it may be said generally, is a faculty conferred upon a court or other
official by which he may decide a question either way and still be right. The power conferred upon
the division of archives with respect to the registration of articles of incorporation is not of that
character. It is of the same character as the determination of a lawsuit by a court upon the merits. It
can be decided only one way correctly.
If, therefore, the defendant erred in determining the question presented when the articles were
offered for registration, then that error will be corrected by this court in this action and he will be
compelled to register the articles as offered. If, however, he did not commit an error, but decided that
question correctly, then, of course, his action will be affirmed to the extent that we will deny the relief
prayed for.
The next question leads us to the determination of whether or not the purposes of the corporation as
stated in the articles of incorporation are lawful within the meaning of the Corporation Law.
The purpose of the incorporation as stated in the articles is: "That the object of the corporation is (a)
to organize and regulate the management, disposition, administration and control which the barrio of
Pulo or San Miguel or its inhabitants or residents have over the common property of said residents
or inhabitants or property belonging to the whole barrio as such; and (b) to use the natural products
of the said property for institutions, foundations, and charitable works of common utility and
advantage to the barrio or its inhabitants."
The municipality of Pasig as recognized by law contains within its limits several barrios or small
settlements, like Pulo or San Miguel, which have no local government of their own but are governed
by the municipality of Pasig through its municipal president and council. The president and members
of the municipal council are elected by a general vote of the municipality, the qualified electors of all
the barrios having the right to participate.
The municipality of Pasig is a municipal corporation organized by law. It has the control of all
property of the municipality. The various barrios of the municipality have no right to own or hold
property, they not being recognized as legal entities by any law. The residents of the barrios
participate in the advantages which accrue to the municipality from public property and receive all
the benefits incident to residence in a municipality organized by law. If there is any public property
situated in the barrio of Pulo or San Miguel not belonging to the general government or the province,
it belongs to the municipality of Pasig and the sole authority to manage and administer the same
resides in that municipality. Until the present laws upon the subject are charged no other entity can
be the owner of such property or control or administer it.
The object of the proposed corporation, as appears from the articles offered for registration, is to
make of the barrio of Pulo or San Miguel a corporation which will become the owner of and have the
right to control and administer any property belonging to the municipality of Pasig found within the
limits of that barrio. This clearly cannot be permitted. Otherwise municipalities as now established by
law could be deprived of the property which they now own and administer. Each barrio of the
municipality would become under the scheme proposed, a separate corporation, would take over the
ownership, administration, and control of that portion of the municipal territory within its limits. This
would disrupt, in a sense, the municipalities of the Islands by dividing them into a series of smaller
municipalities entirely independent of the original municipality.
What the law does not permit cannot be obtained by indirection. The object of the proposed
corporation is clearly repugnant to the provisions of the Municipal Code and the governments of
municipalities as they have been organized thereunder. (Act No. 82, Philippine Commission.)
The judgment appealed from is affirmed, with costs against appellants.
Arellano, C.J., Torres, Johnson, Carson and Araullo, JJ., concur.
Principal office/Domicile

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 111685 August 20, 2001
DAVAO LIGHT & POWER CO., INC., petitioner,

vs.
THE HON. COURT OF APPEALS, HON. RODOLFO M. BELLAFLOR, Presiding Judge of
Branch 11, RTC-Cebu and FRANCISCO TESORERO, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari assailing the Decision dated August 31, 1993 rendered
by the Sixteenth Division1 of the Court of Appeals in CA-G.R. SP No. 29996, the dispositive portion
of which states:
WHEREFORE, the petition for review filed by Davao Light & Power Co., Inc. is hereby
DENIED DUE COURSE and the same is DISMISSED.
IT IS SO ORDERED.
The antecedent facts are:
On April 10, 1992, petitioner Davao Light & Power Co., Inc. filed a complaint for damages 2 against
private respondent Francisco Tesorero before the Regional Trial Court of Cebu City, Branch 11.
Docketed as CEB-11578, the complaint prayed for damages in the amount of P11,000,000.00.
In lieu of an answer, private respondent filed a motion to dismiss 3 claiming that: (a) the complaint did
not state a cause of action; (b) the plaintiff's claim has been extinguished or otherwise rendered
moot and academic; (c) there was non-joinder of indispensable parties; and (d) venue was
improperly laid. Of these four (4) grounds, the last mentioned is most material in this case at bar.
On August 3, 1992, the trial court issued a Resolution4 dismissing petitioner's complaint on the
ground of improper venue. The trial court stated that:
The plaintiff being a private corporation undoubtedly Banilad, Cebu City is the plaintiff's
principal place of business as alleged in the complaint and which for purposes of venue is
considered as its residence. x x x.
However, in defendant's motion to dismiss, it is alleged and submitted that the principal office
of plaintiff is at "163-165 P. Reyes Street, Davao City as borne out by the Contract of Lease
(Annex 2 of the motion) and another Contract of Lease of Generating Equipment (Annex 3 of
the motion) executed by the plaintiff with the NAPOCOR.
The representation made by the plaintiff in the 2 aforementioned Lease Contracts stating that
its principal office is at "163-165 P. Reyes Street, Davao City" bars the plaintiff from denying
the same.
The choice of venue should not be left to plaintiff's whim or caprises [sic]. He may be
impelled by some ulterior motivation in choosing to file a case in a court even if not allowed
by the rules of venue.
Another factor considered by the Courts in deciding controversies regarding venue are
considerations of judicial economy and administration, as well as the convenience of the
parties for which the rules of procedure and venue were formulated x x x.
Considering the foregoing, the Court is of the opinion that the principal office of plaintiff is at
Davao City which for purposes of venue is the residence of plaintiff.
Hence, the case should be filed in Davao City.
The motion on the ground of improper venue is granted and the complaint DISMISSED on
that ground.
SO ORDERED.
Petitioner's motion for reconsideration5 was denied in an Order6 dated October 1, 1992.
From the aforesaid resolution and order, petitioner originally filed before this Court on November 20,
1992 a petition for review on certiorari docketed as G.R. No. 107381. 7 We declined to take
immediate cognizance of the case, and in a Resolution dated January 11, 1993, 8 referred the same
to the Court of Appeals for resolution. The petition was docketed in the appellate court as CA-G.R.
SP No. 29996.
On August 31, 1993, the Court of Appeals rendered the assailed judgment 9 denying due course and
dismissing the petition. Counsel for petitioner received a copy of the decision on September 6,
1993.10 Without filing a motion for reconsideration, petitioner filed the instant petition, assailing the
judgment of the Court of Appeals on the following grounds:
5.01. Respondent Court of Appeals denied petitioner procedural due process by failing to
resolve the third of the above-stated issues.
5.02. Petitioner's right to file its action for damages against private respondent in Cebu City
where its principal office is located, and for which it paid P55,398.50 in docket fees, may not
be negated by a supposed estoppel absent the essential elements of the false statement
having been made to private respondent and his reliance on good faith on the truth thereof,
and private respondent's action or inaction based thereon of such character as to change his
position or status to his injury, detriment or prejudice.
The principal issue in the case at bar involves a question of venue. It is to be distinguished from
jurisdiction, as follows:
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by
consent or waiver upon a court which otherwise would have no jurisdiction over the subject-
matter of an action; but the venue of an action as fixed by statute may be changed by the
consent of the parties and an objection that the plaintiff brought his suit in the wrong county
may be waived by the failure of the defendant to make a timely objection. In either case, the
court may render a valid judgment. Rules as to jurisdiction can never be left to the consent or
agreement of the parties, whether or not a prohibition exists against their alteration. 11
It is private respondent's contention that the proper venue is Davao City, and not Cebu City where
petitioner filed Civil Case No. CEB-11578. Private respondent argues that petitioner is estopped from
claiming that its residence is in Cebu City, in view of contradictory statements made by petitioner
prior to the filing of the action for damages. First, private respondent adverts to several
contracts12 entered into by petitioner with the National Power Corporation (NAPOCOR) where in the
description of personal circumstances, the former states that its principal office is at "163-165 P.
Reyes St., Davao City." According to private respondent the petitioner's address in Davao City, as
given in the contracts, is an admission which should bind petitioner.
In addition, private respondent points out that petitioner made several judicial admissions as to its
principal office in Davao City consisting principally of allegations in pleadings filed by petitioner in a
number of civil cases pending before the Regional Trial Court of Davao in which it was either a
plaintiff or a defendant.13
Practically the same issue was addressed in Young Auto Supply Co. v. Court of Appeals.14 In the
aforesaid case, the defendant therein sought the dismissal of an action filed by the plaintiff, a
corporation, before the Regional Trial Court of Cebu City, on the ground of improper venue. The trial
court denied the motion to dismiss; on certiorari before the Court of Appeals, the denial was
reversed and the case was dismissed. According to the appellate tribunal, venue was improperly laid
since the address of the plaintiff was supposedly in Pasay City, as evidenced by a contract of sale,
letters and several commercial documents sent by the plaintiff to the defendant, even though the
plaintiff's articles of incorporation stated that its principal office was in Cebu City. On appeal, we
reversed the Court of Appeals. We reasoned out thus:
In the Regional Trial Courts, all personal actions are commenced and tried in the province or
city where the defendant or any of the defendants resides or may be found, or where the
plaintiff or any of the plaintiffs resides, at the election of the plaintiff x x x.
There are two plaintiffs in the case at bench: a natural person and a domestic corporation.
Both plaintiffs aver in their complaint that they are residents of Cebu City, thus:
xxx xxx xxx
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
"THIRD. That the place where the principal office of the corporation is to be established or
located is at Cebu City, Philippines (as amended on December 20, 1980 and further
amended on December 20, 1984)" x x x.
A corporation has no residence in the same sense in which this term is applied to a natural
person. But for practical purposes, a corporation is in a metaphysical sense a resident of the
place where its principal office is located as stated in the articles of incorporation (Cohen v.
Benguet Commercial Co., Ltd., 34 Phil. 526 [1916] Clavecilla Radio System v. Antillo, 19
SCRA 379 [1967]). The Corporation Code precisely requires each corporation to specify in
its articles of incorporation the "place where the principal office of the corporation is to be
located which must be within the Philippines" (Sec. 14[3]). The purpose of this requirement is
to fix the residence of a corporation in a definite place, instead of allowing it to be
ambulatory.
In Clavecilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why
actions cannot be filed against a corporation in any place where the corporation maintains its
branch offices. The Court ruled that to allow an action to be instituted in any place where the
corporation has branch offices, would create confusion and work untold inconvenience to
said entity. By the same token, a corporation cannot be allowed to file personal actions in a
place other than its principal place of business unless such a place is also the residence of a
co-plaintiff or a defendant.
If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the
ground that its principal place of business was in Cebu City, Roxas could argue that YASCO
was in estoppel because it misled Roxas to believe that Pasay City was its principal place of
business. But this is not the case before us.
With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its
principal place of business is located, it becomes unnecessary to decide whether Garcia is
also a resident of Cebu City and whether Roxas was in estoppel from questioning the choice
of Cebu City as the venue. [emphasis supplied]
The same considerations apply to the instant case. It cannot be disputed that petitioner's principal
office is in Cebu City, per its amended articles of incorporation15 and by-laws.16 An action for
damages being a personal action,17 venue is determined pursuant to Rule 4, section 2 of the Rules
of Court, to wit:
Venue of personal actions. All other actions may be commenced and tied where the
plaintiff or any of the principal plaintiffs resides, or where the defendant or any of the principal
defendants resides, or in the case of a non-resident defendant where he may be found, at
the election of the plaintiff.18
Private respondent is not a party to any of the contracts presented before us. He is a complete
stranger to the covenants executed between petitioner and NAPOCOR, despite his protestations
that he is privy thereto, on the rather flimsy ground that he is a member of the public for whose
benefit the electric generating equipment subject of the contracts were leased or acquired. We are
likewise not persuaded by his argument that the allegation or representation made by petitioner in
either the complaints or answers it filed in several civil cases that its residence is in Davao City
should estop it from filing the damage suit before the Cebu courts. Besides there is no showing that
private respondent is a party in those civil cases or that he relied on such representation by
petitioner.
WHEREFORE, the instant petition is hereby GRANTED. The appealed decision is hereby
REVERSED and SET ASIDE. The Regional Trial Court of Cebu City, Branch 11 is hereby directed to
proceed with Civil Case No. CEB-11578 with all deliberate dispatch. No pronouncement as to costs.
WE CONCUR:
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.
Footnotes
1
Justice Jaime M. Lantin, ponente; Justice Fermin A. Martin, Jr. and Justice Ramon
Mabutas, Jr., concurring.
2
Rollo, pp. 312-320.
3
Annex "D" of the Petition, id., pp. 61-110.
4
Annex "H"of the Petition, id., pp. 146-148.
5
Annex 'T' of the Petition, id., pp. 149-167.
6
Annex "M" of the Petition, id., pp. 269-270.
7
Records, pp. 19-247.
8
Records, p. 248.
9
Records, pp. 325-334.
10
Records, p. 335.
11
Santos III v. Northwest Orient Airlines, 210 SCRA 256 (1992) cited in Heirs of Pedro Lopez,
et al. v. de Castro, et al., 324 SCRA 591, 609 (2000).
12
Rollo, pp. 82-107. Private respondent refers to the following: (I) contract dated July 30,
1979 for the lease of electric generating equipment; (2) contract dated September 4, 1974
also for the lease of electric generating equipment; and (3) undated 1984 contract of sale of
electric generating equipment.
13
Rollo, pp. 186-212. Cases where petitioner is plaintiff:
Case No. Title Br. Pending
Civil Case No. 17-195 DLPC v. Cesar Maglalang (unstated)
Civil Case No. 18,128 DLPC v. Industrial Rubber Br. 15

Manufacturing Corp.
Civil Case No. DLPC v. Queensland Hotel Br. 8

19,513-89
Cases in which petitioner is a defendant:
Case No. Title Br. Pending

Civil Case No. Peter Arellano v. DLPC Br. 11
20,330-90
Civil Case No. 19S20- Fidelino Memorial Homes v. Br. 9

89 DLPC
Civil Case No. V.S. Pichon Realt and Dev. Br. 9

20,771-91 Corp. v. DLPC
Civil Case No. 19,640 Davao Unicar Corporation v. Br. 8

89 DLPC
Civil Case No. 21- Ma. Corazon Relon Priego v. Br. 14

274-92 DLPC
14
223 SCRA 670, 674 (1993).
15
Rollo, pp. 128-129.
16
Rollo, p. 131.
17
Baritua v. Court of Appeals, 267 SCRA 331, 335 (1997).
18
Prior to the 1997 amendment, the provision read:
Sec. 2. Venue in Courts of First Instance
xxx xxx xxx
b) Personal actions All other actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the plaintiff or
any of the plaintiff resides, at the election of the plaintiff.
xxx xxx xxx

SUPREME COURT
Manila
EN BANC
G.R. No. L-22238 February 18, 1967
CLAVECILLIA RADIO SYSTEM, petitioner-appellant,

vs.
HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro City
and NEW CAGAYAN GROCERY, respondents-appellees.
B. C. Padua for petitioner and appellant.

Pablo S. Reyes for respondents and appellees.
REGALA, J.:
This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the
petition of the Clavecilla Radio System to prohibit the City Judge of Cagayan de Oro from taking
cognizance of Civil Case No. 1048 for damages.
It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla
Radio System alleging, in effect, that on March 12, 1963, the following message, addressed to the
former, was filed at the latter's Bacolod Branch Office for transmittal thru its branch office at Cagayan
de Oro:
NECAGRO CAGAYAN DE ORO (CLAVECILLA)
REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL

SHIP LATER REPLY POHANG
The Cagayan de Oro branch office having received the said message omitted, in delivering
the same to the New Cagayan Grocery, the word "NOT" between the words "WASHED" and
"AVAILABLE," thus changing entirely the contents and purport of the same and causing the
said addressee to suffer damages. After service of summons, the Clavecilla Radio System
filed a motion to dismiss the complaint on the grounds that it states no cause of action and
that the venue is improperly laid. The New Cagayan Grocery interposed an opposition to
which the Clavecilla Radio System filed its rejoinder. Thereafter, the City Judge, on
September 18, 1963, denied the motion to dismiss for lack of merit and set the case for
hearing. 1wph1.t
Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the
Court of First Instance praying that the City Judge, Honorable Agustin Antillon, be enjoined from
further proceeding with the case on the ground of improper venue. The respondents filed a motion to
dismiss the petition but this was opposed by the petitioner. Later, the motion was submitted for
resolution on the pleadings.
In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in
Manila where it has its principal office or in Cagayan de Oro City where it may be served, as in fact it
was served, with summons through the Manager of its branch office in said city. In other words, the
court upheld the authority of the city court to take cognizance of the case. 1wph1.t
In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila
where it holds its principal office.
It is clear that the case for damages filed with the city court is based upon tort and not upon a written
contract. Section 1 of Rule 4 of the New Rules of Court, governing venue of actions in inferior courts,
provides in its paragraph (b) (3) that when "the action is not upon a written contract, then in the
municipality where the defendant or any of the defendants resides or may be served with summons."
(Emphasis supplied)
Settled is the principle in corporation law that the residence of a corporation is the place where its
principal office is established. Since it is not disputed that the Clavecilla Radio System has its
principal office in Manila, it follows that the suit against it may properly be filed in the City of Manila.
The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was
properly laid on the principle that the appellant may also be served with summons in that city where
it maintains a branch office. This Court has already held in the case of Cohen vs. Benguet
Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with summons" does not apply
when the defendant resides in the Philippines for, in such case, he may be sued only in the
municipality of his residence, regardless of the place where he may be found and served with
summons. As any other corporation, the Clavecilla Radio System maintains a residence which is
Manila in this case, and a person can have only one residence at a time (See Alcantara vs.
Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil. 387). The fact that it maintains
branch offices in some parts of the country does not mean that it can be sued in any of these places.
To allow an action to be instituted in any place where a corporate entity has its branch offices would
create confusion and work untold inconvenience to the corporation.
It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that
the laying of the venue of an action is not left to plaintiff's caprice because the matter is regulated by
the Rules of Court. Applying the provision of the Rules of Court, the venue in this case was
improperly laid.
The order appealed from is therefore reversed, but without prejudice to the filing of the action in
Which the venue shall be laid properly. With costs against the respondents-appellees.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro,
JJ., concur.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-56763 December 15, 1982
JOHN SY and UNIVERSAL PARTS SUPPLY CORPORATION, petitioners,

vs.
TYSON ENTERPRISES, INC., JUDGE GREGORIO G. PINEDA of the Court of First Instance of
Rizal, Pasig Branch XXI and COURT OF APPEALS, respondents.
Abraham D. Cana for petitioners.
Alberto A. Domingo for private respondent.
AQUINO, J:
This is a case about the venue of a collection suit. On August 29, 1979, Tyson Enterprises, Inc. filed
against John Sy and Universal Parts Supply Corporation in the Court of First Instance of Rizal, Pasig
Branch XXI, a complaint for the collection of P288,534.58 plus interest, attorney's fees and litigation
expenses (Civil Case No. 34302).
It is alleged in the complaint that John Sy, doing business under the trade name, Universal Parts
Supply, is a resident of Fuentebella Subdivision, Bacolod City and that his co-defendant, Universal
Parts Supply Corporation, allegedly controlled by Sy, is doing business in Bacolod City.
Curiously enough, there is no allegation in the complaint as to the office or place of business of
plaintiff Tyson Enterprises, Inc., a firm actually doing business at 1024 Magdalena, now G.
Masangkay Street, Binondo, Manila (p. 59, Rollo).
What is alleged is the postal address or residence of Dominador Ti, the president and general
manager of plaintiff firm, which is at 26 Xavier Street, Greenhills Subdivision, San Juan, Rizal. The
evident purpose of alleging that address and not mentioning the place of business of plaintiff firm
was to justify the filing of the suit in Pasig, Rizal instead of in Manila.
Defendant Sy and Universal Parts Supply Corporation first filed a motion for extension of time to file
their answer and later a motion for a bill of particulars. The latter motion was denied. Then, they filed
a motion to dismiss on the ground of improper venue.
They invoked the provision of section 2(b), Rule 4 of the Rules of Court that personal actions "may
be commenced and tried where the defendant or any of the defendants resides or may be found, or
where the plaintiffs or any of the plaintiffs resides, at the election of the plaintiff."
To strengthen that ground, they also cited the stipulation in the sales invoice that "the parties
expressly submit to the jurisdiction of the Courts of the City of Manila for any legal action arising out
of" the transaction which stipulation is quoted in paragraph 4 of plaintiff's complaint.
The plaintiff opposed the motion to dismiss on the ground that the defendants had waived the
objection based on improper venue because they had previously filed a motion for a bill of
particulars which was not granted. The trial court denied the motion to dismiss on the ground that by
filing a motion for a bill of particulars the defendants waived their objection to the venue. That denial
order was assailed in a petition for certiorari and prohibition in the Court of Appeals which issued on
July 29, 1980 a restraining order, enjoining respondent judge from acting on the case. He
disregarded the restraining order (p. 133, Rollo).
The Appellate Court in its decision of October 6, 1980 dismissed the petition. It ruled that the parties
did not intend Manila as the exclusive venue of the actions arising under their transactions and that
since the action was filed in Pasig, which is near Manila, no useful purpose would be served by
dismissing the same and ordering that it be filed in Manila (Sy vs. Pineda, CA-G.R. No. SP-10775).
That decision was appealed to this Court.
There is no question that the venue was improperly laid in this case. The place of business of
plaintiff Tyson Enterprises, Inc., which for purposes of venue is considered as its residence (18 C.J.S
583; Clavecilla Radio system vs. Antillon, L-22238, February 18, 1967, 19 SCRA 379), because a
corporation has a personality separate and distinct from that of its officers and stockholders.
Consequently, the collection suit should have been filed in Manila, the residence of plaintiff
corporation and the place designated in its sales invoice, or it could have been filed also in Bacolod
City, the residence of defendant Sy.
We hold that the trial court and the Court of Appeals erred in ruling that the defendants, now the
petitioners, waived their objection to the improper venue. As the trial court proceeded in defiance of
the Rules of Court in not dismissing the case, prohibition lies to restrain it from acting in the case
(Enriquez vs. Macadaeg, 84 Phil. 674).
Section 4, Rule 4 of the Rules of Court provides that, "when improper venue is not objected to in a
motion to dismiss it is deemed waived" and it can no longer be pleaded as an affirmative defense in
the answer (Sec. 5, Rule 16).
In this case, the petitioners, before filing their answer, filed a motion to dismiss based on improper
venue. That motion was seasonably filed (Republic vs. Court of First Instance of Manila, L-30839,
November 28, 1975, 68 SCRA 231, 239). The fact that they filed a motion for a bill of particulars
before they filed their motion to dismiss did not constitute a waiver of their objection to the venue.
It should be noted that the provision of Section 377 of the Code of Civil Procedure that "the failure of
a defendant to object to the venue of the action at the time of entering his appearance in the action
shall be deemed a waiver on his part of all objection to the place or tribunal in which the action is
brought" is not found in the Rules of Court.
And the provision of section 4, Rule 5 of the 1940 Rules of Court that "when improper venue is not
objected to prior to the trial, it is deemed waived" is not reproduced in the present Rules of Court.
To repeat, what section 4 of Rule 4 of the present Rules of court provides is that the objection to
improper venue should be raised in a motion to dismiss seasonably filed and, if not so raised, then
the said objection is waived. Section 4 does not provide that the objection based on improper venue
should be interposed by means of a special appearance or before any pleading is filed.
The rules on venue, like the other procedural rules, are designed to insure a just and orderly
administration of justice or the impartial and evenhanded determination of every action and
proceeding. Obviously, this objective will not be attained if the plaintiff is given unrestricted freedom
to choose the court where he may file his complaint or petition.
The choice of venue should not be left to the plaintiff's whim or caprice. He may be impelled by some
ulterior motivation in choosing to file a case in a particular court even if not allowed by the rules on
venue.
As perspicaciously observed by Justice Moreland, the purpose of procedure is not to restrict the
court's jurisdiction over the subject matter but to give it effective facility "in righteous action", "to
facilitate and promote the administration of justice" or to insure "just judgments" by means of a fair
hearing. If that objective is not achieved, then "the administration of justice becomes incomplete and
unsatisfactory and lays itself open to grave criticism." (Manila Railroad Co. vs. Attorney General, 20
Phil. 523, 530.)
The case of Marquez Lim Cay vs. Del Rosario, 55 Phil. 962, does not sustain the trial court's order of
denial because in that case the defendants, before filing a motion to dismiss on the ground of
improper venue, interposed a demurrer on the ground that the complaint does not state a cause of
action. Then, they filed a motion for the dissolution of an attachment, posted a bond for its
dissolution and later filed a motion for the assessment of the damages caused by the attachment. All
those acts constituted a submission to the trial court's jurisdiction and a waiver of the objection
based on improper venue under section 377 of the Code of Civil Procedure.
The instant case is similar to Evangelista vs. Santos, 86 Phil. 387, where the plaintiffs sued the
defendant in the Court of First Instance of Rizal on the assumption that he was a resident of Pasay
City because he had a house there. Upon receipt of the summons, the defendant filed a motion to
dismiss based on improper venue. He alleged under oath that he was a resident of Iloilo City.
This Court sustained the dismissal of the complaint on the ground of improper venue, because the
defendant was really a resident of Iloilo City. His Pasay City residence was used by his children who
were studying in Manila. Same holding in Casilan vs. Tomassi, 90 Phil. 765; Corre vs. Corre, 100
Phil. 321; Calo vs. Bislig Industries, Inc., L-19703, January 30, 1967, 19 SCRA 173; Adamos vs. J.
M. Tuason, Co., Inc.,. L-21957, October 14, 1968, 25 SCRA 529.
Where one Cesar Ramirez, a resident of Quezon City, sued in the Court of First Instance of Manila
Manuel F. Portillo, a resident of Caloocan City, for the recovery of a sum of money, the trial court
erred in not granting Portillo's motion to dismiss the complaint on the ground of improper venue This
Court issued the writ of prohibition to restrain the trial court from proceeding in the case (Portillo vs.
Judge Reyes and Ramirez, 113 Phil. 288).
WHEREFORE, the decision of the Court of Appeals and the order of respondent judge denying the
motion to dismiss are reversed and set aside. The writ of prohibition is granted. Civil Case No. 34302
should be considered dismissed without prejudice to refiling - it in the Court of First Instance of
Manila or Bacolod City at the election of plaintiff which should be allowed to withdraw the
documentary evidence submitted in that case. All the proceedings in said case, including the
decision, are also set aside. Costs against Tyson Enterprises, Inc.
SOORDERED.
Makasiar (Chairman), Concepcion, Jr., Guerrero and Abad Santos, JJ., concur.
Separate Opinions
ESCOLIN, J., dissenting:
It is my view that petitioners, by filing a motion for a bill of particulars, had submitted themselves to
the jurisdiction of the respondent court, and has thus waived their objection to the venue of action.
DE CASTRO, J., concurring:
I concur, because as stated in the main opinion, the residence of the plaintiff is not alleged in the
complaint. The fact of improper venue is, therefore, not manifest on the face of the complaint. Were
it so manifest, I would say, along with Justice Escolin, that, in filing a motion for a bill of particulars,
petitioners as defendants in Civil Case No. 34302 of the Court of First Instance of Rizal, waived
objection to improper venue.
Separate Opinions
ESCOLIN, J., dissenting:
It is my view that petitioners, by filing a motion for a bill of particulars, had submitted themselves to
the jurisdiction of the respondent court, and has thus waived their objection to the venue of action.
DE CASTRO, J., concurring:
I concur, because as stated in the main opinion, the residence of the plaintiff is not alleged in the
complaint. The fact of improper venue is, therefore, not manifest on the face of the complaint. Were
it so manifest, I would say, along with Justice Escolin, that, in filing a motion for a bill of particulars,
petitioners as defendants in Civil Case No. 34302 of the Court of First Instance of Rizal, waived
objection to improper venue.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 104175 June 25, 1993
YOUNG AUTO SUPPLY CO. AND NEMESIO GARCIA, petitioners,

vs.
THE HONORABLE COURT OF APPEALS (THIRTEENTH DIVISION) AND GEORGE CHIONG
ROXAS,respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioners.
Antonio Nuyles for private respondent.
QUIASON, J.:
Petitioners seek to set aside the decision of respondent Court of Appeals in CA-G.R. SP No. 25237,
which reversed the Order dated February 8, 1991 issued by the Regional Trial Court, Branch 11,
Cebu City in Civil Case No. CEB 6967. The order of the trial court denied the motion to dismiss filed
by respondent George C. Roxas of the complaint for collection filed by petitioners.
It appears that sometime on October 28, 1987, Young Auto Supply Co. Inc. (YASCO) represented by
Nemesio Garcia, its president, Nelson Garcia and Vicente Sy, sold all of their shares of stock in
Consolidated Marketing & Development Corporation (CMDC) to Roxas. The purchase price was
P8,000,000.00 payable as follows: a downpayment of P4,000,000.00 and the balance of
P4,000,000.00 in four post dated checks of P1,000,000.00 each.
Immediately after the execution of the agreement, Roxas took full control of the four markets of
CMDC. However, the vendors held on to the stock certificates of CMDC as security pending full
payment of the balance of the purchase price.
The first check of P4,000,000.00, representing the down-payment, was honored by the drawee bank
but the four other checks representing the balance of P4,000,000.00 were dishonored. In the
meantime, Roxas sold one of the markets to a third party. Out of the proceeds of the sale, YASCO
received P600,000.00, leaving a balance of P3,400,000.00 (Rollo, p. 176).
Subsequently, Nelson Garcia and Vicente Sy assigned all their rights and title to the proceeds of the
sale of the CMDC shares to Nemesio Garcia.
On June 10, 1988, petitioners filed a complaint against Roxas in the Regional Trial Court, Branch 11,
Cebu City, praying that Roxas be ordered to pay petitioners the sum of P3,400,00.00 or that full
control of the three markets be turned over to YASCO and Garcia. The complaint also prayed for the
forfeiture of the partial payment of P4,600,000.00 and the payment of attorney's fees and costs
(Rollo, p. 290).
Roxas filed two motions for extension of time to submit his answer. But despite said motion, he failed
to do so causing petitioners to file a motion to have him declared in default. Roxas then filed, through
a new counsel, a third motion for extension of time to submit a responsive pleading.
On August 19, 1988, the trial court declared Roxas in default. The order of default was, however,
lifted upon motion of Roxas.
On August 22, 1988, Roxas filed a motion to dismiss on the grounds that:
1. The complaint did not state a cause of action due to non-joinder of indispensable
parties;
2. The claim or demand set forth in the complaint had been waived, abandoned or
otherwise extinguished; and
3. The venue was improperly laid (Rollo, p. 299).
After a hearing, wherein testimonial and documentary evidence were presented by both parties, the
trial court in an Order dated February 8, 1991 denied Roxas' motion to dismiss. After receiving said
order, Roxas filed another motion for extension of time to submit his answer. He also filed a motion
for reconsideration, which the trial court denied in its Order dated April 10, 1991 for being pro-
forma (Rollo, p. 17). Roxas was again declared in default, on the ground that his motion for
reconsideration did not toll the running of the period to file his answer.
On May 3, 1991, Roxas filed an unverified Motion to Lift the Order of Default which was not
accompanied with the required affidavit or merit. But without waiting for the resolution of the motion,
he filed a petition for certiorari with the Court of Appeals.
The Court of Appeals sustained the findings of the trial court with regard to the first two grounds
raised in the motion to dismiss but ordered the dismissal of the complaint on the ground of improper
venue (Rollo, p. 49).
A subsequent motion for reconsideration by petitioner was to no avail.
Petitioners now come before us, alleging that the Court of Appeals
erred in:
1. holding the venue should be in Pasay City, and not in Cebu City (where both
petitioners/plaintiffs are residents;
2. not finding that Roxas is estopped from questioning the choice of venue (Rollo, p.
19).
The petition is meritorious.
In holding that the venue was improperly laid in Cebu City, the Court of Appeals relied on the
address of YASCO, as appearing in the Deed of Sale dated October 28, 1987, which is "No. 1708
Dominga Street, Pasay City." This was the same address written in YASCO's letters and several
commercial documents in the possession of Roxas (Decision, p. 12; Rollo, p. 48).
In the case of Garcia, the Court of Appeals said that he gave Pasay City as his address in three
letters which he sent to Roxas' brothers and sisters (Decision, p. 12; Rollo, p. 47). The appellate
court held that Roxas was led by petitioners to believe that their residence is in Pasay City and that
he had relied upon those representations (Decision, p. 12, Rollo, p. 47).
The Court of Appeals erred in holding that the venue was improperly laid in Cebu City.
In the Regional Trial Courts, all personal actions are commenced and tried in the province or city
where the defendant or any of the defendants resides or may be found, or where the plaintiff or any
of the plaintiffs resides, at the election of the plaintiff [Sec. 2(b) Rule 4, Revised Rules of Court].
There are two plaintiffs in the case at bench: a natural person and a domestic corporation. Both
plaintiffs aver in their complaint that they are residents of Cebu City, thus:
1.1. Plaintiff Young Auto Supply Co., Inc., ("YASCO") is a domestic corporation duly
organized and existing under Philippine laws with principal place of business at M. J.
Cuenco Avenue, Cebu City. It also has a branch office at 1708 Dominga Street,
Pasay City, Metro Manila.
Plaintiff Nemesio Garcia is of legal age, married, Filipino citizen and with business
address at Young Auto Supply Co., Inc., M. J. Cuenco Avenue, Cebu City. . . .
(Complaint, p. 1; Rollo, p. 81).
The Article of Incorporation of YASCO (SEC Reg. No. 22083) states:
THIRD That the place where the principal office of the corporation is to be
established or located is at Cebu City, Philippines (as amended on December 20,
1980 and further amended on December 20, 1984) (Rollo, p. 273).
A corporation has no residence in the same sense in which this term is applied to a natural person.
But for practical purposes, a corporation is in a metaphysical sense a resident of the place where its
principal office is located as stated in the articles of incorporation (Cohen v. Benguet Commercial
Co., Ltd., 34 Phil. 256 [1916] Clavecilla Radio System v. Antillon, 19 SCRA 379 [1967]). The
Corporation Code precisely requires each corporation to specify in its articles of incorporation the
"place where the principal office of the corporation is to be located which must be within the
Philippines" (Sec. 14 [3]). The purpose of this requirement is to fix the residence of a corporation in a
definite place, instead of allowing it to be ambulatory.
In Clavencilla Radio System v. Antillon, 19 SCRA 379 ([1967]), this Court explained why actions
cannot be filed against a corporation in any place where the corporation maintains its branch offices.
The Court ruled that to allow an action to be instituted in any place where the corporation has branch
offices, would create confusion and work untold inconvenience to said entity. By the same token, a
corporation cannot be allowed to file personal actions in a place other than its principal place of
business unless such a place is also the residence of a co-plaintiff or a defendant.
If it was Roxas who sued YASCO in Pasay City and the latter questioned the venue on the ground
that its principal place of business was in Cebu City, Roxas could argue that YASCO was in estoppel
because it misled Roxas to believe that Pasay City was its principal place of business. But this is not
the case before us.
With the finding that the residence of YASCO for purposes of venue is in Cebu City, where its
principal place of business is located, it becomes unnecessary to decide whether Garcia is also a
resident of Cebu City and whether Roxas was in estoppel from questioning the choice of Cebu City
as the venue.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals appealed from is
SET ASIDE and the Order dated February 8, 1991 of the Regional Trial Court is REINSTATED.
SO ORDERED.
Cruz, Grio-Aquino and Bellosillo, JJ., concur.

Term

SUPREME COURT
Manila
EN BANC
G.R. No. L-23606 July 29, 1968
ALHAMBRA CIGAR & CIGARETTE MANUFACTURING COMPANY, INC., petitioner,

vs.
SECURITIES & EXCHANGE COMMISSION, respondent.
Gamboa and Gamboa for petitioner.

Office of the Solicitor General for respondent.
SANCHEZ, J.:
To the question May a corporation extend its life by amendment of its articles of incorporation
effected during the three-year statutory period for liquidation when its original term of existence had
already expired? the answer of the Securities and Exchange Commissioner was in the negative.
Offshoot is this appeal.
That problem emerged out of the following controlling facts:
Petitioner Alhambra Cigar and Cigarette Manufacturing Company, Inc. (hereinafter referred to simply
asAlhambra) was duly incorporated under Philippine laws on January 15, 1912. By its corporate
articles it was to exist for fifty (50) years from incorporation. Its term of existence expired on January
15, 1962. On that date, it ceased transacting business, entered into a state of liquidation.
Thereafter, a new corporation. Alhambra Industries, Inc. was formed to carry on the business
of Alhambra.
On May 1, 1962, Alhambra's stockholders, by resolution named Angel S. Gamboa trustee to take
charge of its liquidation.
On June 20, 1963 within Alhambra's three-year statutory period for liquidation - Republic Act 3531
was enacted into law. It amended Section 18 of the Corporation Law; it empowered domestic private
corporations to extend their corporate life beyond the period fixed by the articles of incorporation for
a term not to exceed fifty years in any one instance. Previous to Republic Act 3531, the maximum
non-extendible term of such corporations was fifty years.
On July 15, 1963, at a special meeting, Alhambra's board of directors resolved to amend paragraph
"Fourth" of its articles of incorporation to extend its corporate life for an additional fifty years, or a
total of 100 years from its incorporation.
On August 26, 1963, Alhambra's stockholders, representing more than two-thirds of its subscribed
capital stock, voted to approve the foregoing resolution. The "Fourth" paragraph of Alhambra's
articles of incorporation was thus altered to read:
FOURTH. That the term for which said corporation is to exist is fifty (50) years from and after
the date of incorporation, and for an additional period of fifty (50) years thereafter.
On October 28, 1963, Alhambra's articles of incorporation as so amended certified correct by its
president and secretary and a majority of its board of directors, were filed with respondent Securities
and Exchange Commission (SEC).
On November 18, 1963, SEC, however, returned said amended articles of incorporation to
Alhambra's counsel with the ruling that Republic Act 3531 "which took effect only on June 20, 1963,
cannot be availed of by the said corporation, for the reason that its term of existence had already
expired when the said law took effect in short, said law has no retroactive effect."
On December 3, 1963, Alhambra's counsel sought reconsideration of SEC's ruling aforesaid, refiled
the amended articles of incorporation.
On September 8, 1964, SEC, after a conference hearing, issued an order denying the
reconsideration sought.
Alhambra now invokes the jurisdiction of this Court to overturn the conclusion below. 1
1. Alhambra relies on Republic Act 3531, which amended Section 18 of the Corporation Law. Well it
is to take note of the old and the new statutes as they are framed. Section 18, prior to and after its
modification by Republic Act 3531, covers the subject of amendment of the articles of incorporation
of private corporations. A provision thereof which remains unaltered is that a corporation may amend
its articles of incorporation "by a majority vote of its board of directors or trustees and ... by the vote
or written assent of the stockholders representing at least two-thirds of the subscribed capital
stock ... "
But prior to amendment by Republic Act 3531, an explicit prohibition existed in Section 18, thus:
... Provided, however, That the life of said corporation shall not be extended by said
amendment beyond the time fixed in the original articles: ...
This was displaced by Republic Act 3531 which enfranchises all private corporations to extend their
corporate existence. Thus incorporated into the structure of Section 18 are the following:
... Provided, however, That should the amendment consist in extending the corporate life, the
extension shall not exceed fifty years in any one instance: Provided, further, That the original
articles, and amended articles together shall contain all provisions required by law to be set
out in the articles of incorporation: ...
As we look in retrospect at the facts, we find these: From July 15 to October 28, 1963, when
Alhambra made its attempt to extend its corporate existence, its original term of fifty years had
already expired (January 15, 1962); it was in the midst of the three-year grace period statutorily fixed
in Section 77 of the Corporation Law, thus: .
SEC. 77. Every corporation whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any
other manner, shall nevertheless be continued as a body corporate for three years after the
time when it would have been so dissolved, for the purpose of prosecuting and defending
suits by or against it and of enabling it gradually to settle and close its affairs, to dispose of
and convey its property and to divide its capital stock, but not for the purpose of continuing
the business for which it was established.2
Plain from the language of the provision is its meaning: continuance of a "dissolved" corporation as a
body corporate for three years has for its purpose the final closure of its affairs, and no other; the
corporation is specifically enjoined from "continuing the business for which it was established". The
liquidation of the corporation's affairs set forth in Section 77 became necessary precisely because its
life had ended. For this reason alone, the corporate existence and juridical personality of that
corporation to do business may no longer be extended.
Worth bearing in mind, at this juncture, is the basic development of corporation law.
The common law rule, at the beginning, was rigid and inflexible in that upon its dissolution, a
corporation became legally dead for all purposes. Statutory authorizations had to be provided for its
continuance after dissolution "for limited and specified purposes incident to complete liquidation of its
affairs".3 Thus, the moment a corporation's right to exist as an "artificial person" ceases, its corporate
powers are terminated "just as the powers of a natural person to take part in mundane affairs cease
to exist upon his death".4 There is nothing left but to conduct, as it were, the settlement of the estate
of a deceased juridical person.
2. Republic Act 3531, amending Section 18 of the Corporation Law, is silent, it is true, as to when
such act of extension may be made. But even with a superficial knowledge of corporate principles, it
does not take much effort to reach a correct conclusion. For, implicit in Section 77 heretofore quoted
is that the privilege given toprolong corporate life under the amendment must be exercised before
the expiry of the term fixed in the articles of incorporation.
Silence of the law on the matter is not hard to understand. Specificity is not really necessary. The
authority to prolong corporate life was inserted by Republic Act 3531 into a section of the law that
deals with the power of a corporation to amend its articles of incorporation. (For, the manner of
prolongation is through an amendment of the articles.) And it should be clearly evident that under
Section 77 no corporation in a state of liquidation can act in any way, much less amend its articles,
"for the purpose of continuing the business for which it was established".
All these dilute Alhambra's position that it could revivify its corporate life simply because when it
attempted to do so, Alhambra was still in the process of liquidation. It is surely impermissible for us
to stretch the law that merely empowers a corporation to act in liquidation to inject therein the
power to extend its corporate existence.
3. Not that we are alone in this view. Fletcher has written: "Since the privilege of extension is purely
statutory, all of the statutory conditions precedent must be complied with in order that the extension
may be effectuated. And, generally these conditions must be complied with, and the steps necessary
to effect the extension must be taken,during the life of the corporation, and before the expiration of
the term of existence as original fixed by its charter or the general law, since, as a rule, the
corporation is ipso facto dissolved as soon as that time expires. So where the extension is by
amendment of the articles of incorporation, the amendment must be adopted before that time. And,
similarly, the filing and recording of a certificate of extension after that time cannot relate back to the
date of the passage of a resolution by the stockholders in favor of the extension so as to save the life
of the corporation. The contrary is true, however, and the doctrine of relation will apply, where the
delay is due to the neglect of the officer with whom the certificate is required to be filed, or to a
wrongful refusal on his part to receive it. And statutes in some states specifically provide that a
renewal may be had within a specified time before or after the time fixed for the termination of the
corporate existence".5
The logic of this position is well expressed in a foursquare case decided by the Court of Appeals of
Kentucky.6There, pronouncement was made as follows:
... But section 561 (section 2147) provides that, when any corporation expires by the terms of
its articles of incorporation, it may be thereafter continued to act for the purpose of closing up
its business, but for no other purpose. The corporate life of the Home Building Association
expired on May 3, 1905. After that date, by the mandate of the statute, it could continue to
act for the purpose of closing up its business, but for no other purpose. The proposed
amendment was not made until January 16, 1908, or nearly three years after the corporation
expired by the terms of the articles of incorporation. When the corporate life of the
corporation was ended, there was nothing to extend. Here it was proposed nearly three
years after the corporate life of the association had expired to revivify the dead body, and to
make that relate back some two years and eight months. In other words, the association for
two years and eight months had only existed for the purpose of winding up its business, and,
after this length of time, it was proposed to revivify it and make it a live corporation for the
two years and eight months daring which it had not been such.
The law gives a certain length of time for the filing of records in this court, and provides that
the time may be extended by the court, but under this provision it has uniformly been held
that when the time was expired, there is nothing to extend, and that the appeal must be
dismissed... So, when the articles of a corporation have expired, it is too late to adopt an
amendment extending the life of a corporation; for, the corporation having expired, this is in
effect to create a new corporation ..."7
True it is, that the Alabama Supreme Court has stated in one case.8 that a corporation empowered
by statute torenew its corporate existence may do so even after the expiration of its corporate life,
provided renewal is taken advantage of within the extended statutory period for purposes of
liquidation. That ruling, however, is inherently weak as persuasive authority for the situation at bar for
at least two reasons: First. That case was a suit for mandamus to compel a former corporate officer
to turn over books and records that came into his possession and control by virtue of his office. It
was there held that such officer was obliged to surrender his books and records even if the
corporation had already expired. The holding on the continued existence of the corporation was a
mere dictum. Second. Alabama's law is different. Corporations in that state were authorized not only
to extend but also to renew their corporate existence.That very case defined the word "renew" as
follows; "To make new again; to restore to freshness; to make new spiritually; to regenerate; to begin
again; to recommence; to resume; to restore to existence, to revive; to re-establish; to recreate; to
replace; to grant or obtain an extension of Webster's New International Dict.; 34 Cyc. 1330; Carter v.
Brooklyn Life Ins. Co., 110 N.Y. 15, 21, 22, 17 N.E. 396; 54 C.J. 379. Sec".9
On this point, we again draw from Fletcher: "There is a broad distinction between the extension of a
charter and the grant of a new one. To renew a charter is to revive a charter which has expired, or, in
other words, "to give a new existence to one which has been forfeited, or which has lost its vitality by
lapse of time". To "extend" a charter is "to increase the time for the existence of one which would
otherwise reach its limit at an earlier period".10Nowhere in our statute Section 18, Corporation
Law, as amended by Republic Act 3531 do we find the word "renew" in reference to the authority
given to corporations to protract their lives. Our law limits itself to extensionof corporate existence.
And, as so understood, extension may be made only before the term provided in the corporate
charter expires.
Alhambra draws attention to another case11 which declares that until the end of the extended period
for liquidation, a dissolved corporation "does not become an extinguished entity". But this statement
was obviously lifted out of context. That case dissected the question whether or not suits can be
commenced by or against a corporation within its liquidation period. Which was answered in the
affirmative. For, the corporation still exists for the settlement of its affairs.
People, ex rel. vs. Green,12 also invoked by Alhambra, is as unavailing. There, although the
corporation amended its articles to extend its existence at a time when it had no legal authority yet, it
adopted the amended articles later on when it had the power to extend its life and during its original
term when it could amend its articles.
The foregoing notwithstanding, Alhambra falls back on the contention that its case is arguably within
the purview of the law. It says that before cessation of its corporate life, it could not have extended
the same, for the simple reason that Republic Act 3531 had not then become law. It must be
remembered that Republic Act 3531 took effect on June 20, 1963, while the original term of
Alhambra's existence expired before that date on January 15, 1962. The mischief that flows from
this theory is at once apparent. It would certainly open the gates for all defunct corporations
whose charters have expired even long before Republic Act 3531 came into being to resuscitate
their corporate existence.
4. Alhambra brings into argument Republic Act 1932, which amends Section 196 of the Insurance
Act, now reading as follows: 1wph1.t
SEC. 196. Any provision of law to the contrary notwithstanding, every domestic life insurance
corporation, formed for a limited period under the provisions of its articles of incorporation,
may extend its corporate existence for a period not exceeding fifty years in any one instance
by amendment to its articles of incorporation on or before the expiration of the term so fixed
in said articles ...
To be observed is that the foregoing statute unlike Republic Act 3531 expressly authorizes
domestic insurance corporations to extend their corporate existence "on or before the expiration of
the term" fixed in their articles of incorporation. Republic Act 1932 was approved on June 22, 1957,
long before the passage of Republic Act 3531 in 1963. Congress, Alhambra points out, must have
been aware of Republic Act 1932 when it passed Republic Act 3531. Since the phrase "on or
before", etc., was omitted in Republic Act 3531, which contains no similar limitation, it follows,
according to Alhambra, that it is not necessary to extend corporate existence on or before the
expiration of its original term.
That Republic Act 3531 stands mute as to when extention of corporate existence may be made,
assumes no relevance. We have already said, in the face of a familiar precept, that a defunct
corporation is bereft of any legal faculty not otherwise expressly sanctioned by law.
Illuminating here is the explanatory note of H.B. 1774, later Republic Act 3531 now in dispute. Its
first paragraph states that "Republic Act No. 1932 allows the automatic extension of the corporate
existence of domestic life insurance corporations upon amendment of their articles of incorporation
on or before the expiration of the terms fixed by said articles". The succeeding lines are decisive:
"This is a good law, a sane and sound one.There appears to be no valid reason why it should not be
made to apply to other private corporations.13
The situation here presented is not one where the law under consideration is ambiguous, where
courts have to put in harness extrinsic aids such as a look at another statute to disentangle doubts. It
is an elementary rule in legal hermeneutics that where the terms of the law are clear, no statutory
construction may be permitted. Upon the basic conceptual scheme under which corporations
operate, and with Section 77 of the Corporation Law particularly in mind, we find no vagueness in
Section 18, as amended by Republic Act 3531. As we view it, by directing attention to Republic Act
1932, Alhambra would seek to create obscurity in the law; and, with that, ask of us a ruling that such
obscurity be explained. This, we dare say, cannot be done.
The pari materia rule of statutory construction, in fact, commands that statutes must be harmonized
with each other.14 So harmonizing, the conclusion is clear that Section 18 of the Corporation Law, as
amended by Republic Act 3531 in reference to extensions of corporate existence, is to be read in the
same light as Republic Act 1932. Which means that domestic corporations in general, as with
domestic insurance companies, can extend corporate existence only on or before the expiration of
the term fixed in their charters.
5. Alhambra pleads for munificence in interpretation, one which brushes technicalities aside. Bases
for this posture are that Republic Act 3531 is a remedial statute, and that extension of corporate life
is beneficial to the economy.
Alhambra's stance does not induce assent. Expansive construction is possible only when there is
something to expand. At the time of the passage of Republic Act 3531, Alhambra's corporate life had
already expired. It had overstepped the limits of its limited existence. No life there is to prolong.
Besides, a new corporation Alhambra Industries, Inc., with but slight change in stockholdings 15
has already been established. Its purpose is to carry on, and it actually does carry on, 16 the business
of the dissolved entity. The beneficial-effects argument is off the mark.
The way the whole case shapes up then, the only possible drawbacks of Alhambra might be that,
instead of the new corporation (Alhambra Industries, Inc.) being written off, the old one (Alhambra
Cigar & Cigarette Manufacturing Company, Inc.) has to be wound up; and that the old corporate
name cannot be retained fully in its exact form.17 What is important though is that the
word Alhambra, the name that counts [it has goodwill], remains.
FOR THE REASONS GIVEN, the ruling of the Securities and Exchange Commission of November
18, 1963, and its order of September 8, 1964, both here under review, are hereby affirmed.
Costs against petitioner Alhambra Cigar & Cigarette Manufacturing Company, Inc. So ordered.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Angeles and Fernando, JJ.,
concur.
Footnotes
1
Rule 43, Rules of Court.
2
Emphasis supplied.
3
19 C.J.S., p. 1487.
Id., p. 1485, at footnote 76, citing Sharp vs. Eagle Lake Lumber Co., 212 P. 933, 60 Cal.
4
App. 386.
5
8 Fletcher, Cyclopedia Corporations, Perm, ed., 1931, pp. 559-560, citing cases. Emphasis
supplied.
6
Home Bldg. Ass'n vs. Bruner, 120 S.W. 306, 307.
7
Citing cases; emphasis supplied.
8
Rayburn vs. Guntersville Realty Company, 93 A.L.R. 1055, 1059-1060, cited by petitioner.
9
At p. 1059.
Fletcher, p. 535. In 18 Am. Jur. 2d., p. 612, we find at footnote 14 the following: "Loeffler v.
10
Federal Supply Co. 187 Okla 373, 102 P2d 862, wherein the court notes a distinction
between the words "extend" and "renew." The court said that the word "extend" means to
prolong or lengthen in time, whereas the word "renew" means to restore to existence, to
revive, re-establish, or recreate.
11
Abercrombie vs. United Light & Power Co., 7 F. Supp. 530, 542.
12
116 Mich. 505, 74 N.W. 714.
13
Emphasis supplied.
14
82 C.J.S., p. 801.
15
Tr., p. 18.
16
Tr., p. 17.
17
Tr., pp. 17-19.
Paid up

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 125198 March 3, 1997
MSCI-NACUSIP Local Chapter, petitioner,

vs.
NATIONAL WAGES AND PRODUCTIVITY COMMISSION and MONOMER SUGAR CENTRAL,
INC.,respondents.
HERMOSISIMA, JR., J.:
This is a petition for certiorari questioning the February 1, 1995 Decision of public respondent
National Wages and Productivity Commission (Commission, for brevity) in NWPC Case No. E-93-
007 which reversed on appeal the August 17, 1993 Decision of the Regional Tripartite Wages and
Productivity Board VI (Board, for brevity) denying the application for exemption of private respondent
Monomer Sugar Central, Inc. (MSCI, for brevity) from Wage Order No. RO VI-01 issued by the
Board.
The relevant antecedents are undisputed.
On January 11, 1990, Asturias Sugar Central, Inc. (ASCI, for brevity), executed a Memorandum of
Agreement with Monomer Trading Industries, Inc. (MTII, for brevity), whereby MTII shall acquire the
assets of ASCI by way of a Deed of Assignment provided that an entirely new organization in place
of MTII shall be organized, which new corporation shall be the assignee of the assets of ASCI.
By virtue of this Agreement, a new corporation was organized and incorporated on February 15,
1990 under the corporate name Monomer Sugar Central, Inc. or MSCI, the private respondent
herein.
On January 16, 1991, MSCI applied for exemption from the coverage of Wage Order No. RO VI-01
issued by the Board on the ground that it is a distressed employer. In support thereto, MSCI
submitted its audited financial statements and income tax returns duly stamped "received" by the
Bureau of Internal Revenue (BIR) and the Securities and Exchange Commission (SEC) for the
period beginning February 15, 1990 and ending August 31, 1990, including the quarterly financial
statements and income tax returns for the two quarters ending November 30, 1990 and February 28,
1991.
The petitioner herein MSCI-NACUSIP Local Chapter (Union, for brevity), in opposition, maintained
that MSCI is not distressed; that respondent applicant has not complied with the requirements for
exemption; and that the financial statements submitted by MSCI do not reflect the true and valid
financial status of the company, and that the paid-up capital would have been higher than P5 million
and thus impairment would have been lower than 25% had the pre-organization agreement between
ASCI and MTII been complied with.
The Board conducted hearings on the application, during which the applicant was required to submit
additional documents such as its Articles of Incorporation, Memorandum of Agreement between
ASCI and MTII, SEC registration, including the schedules of its long-term liabilities, income and
expenses, production reports and mill share, among others.
On August 17, 1993, the Board denied MSCI's application for exemption based on the finding that
the applicant's losses of P3,400,738.00 for the period February 15, 1990 to August 31, 1990
constitute an impairment of only 5.25% of its paid-up capital of P64,688,528.00, can not be said to
be sufficient to meet the required 25% in order to qualify for the exemption, as provided in NWPC
Guidelines No. 01, Series of 1992 entitled "REVISED GUIDELINES ON EXEMPTION FROM
COMPLIANCE WITH THE PRESCRIBED WAGE/COST OF LIVING ALLOWANCE INCREASES
GRANTED BY THE REGIONAL TRIPARTITE WAGES AND PRODUCTIVITY BOARDS:"
Sec. 3. CRITERIA FOR EXEMPTION
The following criteria shall be used to determine whether the applicant establishment
is qualified for exemption:
xxx xxx xxx
3. For Distressed Establishments:

a. In the case of a stock corporation, partnership, single proprietorship, non-stock,
non-profit organization or cooperative engaged in a business activity or charging fees
for its services
a.1 When accumulated losses for the last 2 full accounting periods
and interim period, if any, immediately preceding the effectivity of the
Order have impaired by at least 25 percent the:
Paid-up capital at the end of the last full accounting period preceding the
effectivity of the Order, in the case of corporations:
Total invested capital at the beginning of the last full accounting period preceding
the effectivity of the Order in the case of partnerships and single proprietorships.
xxx xxx xxx
The motion for reconsideration, filed by MSCI on September 20, 1993, was denied by the Board on
October 12, 1993.
A timely appeal was brought before the public respondent Commission. In its decision dated
February 1, 1995, the Commission reversed and set aside the foregoing orders of the Board, and
granted MSCI's application for exemption from Wage Order No. RO VI-01, for a period of one (1)
year from its effectivity or from November 27, 1990 to November 26, 1991, in the following manner:
WHEREFORE, premises considered, the Orders of the Board appealed from are
hereby REVERSED and SET ASIDE. Monomer is hereby GRANTED full exemption
from Wage Order No. RO VI-01, for a period of one year from effectivity of the Wage
Order, which is from 27 November 1990 to 26 November 1991.
SO DECIDED. 1
Petitioner has come before us by way of a Petition for Certiorari under Rule 65.
The issue posed is whether or not respondent MSCI can qualify as a distressed employer from
February 15, 1990 to August 31, 1990 as well as during the interim period from September 1, 1990
to November 30, 1990 and thus be entitled to exemption from compliance with Wage Order No. RO
VI-01. To resolve this issue, however, a pivotal determination must first be made: What is the correct
paid-up capital of MSCI for the pertinent period covered by the application for exemption P5
million or P64,688,528.00?
The Board held that the paid-up capital of MSCI on the aforesaid dates was actually P64,688,528.00
and not P5 million as claimed by MSCI in its application for exemption and, thus, the established
losses amounting to P3,400,738.00 constitute an impairment of only 5.25% of the true paid-up
capital of P64 million plus, 2 which losses are not enough to meet the required 25% impairment
requirement. This conclusion is anchored on the belief of the Board that the value of the assets of ASCI,
party to the Memorandum of Agreement, transferred to MSCI on March 28, 1990 should be taken into
consideration in computing the paid-up capital of MSCI to reflect its true financial structure. Moreover, the
loans or advances extended by MTII, the other party to the Agreement, to MSCI should allegedly be
treated as additional investments to MSCI, 3 and must therefore be included in computing respondent's
paid-up capital.
Public respondent Commission thought otherwise. In reversing the Board and granting the
exemption, the Commission held that the Board exceeded its authority in computing and giving new
valuation to what should be the paid-up capital of MSCI. It stressed that RA No. 6727, or the Wage
Rationalization Act, and its implementing guidelines have not conferred upon the Board the authority
to change the paid-up capital of a corporation. 4
The foregoing asseveration of the parties considered, we find no grave abuse of discretion on the
part of the Commission in setting aside the findings of the Board and granting full exemption to MSCI
from Wage Order No. RO VI-01.
NWPC Guidelines No. 01, Series of 1992 as well as the new NWPC Guidelines No. 01, Series of
1996, defineCapital as referring to paid-up capital at the end of the last full accounting period, in the
case of corporations or total invested capital at the beginning of the period under review, in the case
of partnerships and single proprietorships. To have a clear understanding of what paid-up capital is,
however, a referral to Sections 12 and 13 of BP Blg. 68 or the Corporation Code would be very
helpful, viz:
Sec. 12. Minimum capital stock required of stock corporations. Stock corporations
incorporated under this Code shall not be required to have any minimum authorized
capital stock except as otherwise specifically provided for by special law, and subject
to the provisions of the following section.
Sec. 13. Amount of capital stock to be subscribed and paid for purposes of
incorporation. At least twenty-five (25%) percent of the authorized capital stock as
stated in the articles of incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) percent of the total subscription must be
paid upon subscription, the balance to be payable on a date or dates fixed in the
contract of subscription without need of call, or in the absence of a fixed date or
dates, upon call for payment by the board of directors: Provided, however, That in no
case shall the paid-up capital be less than five thousand (P5,000.00) pesos. (n)
By express provision of Section 13, paid-up capital is that portion of the authorized capital stock
which has been both subscribed and paid. To illustrate, where the authorized capital stock of a
corporation is worth P 1 million and the total subscription amounts to P250,000.00, at least 25% of
this amount, namely, P62,500.00 must be paid up per Section 13. The latter, P62,500.00, is the paid-
up capital or what should more accurately be termed as "paid-up capital
stock." 5
In the case under consideration, there is no dispute, and the Board even mentioned in its August 17,
1993 Decision, that MSCI was organized and incorporated on February 15, 1990 with an authorized
capital stock of P60 million, P20 million of which was subscribed. Of the P20 million subscribed
capital stock, P5 million was paid-up. 6 This fact is only too glaring for the Board to have been misled
into believing that MSCI'S paid-up capital stock was P64 million plus and not P5 million.
The submission of the Board that the value of the assets of Asturias Sugar Central, Inc. transferred
to MSCI on March 28, 1990, as well as the loans or advances made by MTII to MSCI should have
been taken into consideration in computing the paid-up capital of MSCI is unmeritorious, at best, and
betrays the Board's sheer lack of grasp of a basic concept in Corporation Law, at worst. Not all funds
or assets received by the corporation can be considered paid-up capital, for this term has a technical
signification in Corporation Law. Such must form part of the authorized capital stock of the
corporation, subscribed and then actually paid up.
Furthermore, the Commission aptly observed that the loans and advances of MTII to respondent
MSCI cannot be treated as investments, unless the corresponding shares of stocks are issued. But
as it turned out, such loans and advances were in fact treated as liabilities of MSCI to MTII as shown
in its 1990 audited financial statements.7 The treatment by the Board of these loans as part of MSCI's
capital stock without satisfying certain mandatory requirements is proscribed under Section 38 of the
Corporation Code which provides:
Power to increase or decrease capital stock; incur, create or increase bonded

indebtedness. No corporation shall increase or decrease its capital stock or incur,
create or increase any bonded indebtedness unless approved by a majority vote of
the board of directors and, at a stockholders' meeting duly called for the purpose,
two-thirds (2/3) of the outstanding capital stock shall favor the increase or diminution
of the capital stock, or the incurring, creating or increasing of any bonded
indebtedness. Written notice of the proposed increase or diminution of the capital
stock or of the incurring, creating, or increasing of any bonded indebtedness and of
the time and place of the stockholders' meeting at which the proposed increase or
diminution of the capital stock or the incurring or increasing of any bonded
indebtedness is to be considered, must be addressed to each stockholders at his
place of residence as shown on the books of the corporation and deposited to de
addressee in the post office with postage prepaid, or served personally.
The above requirements, which are condition precedents before the capital stock of a
corporation may be increased, were unquestionably not observed in this case. Henceforth,
the paid-up capital stock of MSCI for the period covered by the application for exemption still
stood at P5 million. The losses, therefore, amounting to P3,400,738.00 for the period
February 15, 1990 to August 31, 1990 impaired MSCI's paid-up capital of P5 million by as
much as 68%. Likewise, the losses incurred by MSCI for the interim period from September
1, 1990 to November 30, 1990, as found by the Commission, per MSCI's quarterly income
statements, amounting to P13,554,337.33 impaired the company's paid-up capital of P5
million by a whopping 271.08%, 8 more than enough to qualify MSCI as a distressed employer.
Respondent Commission thus acted well within its jurisdiction in granting MSCI full exemption
from Wage Order No. RO VI-01 as a distressed employer.
WHEREFORE, the petition is DISMISSED. Costs against petitioner.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.
Footnotes
1 Decision, page 7; Rollo, p. 31.
2 Decision, p. 7; Rollo, p. 43.
4 Decision, pp. 4-5; Rollo, pp. 28-29.
5 Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the

Philippines, Vol. III, 1984 ed., p. 153.
8 Supra., note 1.
Treasury

SUPREME COURT
Manila
EN BANC
G.R. Nos. 104637-38 September 14, 2000
SAN MIGUEL CORPORATION, NEPTUNIA CORPORATION LIMITED, ANDRES SORIANO III

AND ANSCOR-HAGEDORN SECURITIES, INC., petitioners,
vs.
SANDIGANBAYAN (FIRST DIVISION), PHILIPPINE COCONUT PRODUCERS FEDERATION,
INC. (COCOFED), MARIA CLARA L. LOBREGAT, BIENVENIDO MARQUEZ, JOSE R. ELEAZAR,
JR., DOMINGO ESPINA, JOSE GOMEZ, CELESTINO SABATE, MANUEL DEL ROSARIO, JOSE
MARTINEZ, JR., JOSE REYNALDO MORENTE AND ELADIO CHATTO, respondents.
x-----------------------x
G.R. No. 109797 September 14, 2000
SAN MIGUEL CORPORATION, NEPTUNIA CORPORATION LIMITED, ANDRES SORIANO III

AND ANSCOR-HAGEDORN SECURITIES, INC., petitioners,
vs.
SANDIGANBAYAN (FIRST DIVISION), PHILIPPINE COCONUT PRODUCERS FEDERATION,
INC. (COCOFED), MARIA CLARA L. LOBREGAT, BIENVENIDO MARQUEZ, JOSE R. ELEAZAR,
JR., DOMINGO ESPINA, JOSE GOMEZ, CELESTINO SABATE, MANUEL DEL ROSARIO, JOSE
MARTINEZ, JR., JOSE REYNALDO MORENTE AND ELADIO CHATTO, respondents.
DECISION
PUNO, J.:
It appears that on March 26, 1986, the Coconut Industry Investment Fund Holding
Companies1 ("CIIF" for brevity) sold 33,133,266 shares of the outstanding capital stock of San
Miguel Corporation to Andres Soriano III of the SMC Group payable in four (4) installments. 2
On April 1, 1986, Andres Soriano III paid the initial P500 million to the UCPB as administrator of the
CIIF. The sale was transacted through the stock exchange and the shares were registered in the
name of Anscor-Hagedorn Securities, Inc. (AHSI).
On April 7, 1986, the Presidential Commission on Good Government (PCGG) then led by the former
President of the Senate, the Honorable Jovito R. Salonga, sequestered the shares of stock subject
of the sale.3 Due to the sequestration, the SMC Group (hereinafter referred to as the petitioners)
suspended payment of the balance of the purchase price of the subject stocks. In retaliation, the
UCPB Group rescinded the sale.
On June 2, 1986, UCPB and CIIF Holding Companies went to court. They filed a complaint with the
Regional Trial Court of Makati against the petitioners for confirmation of rescission of sale with
damages.4 On June 5, 1986, the petitioners assailed in this Court the jurisdiction of the Makati RTC
on the ground that primary jurisdiction was vested with the PCGG since the SMC shares were
sequestered shares.5 On August 10, 1988, we upheld the petitioners. We ordered, among others, the
dismissal of the rescission case filed in the Makati RTC without prejudice to the ventilation of the
parties' claims before the Sandiganbayan.6
The record shows that the petitioners and the UCPB Group were able to thresh out their dispute
extra-judicially. In March 1990, they signed a Compromise Agreement and Amicable Settlement. 7 Its
pertinent provisions state:
"3.1. The sale of the shares covered by and corresponding to the first installment of the 1986 Stock
Purchase Agreement consisting of Five Million SMC Shares is hereby recognized by the parties
as valid and effective as of 1 April 1986. Accordingly, said shares and all stock and
cash dividends declared thereon after 1 April 1986 shall pertain, and are hereby assigned, to SMC.
xxx
3.2. The First Installment Shares shall revert to the SMC treasury for dispersal pursuant to the SMC
Stock Dispersal Plan attached as Annex "A-1" hereof. The parties are aware that these First
Installment Shares shall be sold to raise funds at the soonest possible time for the expansion
program of SMC. x x x
3.3. The sale of the shares covered by and corresponding to the second, third and fourth
installments of the 1986 Stock Purchase Agreement is hereby rescinded effective 1 April 1986 and
deemed null and void, and of no force and effect. Accordingly, all stock and cash dividends declared
after 1 April 1986 corresponding to the second, third and fourth installments shall pertain to CIIF
Holding Corporations. xxx"8 (emphasis supplied)
They likewise agreed to pay an "arbitration fee" of 5,500,000 SMC shares composed of 3,858,831
"A" shares and 1,641,169 "B" shares to the PCGG to be held in trust for the Comprehensive
Agrarian Reform Program.9
On March 23, 1990, the petitioners and the UCPB Group filed with the Sandiganbayan a Joint
Petition for Approval of the Compromise Agreement and Amicable Settlement. The petition
was docketed as Civil Case No. 0102.10
On March 29, 1990, the Sandiganbayan motu proprio directed that copies of the Joint Petition be
furnished to E. Cojuangco, Jr., M. Lobregat and others who are defendants in Civil Case No. 0033.
The same SMC shares are the subject of Civil Case No. 0033 and alleged as part of the alleged ill-
gotten wealth of former President Marcos and his "cronies."11
On April 25, 1990, the Republic of the Philippines, through the Office of the Solicitor General
(OSG), opposed12the Compromise Agreement and Amicable Settlement. It contended that the
involved coco-levy funds, whether in the form of earnings or dividends therefrom, or in the form of
the value of liquidated corporate assets represented by all sequestered shares (like the value of
assets sold/mortgaged to finance the P500M first installment), or in the form of cash, or, as in the
case of subject "Settlement," in the form of "proceeds" of sale or of "payments" of certain alleged
obligations are public funds. As public funds, the coco-levy funds, in any form or transformation, are
beyond or "outside the commerce," and perforce not within the private disposition of private
individuals.13
The reliefs prayed for by the Solicitor General state:
"1. That the "Settlement" be stricken off the record or at most referred back to the PCGG for serious
study and consideration. While the PCGG under its legal mandate (as sustained in G.R. No. 84895,
"Republic v. Campos") in principle encourages settlement agreements on ill-gotten wealth to
expedite recovery thereof for the benefit of the Government, the herein privately
proposed "Settlement" subject of the petition contains private proposals of "utilization and
management of" public funds that are prejudicial to the Government, without "full disclosures"
as normally required by PCGG and over which in respect of declarant immunity may even be
granted.
2. That this Petition be consolidated with, or treated as a premature motion or incident in Civil Case
No. 0033, and brought by improper parties. To repeat, the plaintiff Republic through PCGG is not a
party to what in effect will be a judicial compromise in Civil Case No. 0033. Nowhere does the
"Settlement" mention that its terms are subject to the judicial outcome of this Civil Case No. 0033. It
is to be emphasized that even in the "Pepsi-Cola Settlement" cited by the petitioners, the alleged
loan payments therein to liquidate alleged obligations are subject in no uncertain terms to the final
outcome of the main Civil Case No. 0033 pending before this Honorable Court,
'The concern of the Court in matters such as this has always been to see to it that the properties in
sequestration would be well (and profitably, if possible) preserved either for the government, if the
plaintiff proves the 'crony' and 'ill-gotten' character of the property, or for the defendants if not,'
considering that one of the reliefs prayed for or one of causes of action in the Republic's Complaint
in Civil Case No. 0033 is precisely for Accounting and/or Damages. In the instant "Settlement," the
"crony" and "ill-gotten character of the property" involved is a matter of public record if not public
notoriety. Plaintiff Republic need not prove the public character of the coco-levy funds. This is a
matter of settled law and jurisprudence, a "given" fact, to quote the Honorable Supreme
Court."14 (emphasis supplied)
On April 18, 1990, Mr. Eduardo M. Cojuangco, Jr. moved to intervene alleging legal interest in the
approval or disapproval of the Compromise Agreement and Amicable Settlement. 15
On May 24, 1990, the Philippine Coconut Producers' Federation, Inc. (COCOFED), et al.16 filed an
"Omnibus Class Action Motion for Leave to Intervene and to Admit: (1) Opposition-in-Intervention,
and (2) Compulsory Counter-Petition and Counterclaim for Damages."17 They alleged that they
are the ultimate beneficial owners of the SMC shares subject of the Compromise Agreement.
On June 18, 1990, the PCGG filed its Manifestation18 attaching a copy of the Resolution19 of the
Commission en banc dated June 15, 1990. PCGG joined the Solicitor General in praying that the
Joint Petition for Approval of Compromise Agreement should be treated as an incident of Case No.
0033.20 PCGG, however, interposed no objection to the implementation of the Compromise
Agreement subject to the incorporation of the following provisions:
"1. As stated in the COMPROMISE, the 5 million SMC shares (now 26,450,000) paid for by the P500
million first installment shall be delivered to SMC, kept in treasury, and sold as soon as feasible in
accordance with a plan to be agreed upon by the Commission and SMC; provided, that SMC shall
not unreasonably withhold its consent to a sales plan approved by PCGG.
The P500 million paid by SMC as first installment shall be accounted for by UCPB and the CIIF
companies to the extent respectively received by them, and any portion thereof in excess of the
usual business needs of the possessor shall be delivered by it to the Commission, to be held in
escrow for the ultimate owner.
2. On Delivery Date, the stock certificates for the balance of the SHARES in the name of the 14
holding companies shall be delivered to PCGG and deposited with the Central Bank for safekeeping
to await their sale in accordance with the plan of dispersal that PCGG and UCPB shall agree to
establish for them. As soon as practicable, but with proper account of market conditions, all those
shares shall be sold, and the proceeds thereof disposed as provided below. UCPB shall not
unreasonably withhold its consent to a sales plan approved by PCGG in accordance with this
paragraph.
3. So much of the proceeds of the sale as may be necessary shall be used a) to finance the
obligations of the CIIF Companies under the COMPROMISE, and b) to liquidate the obligations of
the CIIF Companies to UCPB for the purchase price of the SHARES. The balance shall be kept by
the PCGG in escrow to await final judicial determination of the ownership of the various coconut-
related companies and of all the other assets involved here. The cash dividends that have been
declared on the SHARES may be applied for the above purposes before proceeds from the sale of
shares are realized. The balance of such cash dividends shall be held in escrow in the same manner
as the sales proceeds.
4. All SHARES shall continue to be sequestered even beyond Delivery Date. Sequestration on them
shall be lifted as they are sold consequent to approval of the sale by the Sandiganbayan, and in
accordance with the dispersal plan approved by the Commission. All of the SHARES that are unsold
will continue to be voted by PCGG while still unsold.
5. The consent of PCGG to the transfer of the sequestered shares of stock in accordance with the
COMPROMISE, and to the lifting of the sequestration thereon to permit such transfer, shall be
effective only when approved by the Sandiganbayan. The Commission makes no determination of
the legal rights of the parties as against each other. The consent it gives here conforms to its duty to
care for the sequestered assets, and to its purpose to prevent the repetition of the national plunder. It
is not to be construed as indicating any recognition of the legality or sufficiency of any act of any of
the parties."21
The petitioners and the UCPB Group filed their Joint Manifestation 22 accepting the conditions
imposed by PCGG. They also opposed the intervention of COCOFED, et al.
On October 12, 1990, the petitioners moved for early resolution of the Joint Petition for Approval of
the Compromise Agreement and Amicable Settlement together with its pending incidents. 23
On October 16, 1990, the Sandiganbayan issued an Order24 integrating Case No. 0102 as an
incident of Civil Case No. 0033, thus:
"Considering the interest expressed by the different parties in Civil Case No. 0033, and considering
further that the subject matter of the amicable settlement which is presented before this Court for
approval, the Court has deemed it best that Civil Case No. 0102 be integrated with, and be made an
incident to, Civil Case No. 0033. xxx"25
The petitioners did not challenge the Order.
In its Manifestation26 dated November 19, 1990, the Solicitor General maintained his Opposition to
the Compromise Agreement and Amicable Settlement.
On November 23, 1990, Sandiganbayan deferred consideration of the Compromise Agreement "until
the parties thereto take the initiative to restore the same in the Court's calendar." 27 On February 5,
1991, it also deferred resolution of Cojuangco's Motion to Intervene.
On February 21, 1991, the UCPB Group filed a Motion to set the Joint Petition for hearing. 28 In its
Order dated February 27, 1991, the Sandiganbayan required the parties to comment on the
propriety of the said court's continuing to entertain the Compromise Agreement. 29 In compliance with
the said Order, the petitioners filed its Manifestation dated March 15, 1991 expressly recognizing the
jurisdiction of the Sandiganbayan to rule on the petition for the approval of the compromise
agreement.31
On June 3, 1991, the Sandiganbayan issued the following Resolution: 31
"It appearing that the sequestered character of the shares of stock subject of the instant petition for
the approval of the compromise agreement, which are shares of stock in the San Miguel Corporation
in the name of the CIIF Corporations, is independent of the transaction involving the contracting
parties in the Compromise Agreement between what may be labeled as the "SMC Group" and the
"UCPB Group," and it appearing further that the said sequestered SMC shares of stock have not
been physically seized nor taken over by the PCGG, so much so that the reversions contemplated in
said Compromise Agreement are without prejudice to the perpetuation of the sequestration thereon,
until such time as a judgment might be rendered on said sequestration (which issue is not before this
Court as (sic) this time), and it appearing finally that the PCGG has not interposed any objection to
the contractual resolution of the problems confronting the "SMC Group" and the "UCPB Group" to
the extent that the sequestered character of the shares in question is not affected, this Court will
await the pleasure of the Presidential Commission on Good Government before
consideration of the Compromise Agreement is reinstated in the Court's calendar.
While this is, in effect, a denial of the "UCPB Group's" Motion to set consideration of the
Compromise Agreement herein, this denial is without prejudice to a reiteration of the motion
or any other action by the parties should developments hereafter justify the same."
On July 4, 1991, the petitioners and the UCPB Group filed a Joint Manifestation that they
have implemented the Compromise Agreement and Amicable Settlement with the conditions set by
the PCGG and accordingly, withdrew their Joint Petition.32 They informed that they have
executed the following corporate acts:
"a. On instructions of the SMC Group, the certificates of stock registered in the name of Anscor-
Hagedorn Securities, Inc. (AHSI) representing 175,274,960 SMC shares were surrendered to the
SMC corporate secretary.
b. The said SMC shares were reissued and registered in the record books of SMC in the following
manner:
i) Certificates for 25,450,000 SMC shares were registered in the name of SMC, as treasury;
ii) Certificates for 144,324,960 SMC shares were registered in the name of the CIIF Holding
Companies;
iii) Certificates for 5,500,000 SMC shares were registered in the name of the PCGG.
c. The UCPB Group has delivered to the SMC Group the amount of P500,000,000.00 in full payment
of the UCPB preferred shares.
d. The SMC Group delivered to the UCPB Group the amount of P481,628,055.99 representing
accumulated dividends (from April 1, 1986) on the shares reverted to the CIIF Holding Companies." 33
The PCGG manifested that it has no objection to the action taken by the petitioners and the UCPB
Group.34COCOFED, et al. and Cojuangco, Jr. filed their respective motions,35 both dated July 4,
1991 to nullify the implementation of the compromise agreement.
Acting on the Joint Manifestation of Implementation of Compromise Agreement and of Withdrawal of

Petition, the Sandiganbayan on July 5, 1991 noted the same "with the observation that the PCGG,
the UCPB Group and the SMC Group shall always act with due regard to the sequestered
character of the shares of stock involved herein as well as the fruits thereof, more particularly to
prevent the loss or dissipation of their value" and "without prejudice to whatever might be the
resolution of this Court on the Motion to Nullify the Compromise Agreement filed by Eduardo
Cojuangco, Jr."36
On July 8, 1991, the Sandiganbayan issued two (2) Orders. The first was to hear the defendants in
Civil Case No. 0033 on the matter of the Compromise Agreement whether under Civil Case No.
0102 or as an incident to Civil Case No. 0033.37 The second required the petitioners and the UCPB
Group as well as PCGG to formally state in writing the different holders of the SMC shares subject of
the compromise agreement. The Sandiganbayan further ordered PCGG to indicate on the face of
the subject shares their sequestered character.38
On July 16, 1991, petitioners filed their Manifestation where they declared that Stock Certificate Nos.
A 0004129 and A 0015556 representing 25,450,000 shares were issued in the name of SMC as
treasury stocks.39
On July 23, 1991, the Sandiganbayan noted the Manifestations of the PCGG, the petitioners and the
UCPB group that the certificates of stock for the subject SMC shares which are intended to form part
of the corporation's treasury shares have been marked "sequestered" by SMC and are in the
custody of the PCGG.40
On August 5, 1991, the Sandiganbayan issued an order requiring SMC to deliver the certificates of
stock representing the subject matter of the Compromise Agreement to the PCGG in view of the oral
manifestations of Commissioner Maceren seeking clarification of portions of Sandiganbayan's July
23, 1991 Resolution.41
On August 9, 1991, the UCPB Group filed a Motion to Allow it to Utilize Dividends on SMC shares for
the payment of the loans of CIIF Companies to UCPB.42 The motion was granted on September 2,
1991.43
On August 15, 1991, COCOFED, et al. filed their Urgent Motion to Compel Surrender of the Cash
Dividends pertaining to (a) the 4.5 million SMC shares allegedly delivered to PCGG in trust for the
Comprehensive Agrarian Reform Program and (b) the SMC shares allegedly delivered to SMC as
treasury shares.44
On August 22, 1991, petitioners filed a Manifestation and Motion stating that the SMC shares have
reverted to the SMC treasury as treasury shares and are not entitled to dividends. 45
On October 1, 1991, the Sandiganbayan issued a Resolution allowing COCOFED, et al. to

intervene.46 On March 30, 1992, it denied the separate motions for reconsideration filed by the
petitioners and the UCPB Group.47
On October 25, 1991, the Sandiganbayan issued another Resolution requiring SMC to deliver the
25.45 million SMC treasury shares to the PCGG.48 On March 18, 1992, it denied petitioners' Motion
for Reconsideration and further ordered SMC to pay dividends on the said treasury shares and to
deliver them to the PCGG.49
On April 13, 1992, petitioners filed a Motion to Dismiss Intervention and/or Motion for Clarification
with Ad Cautelam Motion to Suspend Time.50 The motion was denied in the Sandiganbayan's
Resolution dated March 17, 1993.51
Before this Court now are two (2) consolidated petitions for certiorari under Rule 65 of the Rules of
Court filed by petitioners San Miguel Corporation, Neptunia Corporation Limited, Andres Soriano III
and Anscor-Hagedorn Securities, Inc. They seek to annul the following resolutions of the
Sandiganbayan:
In G.R. No. 104637-38:
1. The Resolution dated October 25, 1991 reiterating52 that all Certificates of Stock representing
sequestered shares in the SMC be physically deposited with the PCGG and requiring SMC to pay
the cash dividends due or actually earned by the said shares and deliver them to PCGG; 53
2. The Resolution dated March 18, 199254 requiring SMC to deliver to the PCGG the 25.45 million
shares as well as the cash and/or stock dividends which have accrued thereto from March 26, 1986
to date and which might have further accrued thereto had not said shares of stock been
declared treasury shares.55
In G.R. No. 109797:
1. The Resolution dated September 30, 1991 allowing COCOFED and other private respondents to
intervene in Case No. 0102 and admitting their Counter-Petition;56
2. The Resolution dated March 27, 1992 denying the motions of petitioners and the UCPB Group for
reconsideration of the Resolution dated September 30, 1991; and57
3. The Resolution dated March 17, 1993 denying petitioners' motion to dismiss the Counter-
Petition filed by COCOFED, et al.58
Petitioners contend:
In G.R. No. 104637-38:
"GROUNDS FOR CERTIORARI
The questioned orders of the Sandiganbayan were issued without or in excess of its jurisdiction, and
with grave abuse of discretion amounting to lack of jurisdiction. They should be set aside as null and
void.
The questioned orders would deprive SMC of property already paid for. They unduly protect the
claimants of sequestered companies, at the expense of SMC.
The Sandiganbayan over-reached its jurisdiction in issuing the questioned orders.
1. The fact of sequestration, by itself, does not mean that the possessor of the sequestered assets
must be dispossessed thereof at all costs. In the present case, there are weighty reasons why the
treasury shares and any "dividends" thereon should remain with SMC.
2. The purported issue of ownership does not justify the dispossession of SMC of these shares.
The PCGG is the entity primarily charged with the duty and responsibility of preserving sequestered
assets. Absent any showing that the PCGG betrayed this duty when it allowed SMC to keep the
shares already paid for in treasury, the Sandiganbayan has no jurisdiction to over-rule the PCGG's
judgment.
The questioned orders will foment litigation, in violation of the clear policy of the law that compromise
is encouraged.
E
The sequestered (sic) assets threaten and put the sequestered assets at risk.
The Sandiganbayan gravely abused its discretion when it treated the contracting parties to the
compromise agreement differently."59
In G. R. No. 109797:
"GROUNDS TO GRANT PETITION
The Sandiganbayan acted without or in excess of jurisdiction or with grave abuse of discretion in
issuing the questioned Resolutions in that:
Civil Case No. 0102 has been withdrawn. COCOFED, et al. cannot intervene in a withdrawn case.
II
The Sandiganbayan's motu proprio consolidation of Case 102 with Case 33 did not make the SMC
Group parties to Case 33. It did not result in a merger of the two cases which preserved their
separate identity.
III
By their own allegations, COCOFED, et al. have no cause of action.
1. COCOFED, et al. are not real parties in interest. They deny the Sandiganbayan's basis for finding
that they are real parties in interest, i.e., that the SMC shares were acquired with coco-levy funds.
2. COCOFED, et al. are estopped from claiming to act for the UCPB Group.
IV
COCOFED, et al. are bound by the business judgment of the UCPB Group that the compromise is to
the best interest of the UCPB Group.
In violation of the public policy that frowns on litigation and encourages fair compromise, the
questioned resolutions foment litigation on issues settled by the compromise.
VI
COCOFED, et al. paid no docket fees for the counter-petition. The Sandiganbayan acquired no
jurisdiction over the counter-petition."60
Vis--vis these arguments, private respondents COCOFED, et al. contend:

In G.R. No. 104637-38:
I. That the Sandiganbayan has not yet resolved the matter of the compromise agreement. By
insisting that it has implemented the compromise agreement and thus need not turn over the SMC
shares corresponding to the P500 million first installment and the dividends thereon to the PCGG,
the SMC Group is preempting the Sandiganbayan.
II. The Order of the Sandiganbayan to turn over the SMC shares corresponding to the P500 million
first installment and the dividends thereon is proper because the SMC Group is not entitled thereto,
having forfeited the first installment as liquidated damages for its refusal and failure to make
subsequent installment payments.
III. At any rate, the transformation of the SMC shares into treasury shares is but part and parcel of
the compromise agreement which has not yet been approved. Thus, it is premature for the SMC
Group to treat these shares as such and to refuse to turn over the same as well as the accrued
dividends thereon to the PCGG, as ordered by the Sandiganbayan. Moreover, the transformation is
extremely disadvantageous to the CIIF Companies.
IV. The PCGG appointed directors of UCPB, the CIIF Companies, and SMC cannot enter into a
compromise agreement which is tantamount to a disposition or dissipation of sequestered assets.
Moreover, the PCGG is not entitled to any arbitration fee.
V. While the law encourages amicable settlements, the law likewise provides that any compromise
should not only be legal but must also be fair. In this case, the proposed compromise is contrary to
law and grossly disadvantageous to the CIIF Companies, UCPB and the coconut farmers/producers.
VI. The perceived danger of risk on the sequestered assets is purely speculative and is not
supported by adequate proof. Moreover, the SMC shares are sufficient to cover the losses which
may be sustained in pursuing the recovery of the SMC shares.
VII. The CIIF Companies, being the disputed owners of the SMC shares, are entitled to have the
dividends on the SMC shares applied to its indebtedness to UCPB. On the other hand, until the
question of which entity is entitled thereto is settled, the SMC shares corresponding to the P500
million first installment and the dividends thereon should be turned over to the PCGG. 61
and in G.R. No. 109797:
I. Civil Case No. 0102 may not be withdrawn sans the approval of the Sandiganbayan. Further, the
filing by COCFED, et al. of the Intervention was in accordance with the ruling in Soriano III
case which vests on COCOFED, et al. the right to ventilate its claims over the SMC shares.
II. The COCOFED case settled with finality that COCOFED, et al. are real parties in interest to the
coconut levy funds as well as the corporations organized and investments acquired or funded from
out of the coconut levy funds.
III. Where the business judgment is unsound and violative of law or public policy, affected persons
may question such decision.
IV. The admission of the intervention is consistent with the ruling laid down in the Soriano III case.
V. The intervention is in the nature of an Answer with Compulsory Counterclaim. As such, the
Sandiganbayan acquired jurisdiction despite non-payment of docket fees. 62
We stress at the outset that the instant petitions were brought to us through a special civil action
of certiorariunder Rule 65 of the Rules of Court to annul and set aside the above mentioned
Sandiganbayan resolutions for having been allegedly issued without or in excess of jurisdiction and
with grave abuse of discretion. To justify the issuance of the writ of certiorari, the abuse of discretion
must be grave, as when the power is exercised in an arbitrary or despotic manner by reason of
passion or personal hostility, and it must be so patent as to amount to an evasion of positive duty or
to a virtual refusal to perform the duty enjoined, or to act at all, in contemplation of law, as to be
equivalent to having acted without jurisdiction.63 We shall now use this unyielding yardstick.
RE: ISSUE OF DELIVERY OF CERTIFICATES OF STOCK OF SMC SHARES AND THE

DIVIDENDS THEREON TO THE PCGG IN G.R. NO. 104637-38
We find no grave abuse of discretion on the part of Sandiganbayan when it ordered the petitioners
to deliver the treasury shares to PCGG and pay their corresponding dividends for the following
reasons:
First. The cases at bar do not merely involve a compromise agreement dealing with private
interest. The Compromise Agreement here involves sequestered shares of stock now worth more
than nine (9) billions of pesos, per estimate given by COCOFED.64 Their ownership is still under
litigation. It is not yet known whether the shares are part of the alleged ill-gotten wealth of former
President Marcos and his "cronies." Any Compromise Agreement concerning these sequestered
shares falls within the unquestionable jurisdiction of and has to be approved by the Sandiganbayan.
The parties themselves recognized this jurisdiction. In the Compromise Agreement itself,
the petitioners and the UCPB Group expressly acknowledged the need to obtain the approval by
the Sandiganbayan of its terms and conditions, thus:
"5. Unless extended by mutual agreement of the parties, the 'Delivery Date' shall be on the 10th Day
from and after receipt by any party of the notice of approval of this Compromise Agreement and
Amicable Settlement by the Sandiganbayan. Upon receipt of such notice, all other parties shall be
immediately informed."65(emphasis supplied)
The PCGG Resolution of June 15, 1990 also imposed the approval of the Sandiganbayan as a
condition sine qua non for the transfer of these sequestered shares of stock, viz:
"4. All SHARES shall continue to be sequestered even beyond Delivery Date. Sequestration on them
shall be lifted as they are sold consequent to approval of the sale by the Sandiganbayan, and in
accordance with the dispersal plan approved by the Commission. All of the SHARES that are unsold
will continue to be voted by PCGG while still unsold.
5. The consent of PCGG to the transfer of the sequestered shares of stock in accordance with the
COMPROMISE, and to the lifting of the sequestration thereon to permit such transfer, shall be
effective only when approved by the Sandiganbayan. The Commission makes no determination
of the legal rights of the parties as against each other. The consent it gives here conforms to its duty
to care for the sequestered assets, and to its purpose to prevent the repetition of the national
plunder. It is not to be construed as indicating any recognition of the legality or sufficiency of any act
of any of the parties."66 (emphasis supplied)
Thus, the petitioners voluntarily submitted to the jurisdiction of the Sandiganbayan by asking for
the approval of the said Compromise Agreement. They stated in their Manifestation dated March 15,
199167 that:
"1. The Compromise Agreement subject matter of this petition categorically states that `(a)ll the
terms of th(e) Agreement are subject to approval by the Presidential Commission on Good
Government (PCGG) as may be required by Executive Orders numbered 1, 2, 14 and 14-A. (T)he
Agreement and the PCGG approval thereof shall be submitted to the Sandiganbayan. x x x
PCGG has consented to the Compromise Agreement. But its consent is 'effective only when
approved by the Sandiganbayan' (PCGG Resolution dated 15 June 1990, In Re: Compromise
Agreement between San Miguel Corporation, et al. and United Coconut Planters Bank, et
al.). Petitioners accepted this condition, and incorporated by reference such condition as an
integral part of the Compromise Agreement."68 (emphasis supplied)
In fine, the jurisdiction of the Sandiganbayan to pass upon the parties Compromise Agreement
is beyond dispute.
Second. Given its undisputed jurisdiction, the Sandiganbayan ordered that the treasury shares
should be delivered to PCGG and that their dividends should be paid pending determination of
their real ownershipwhich is the key to the question whether they are part of the alleged ill-gotten
wealth of former President Marcos and his "cronies."
We cannot condemn and annul this order as capricious. In the exercise of its discretion, the
Sandiganbayan can require a party-litigant to deliver a sequestered property to the PCGG. We held
in Baseco vs. PCGG69 that "the power of the PCGG to sequester property claimed to be 'ill-
gotten' means to place or cause to be placed under its possession or control said property, or any
building or office wherein any such property and any records pertaining thereto may be found,
including 'business enterprises and entities,' - - - for the purpose of preventing the destruction,
concealment or dissipation of, and otherwise conserving and preserving the same - - - until it
can be determined, through appropriate judicial proceedings, whether the property was in truth 'ill-
gotten,' i.e. acquired through or as a result of improper or illegal use or the conversion of funds
belonging to the government or any of its branches, instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of official position, authority, relationship, connection or
influence, resulting in unjust enrichment of the ostensible owner and grave damage and prejudice to
the State."70
The order of the Sandiganbayan regarding the subject treasury shares is merely preservative in
nature. When the petitioners and UCPB Group filed their Joint Manifestation of Implementation of
the Compromise Agreement and of Withdrawal of Petition, the Sandiganbayan cautioned that "the
PCGG, the UCPB and the SMC Group shall always act with due regard to the sequestered
character of the shares of stock involved as well as the fruits thereof, more particularly to prevent
the loss or dissipation of their value."71 The caution was wisely given in view of the many
contested provisions of the Compromise Agreement. For one, the Sandiganbayan observed that the
conversion of the SMC shares to treasury shares will result in a change in the status of the
sequestered shares in that:
1. When the SMC converts these common shares to treasury stock, it is converting those
outstanding shares into the corporation's property for which reason treasury shares do not earn
dividends.
2. The retained dividends which would have accrued to those shares if converted to
treasury would go into the corporation and enhance the corporation as a whole. The
enhancement to the specific sequestered shares, however, would be only to the extent aliquot in
relation to all the other outstanding SMC shares.
3. By converting the 26.45 million shares of stock into treasury shares, the SMC has altered not
only the voting power of those shares of stock since treasury shares do not vote, but the SMC will
have actually enhanced the voting strength of the other outstanding shares of stock to the extent that
these 26.45 million shares no longer vote.72
These significant changes in the character of the SMC shares cannot be denied. In Commissioner
of Internal Revenue vs. Manning,73 we explained the limited nature of treasury shares, thus:
"Although authorities may differ on the exact legal and accounting status of the so-called 'treasury
shares,' they are more or less in agreement that treasury shares are stocks issued and fully paid for
and re-acquired by the corporation either by purchase, donation, forfeiture or other means. Treasury
shares are therefore issued shares, but being in the treasury they do not have the status of
outstanding shares. Consequently, although a treasury share, not having been retired by the
corporation re-acquiring it, may be re-issued or sold again, such share, as long as it is held by the
corporation as a treasury share, participates neither in dividends, because dividends cannot
be declared by the corporation to itself, nor in the meetings of the corporation as voting
stock, for otherwise equal distribution of voting powers among stockholders will be effectively lost
and the directors will be able to perpetuate their control of the corporation, though it still represents a
paid-for interest in the property of the corporation. The foregoing essential features of a treasury
stock are lacking in the questioned shares..."74 (emphasis supplied)
For another, the payment to the PCGG of an arbitration fee in the form of 5,500,000 of SMC
shares75 is denounced as illegal, shocking and unconscionable. 76 COCOFED, et al. have assailed the
legal right of PCGG to act as arbiter as well as the fairness of its acts as arbiter. COCOFED, et al.
estimate that the value of the SMC shares given to PCGG as arbitration fee which allegedly is not
deserved, can run to P1,966,635,000.00.77 This is a serious allegation and the Sandiganbayan
cannot be charged with grave abuse of discretion when it ordered that SMC should
be temporarily dispossessed of the subject treasury shares and that SMC should pay their
dividends while the Compromise Agreement involving them is still under question.
Petitioners cannot rely on the case of First Phil. Holdings Corp. vs. Sandiganbayan78 to justify
their insistence that the P500 million payment made by Soriano III should be validated. They
contend that the rules encouraging amicable settlement in civil cases should apply to cases involving
sequestered properties.79 In First Phil. Holdings, this Court gave due course to the petition and
ordered the Sandiganbayan to approve the PCGG Resolution lifting the sequestration of MERALCO
shares. We noted that the Republic of the Philippines has agreed to settle the controversy and the
agreement will not in any way prejudice the rights of third persons.
In the cases at bar, the record is clear that the Republic of the Philippines, through the Office of the
Solicitor General, vigorously opposed the Compromise Agreement on legal and moral grounds.
COCOFED, et al. also opposed and contend that the conversion of the SMC shares into treasury
shares is highly prejudicial to the interests of the coconut farmers. It cannot be gainsaid that if it is
later proved that SMC is not the lawful owner of the shares in question, what the adjudged lawful
owner will receive are treasury shares with diminished value. The impugned order of the
Sandiganbayan was issued to avoid this mischief.
Petitioners also argue that the Sandiganbayan gravely abused its discretion when it treated the
contracting parties to the Compromise Agreement differently.80 They argue that it should not have
allowed the dividend income of the sequestered shares in the name of the CIIF Holding Companies
to be applied to their indebtedness to the UCPB. Again, we do not agree for the order of the
Sandiganbayan is consistent with the need to preserve and enhance the value of the sequestered
assets. We quote its explanation:
"The application of the dividend income of the CIIF-owned SMC shares (which remain sequestered)
to the debts of these CIIF companies in favor of the UCPB was meritorious on its own account.
The CIIF companies remain sequestered companies; the shares of stock in these companies and in
the UCPB remain sequestered. If the UCPB shares and the CIIF companies (and, therefore, their
assets and properties) are adjudged to have been 'ill-gotten' and 'crony-owned,' then all the
sequestered properties, including the SMC shares and the resulting dividends will go to the
government; otherwise, the CIIF companies will go to their registered stockholders, i.e., allegedly the
coconut farmers, and the debts of the CIIF companies to the UCPB will have been duly paid or
diminished. The period of sequestration will not have been unduly prejudicial to these corporations
or to the coconut farmers.
Furthermore, if the debts of the CIIF companies to the UCPB had remained unpaid or unserviced at
all, the bank itself (which is also heavily sequestered) would also suffer since it would, according to
the UCPB, be violating the instructions of the Monetary Board (MB) thereon (p. 546, Record III).
Compliance with the MB's instructions would save the UCPB from punitive action from the Central
Bank.
The release of the dividends in this case would, therefore, protect the contingent rights of the
coconut farmers as well as of the Republic in the UCPB itself. After all, nobody else is in contention
for the benefits resulting from the payment of the debts of the CIIF companies except for the
Government by reason of the sequestrations imposed and the registered stockholders thereof.
Nobody else would suffer the consequences if the SMC shares owned by the CIIF companies were
seized by the UCPB and/or the UCPB became impaired should the heavy debts of the CIIF
companies not be serviced or partially paid.
2. On the other hand, the SMC Group has not justified its desire to retain the custody of the 25.45
million sequestered shares of stock, which it had converted to Treasury Shares despite
sequestration, and to retain the dividends due thereon, on its own merits.
The SMC Group's primary justification for non-compliance with the Resolution of this Court requiring
it to turn over the certificates of stock for the 25.45 million sequestered shares as well as the cash
dividends already accrued thereon is the fact that the shares of stock have allegedly now become
Treasury Shares.
The SMC Group, however, forgets two things:
'(a) Under the Corporation Code 'Treasury shares are shares of stock which have been issued and
fully paid for, but subsequently reacquired by, the issuing corporation by purchase, redemption,
donation or through some lawful means . . .' (Sec. 9, B.P. Blg. 68, Corporation Code). These 26.45
million shares of stock or any portion thereof can, therefore, become Treasury Shares, i.e., property
of the San Miguel Corporation, only if the sale between the UCPB Group and the SMC Group is
allowed; otherwise these shares cannot even begin to be deemed to have been 're-acquired by the
issuing corporation,' i.e., the San Miguel Corporation;
(b) Even then, under the AGREEMENT between the UCPB Group and the SMC Group on March 26,
1986 for the sale of 33.1 million shares of SMC, the buyers were not only the San Miguel
Corporation but also Andres Soriano, III, the Neptunia Corporation Limited of Hongkong and the
Anscor-Hagedorn Securities, Inc. Under the letter of the PCGG Commissioner Ramon Diaz dated
May 19, 1986 (item No. 6, supra), the Corporate Secretary of the San Miguel Corporation was
forbidden from recording the transfer, conveyance, and encumbrance of these shares without the
PCGG's approval. This was by virtue of the PCGG's powers under Sec. 2 of E.O. No. 2.'
Unless, therefore, the right of Neptunia, Andres Soriano, III and the Anscor-Hagedorn Securities, Inc.
to these 26.45 million shares shall have been transferred to the SMC, the SMC cannot be deemed to
have 'reacquired' these shares. They would remain co-owned by all four (4) entities.
The SMC Group's claim, therefore, that these 26.45 million shares are now Treasury Shares is
unfounded.
But even if, indeed, these shares are treasury shares, they remain sequestered so that any
movement of these shares cannot be of any permanent character that will alter their being
sequestered shares and, therefore, in 'custodia legis,' that is to say, under the control and disposition
of this Court.
It must finally be said that the conversion of the 26.45 (or 25.45) million shares by the SMC Group
into Treasury Shares is of the SMC Group's own making and the SMC Group cannot perform acts
that will, by its own say-so, take property away from 'custodia legis.'
The position taken by the SMC Group here is self-serving and unacceptable. It is also contrary to
jurisprudence."81
The claim of petitioners to fairness hardly impresses. It is planted on the assumption that their
purchase of the subject shares is above board. The assumption begs the question for the
Sandiganbayan has yet to decide the real ownership of the subject shares, i.e., whether or not they
are part of the alleged illegal wealth of former President Marcos and his "cronies." Nor have
petitioners shown that they will suffer a legal prejudice if they deliver the shares and the dividends
thereon to the PCGG. It need not be stressed that in the event the petitioners are found to be the
lawful owners of these shares, they will be awarded the cash and stock dividends which have
accrued thereon. We agree with the conclusion of the Sandiganbayan in its assailed Resolution of
March 18, 1992 that "the SMC Group has not justified its desire to retain the custody of the 25.45
million sequestered shares of stock, which it had converted to treasury shares despite sequestration,
and to retain the dividends due thereon, on its own merits." 82
More unimpressive is petitioners' submission that the "delivery of the shares to the PCGG may
create legal problems and may give an impression that these shares are outstanding and may be
sold and transferred, when under the law, all that can be done is for SMC to reissue the shares
pursuant to procedures mandated by the applicable laws." 83 Such fear is clearly unfounded and
needs no elaborate refutation.
RE: ISSUE Of INTERVENTION OF COCOFED, ET AL. IN CASE NO. 0102
We also affirm the resolution of the Sandiganbayan allowing the intervention of COCOFED, et al. in
Civil Case No. 0102. It is the posture of the petitioners that intervention is improper since Case No.
0102 has already been withdrawn as of July 4, 1991. They hinge the right to withdraw the Joint
Petition to approve their Compromise Agreement on section 1, Rule 17 of the Rules of Court. 84 We
do not agree.
First. The right of COCOFED, et al. to intervene in cases involving these SMC shares has long been
recognized by this Court. In Soriano III v. Yuzon,85 we ruled:
"x x x
The Philippine Coconut Producers Federation (COCOFED) also came into the picture. A
Manifestation dated March 15, 1988 was filed in its behalf by its President, Ma. Clara Lobregat. The
Manifestation contained a discussion of the laws passed (and the official action taken pursuant
thereto) establishing the coconut levy and providing for the management and utilization of the funds
thereby generated. It advocated the thesis that the question of whether or not the investments of the
coconut levy fund constitute public property, essentially involves issues of fact and law which should
be resolved in the first instance by a trial court of competent jurisdiction at a hearing on the merits,
and the COCOFED should be conceded the right to demonstrate at such a hearing that the coconut
farmers, through the so-called CIIF companies, and not Mr. Cojuangco, Jr. or any of his companies,
are the beneficial owners of the disputed block of SMC shares. Alternatively, the COCOFED prayed
that it be given the opportunity to substantiate the points it thus raises in G.R. No. 74910, or in Civil
Case No. 13865 of the Regional Trial Court at Makati, or in Civil Case No. 0033 of the
Sandiganbayan entitled 'Republic v. Eduardo Cojuangco, Jr.. et al.,' or in any other case which may
hereafter be filed in litigation of the issues."86
In said case, we dismissed all the actions87 brought to us, directed the dismissal of cases pending
before the Regional Trial Courts and Securities and Exchange Commission, and ruled that:
"This dismissal is without prejudice to the assertion and ventilation before the Sandiganbayan by the
parties of their respective claims by such appropriate modes as are prescribed by law. x x x" 88
Second. We again emphasize that petitioners and the UCPB Group voluntarily submitted to and
invoked the jurisdiction of the Sandiganbayan when they filed their Joint Petition for Approval of the
Compromise Agreement and Amicable Settlement. The Sandiganbayan then immediately
exercised its jurisdiction as can be gleaned from the numerous hearings conducted and orders it
issued resolving various incidents of the case. Among others, it ordered persons and entities with
known legal interest on the subject shares to file their comments on the Joint Petition. This order
was not seasonably challenged by the petitioners. Pursuant thereto, COCOFED, et al., claiming
beneficial interests on the shares, intervened. Mr. Eduardo Cojuangco, Jr. also manifested his intent
to intervene. The right of these persons and entities to have their claims heard and resolved
cannot be defeated by the petitioners by the simple act of withdrawing their Joint Petition for
Approval of Compromise Agreement and immediately implementing its provisions. To allow
the unilateral withdrawal is to allow the petitioners to make a plaything of the jurisdiction of the
Sandiganbayan, submit to it when it is in their favor and repudiate it when it threatens to turn
against their interest. Jurisdiction is vested by law and the all too familiar rule is that once a court
has assumed jurisdiction over a case, its jurisdiction shall continue until the case is terminated. 89
Third. Petitioners cannot invoke section 1, Rule 17 of the Rules of Court which provides "that a
complaint may be dismissed by the plaintiff by filing a notice of dismissal at any time before service
of the answer or of a motion for summary judgment." The provision contemplates a complaint where
there is a plaintiff and a defendant with real conflicting interests. The cases at bar, however, are
different. They started as a Joint Petition for Approval of Compromise Agreement and Amicable
Settlement. Known persons and entities claiming adverse interests on the subject shares were not
impleaded. In other words, no party that can assail the validity of the Compromise Agreement that
involves billions of pesos and substantial state interests was impleaded in any capacity. Yet,
petitioners are aware that the subject shares of stock are sequestered and their ownership is still
under litigation in Case No. 0033. The attempt to bypass these persons and entities with interests in
the subject shares is hardly tenable and the withdrawal of the petition and its immediate
implementation when they opposed it makes petitioners' posture doubly untenable.
There is another reason why petitioners cannot rely on section 1, Rule 17 of the Rules of Court. This
provision allows the plaintiff to withdraw his complaint before defendant has answered it or filed a
motion for summary judgment. In fine, before the defendant has pleaded to the complaint. At that
point, defendant has hardly been exposed to any kind of damage or prejudice, hence, the plaintiff is
unilaterally allowed to withdraw his complaint. In the cases at bar, before the petitioners and the
UCPB Group can file their Manifestation of Withdrawal of Joint Petition for Approval of Compromise
Agreement and Amicable Settlement, COCOFED, et al. have already filed their Opposition in
Intervention and Compulsory Counter-Petition and Counterclaim for Damages. In the same vein, the
Republic, thru the OSG, has already filed its Opposition. These pleadings of COCOFED, et al. and
the Republic assail the legality of the Compromise Agreement. They can be deemed as answers to
the Joint Petition, hence, petitioners can no longer unilaterally withdraw their Joint Petition.
Fourth. Petitioners further contend that COCOFED, et al. cannot intervene because Case No. 0102
is not an action or a suit and they did not implead any adverse party and set forth no claims.
Petitioners' contention cannot merit the assent of the Court. Regardless of its nature as an action or
suit, the fault of the Joint Petition precisely lies in the attempt to bypass parties with legitimate
interests on the subject shares. The existence of these parties is known to the petitioners yet they
were not impleaded. Their failure to be impleaded is bad enough but worse still is petitioners'
submission that since they were not impleaded, ergo, they cannot intervene. It is now a musty
principle of justice that a right cannot arise from a wrong. Moreover, the Sandiganbayan did not treat
the Joint Petition as an "action or suit" but as a mere incident of Case No. 0033. In any event,
section 1, Rule 19 of the Rules of Court provides the rule on who can intervene, viz: "A person who
has a legal interest in the matter in litigation, or in the success of either of the parties, or an interest
against both, or is so situated as to be adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof, may, with leave of court, be allowed to
intervene in the action." The legal interest of COCOFED, et al. which justifies their intervention is
extensively discussed in the impugned resolution of the Sandiganbayan, viz:
"In all fairness, the motion to intervene filed by COCOFED, et al. must be granted for the following
reasons:
1. The coconut planters and producers represented by COCOFED do have a legal interest in the
matter of litigation and are so situated as to be adversely affected by the disposition of the
sequestered shares of stock subject matter of the compromise agreement.
The rule on intervention (section 2, Rule 12 of the Rules of Court) states:
'Sec. 2. Intervention - A person may, before or during a trial be permitted by the court, in its
discretion, to intervene in an action, if he has legal interest in the matter of litigation, or in the
success of either of the parties, or an interest against both, or when he is so situated as to be
adversely affected by a distribution or other disposition of property in the custody of the court or an
officer thereof.'
xxx xxx xxx
It should be borne in mind that the real subject matter of this case is the coconut levy fund of which
the SMC shares in question are claimed to be but a part. xxx
To start with, the coconut levy fund came from levies imposed upon the sale of copra or equivalent
coconut product that was deducted from the price of copra which, as claimed by movants-farmers,
would have gone to them. Thus, starting 1971, under the Coconut Investment Fund (CIF), a levy of
P0.55 was imposed on the first domestic sale of every 100 kilograms of copra or equivalent product.
In 1973, under the Coconut Consumers Stabilization Fund (CCSF), a levy of P15.00 on the first sale
of every 100 kilograms of copra resecada or equivalent product was imposed. From the CCSF was
established yet another fund, the Coconut Industry Development Fund (CIDF) whose initial capital of
P100 million and regular allotment equivalent to P.20 per kilogram of copra resecada or its
equivalent were contributed by the CCSF. (It is from this Coconut Industry Investment Fund (CIIF)
that the so-called CIIF Companies were later established). From 1981, under the Coconut Industry
Stabilization Fund which replaced the CCSF and CIDF, a levy of P50.00 for every 100 kilos of copra
resecada or equivalent product delivered to exporters and copra users was collected and
apportioned among the CIDF, COCOFED, PCA and the UCPB.
Through the years, part of the coconut levy fund was used and applied to various projects and
invested or converted into different assets, properties and businesses. xxx
xxx [T]he coconut farmers and producers do have a legal interest in the SMC shares. That legal
1wphi1
interest consists of their alleged beneficial ownership of the San Miguel shares, they being the
'registered owners and/or beneficial owners of all, or at least not less than fifty-one percent (51%), of
the capital stock of the CIIF Companies' some of which wholly own the so-called CIIF Copra Trading
Companies and the CIIF Holding Companies which are the registered stockholders of the SMC
shares. (p. 3, COCOFED'S Omnibus Class Action xxx). Their claim is based on the specific
provisions of Section 5, Article III, PD 1468, the pertinent portion of which states: 'Said fund (Coconut
Consumers Stabilization Fund and the Coconut Industry Development Fund) and the disbursements
thereof as herein authorized for the benefit of the coconut farmers shall be owned by them in their
private capacities xxx.' This Presidential Decree has been assailed by the PCGG as a 'transgression
of the basic limitation of the licit exercise of the state's taxing and police powers', but this is a legal
question yet to be resolved.
It has been argued that COCOFED, et al. should not be allowed to intervene because they have no
actual, material, direct or immediate interest in the subject matter. To be bound entirely by the form
and nature of these assets as shares of stock subject to the special laws, rules and by-laws of
corporations, is to adopt an overly strict, narrow and myopic approach. It has already been alleged
that these shares constitute ill-gotten wealth derived from the coconut levy fund. The form into which
part of the coco-levy fund has been converted is not crucial or decisive; otherwise, it would be so
easy to defeat the recovery of ill-gotten wealth by simply converting those funds, assets and
properties from one form to another and using legal technicalities to thwart all attempts to reach
them. The clear intention of the law is to recover all assets and properties illegally acquired by former
President Marcos, et al., in whatever form they may be, such as, to quote the exact wording of
Executive Order No. 2, 'in the form of bank accounts, deposits, trust accounts, shares of stocks,
buildings, shopping centers, condominium, mansions, residences, estates, and other kinds of real
and personal properties in the Philippines and in various countries of the world.' (2nd Whereas
Clause, Executive Order No. 2)
Moreover, at this stage of the proceedings, it has not yet been established who the real owners of
the SMC shares are, but if we bar movants from the start, and if it should turn out in the end that
they are the beneficial owners and that the Compromise Agreement did in fact prejudice their rights,
then we shall have done them an irreparable injustice. Fairness and prudence dictate that -- at the
risk of the inconvenience of having one more group to be heard on the matter -- We exercise our
discretion in favor of allowing them to intervene."90
Under the rules on intervention, the allowance or disallowance of a motion to intervene is addressed
to the sound discretion of the court.91 Discretion is a faculty of a court or an official by which he
may decide a question either way, and still be right.92 The permissive tenor of the rules shows an
intention to give to the court the full measure of discretion in permitting or disallowing the
intervention. The discretion of the court, once exercised, cannot be reviewed by certiorari nor
controlled by mandamus save in instances where such discretion has been so exercised in an
arbitrary or capricious manner.93
Nor are we impressed by petitioners' submission that COCOFED, et al. should pay a docket fee for
their counter-petition and counterclaim for damages. We note that it was the Sandiganbayan itself
that ordered COCOFED and the other defendants in Civil Case No. 0033 to give their comment to
the Joint Petition for Approval of Compromise Agreement, etc. In response to this order, COCOFED,
et al. filed their Opposition-in-Intervention and Compulsory Counter-Petition and Counterclaim for
Damages. COCOFED, et al. alleged that the Compromise Agreement is illegal and its approval
would bring damages to themselves. In effect, COCOFED, et al. alleged a compulsory counterclaim
for which they need not pay any docket fee.
Fifth. Petitioners cannot insist on their right to have their Compromise Agreement approved on the
ground that it bears the imprimatur of the PCGG. To be sure, the consent of the PCGG is a factor
that should be considered in the approval or disapproval of the subject Compromise Agreement but
it is not the only factor.
In Republic vs. Sandiganbayan,94 this Court had the occasion to categorically draw the distinctions
between (i) the Sandiganbayan's exclusive jurisdiction to determine the judicial question of
ownership over sequestered properties and (ii) the incidents of the exercise by the PCGG of its
purely administrative and executive functions as conservator of sequestered properties, as follows:
"In other words, neither in Pea nor in any other case did this Court ever say that orders of
sequestration, seizure or take-over of the PCGG or other acts done in the exercise of its so-
called 'primary administrative jurisdiction' are beyond judicial review, or beyond the power of the
courts to reverse or nullify. It is true, of course, that those acts are entitled to much respect, the
findings and conclusions motivating and justifying them should be accorded great weight, 'like the
factual findings of the trial and appellate courts,' and such findings and conclusions of the PCGG
may not be superseded and substituted by the judgment of the courts. But obviously the principle
does not and cannot sanction arbitrary, whimsical, capricious or oppressive exercise of power and
discretion on the part of the PCGG, or its performance of acts without or in excess of its authority
and competence under the law. And in accordance with applicable law, review of those acts, and
correction or invalidation thereof, when called for, can only be undertaken by the Sandiganbayan,
which has exclusive original jurisdiction over all cases regarding 'the funds, moneys, assets and
properties illegally acquired or misappropriated by former President Ferdinand E. Marcos, Mrs.
Imelda Romualdez Marcos, their close relatives, subordinates, business associates, dummies,
agents or nominees.'"95 (emphasis supplied)
This ruling has stronger application in the cases at bar considering that COCOFED, et al. have
challenged the legality of the consent given by PCGG to the Compromise Agreement on various
grounds but especially in light of the "arbitration fee" it received in the form of SMC shares of
substantial value. COCOFED, et al.'s position that the Compromise Agreement is a sell out of its
interest is also a repudiation of the so called "business judgment" of UCPB which petitioners insist
should bind COCOFED, et al.
A final word. The cases at bar involve shares of stock estimated to be worth more than P9 billion
now. These shares were sequestered in 1986 and the government filed Civil Case No. 0033 in 1987
to determine whether they are part of the alleged ill-gotten wealth of former President Marcos and
his "cronies." We did not set aside the impugned resolutions of the Sandiganbayan in the cases at
bar for they constitute cautious moves to preserve the character of the sequestered shares pending
determination of their true owners. Be that as it may, we note that Civil Case No. 0033 has remained
unresolved by the Sandiganbayan. The delay is no longer tolerable for it locks in billions of pesos
which could well rev-up our sputtering economy. Worse, it constitutes another embarassing evidence
of snail-paced justice, so long lamented but mostly by our lips alone. The Sandiganbayan must not
be the burial ground of cases of far-reaching importance to our people. It is time for it to write finis to
Civil Case No. 0033.
IN VIEW WHEREOF, the petitions in G.R. Nos. 104637-38 and in G.R. No. 109797 are DISMISSED.
No costs.
SO ORDERED.
Davide, Jr., C.J., Melo, Vitug, Kapunan, Mendoza, Purisima, Buena, Gonzaga-Reyes, and De Leon,
Jr., JJ., concur.
Bellosillo, J., vote & approve the Compromise Agreement.
Pardo, J., Pls. see dissent.
Quisumbing, J., I join the dissent of J. B. Pardo.
Panganiban, J., No part. As a former practising lawyer, have rendered an opinion on the issues of
this case.
Ynares-Santiago, J., on leave.
The Lawphil Project - Arellano Law Foundation
DISSENTING
PARDO, J.:
I regret to dissent from the majority decision upholding the disapproval of the compromise
agreement by the Sandiganbayan.
The resolutions of the Sandiganbayan, subject of the two (2) petitions for review on certiorari before
the Court would bar the implementation of a compromise agreement entered into by the SMC Group
and the UCPB Group regarding the thirty (30) million plus shares of SMC in the name of the fourteen
(14) holding companies of the CIIF Group of Companies.
On April 27, 1990, the Sandiganbayan directed the parties to Civil Case No. 0033 1 [Republic v.
Cojuangco, et al.] to fromalize a statement of their interest on the subject matter of the compromise.
A majority of the parties in Civil Case No. 0033 signified that they were not intervening. Cojuangco
and COCOFED, et al., were the only ones who claimed indirect interest, as stockholders of SMC
and UCPB. Lobregat and others not being parties to Civil Case No. 0033, filed their motion for leave
to intervene and to admit their opposition and also interposed a compulsory counterclaim for
damages.
On June 3, 1991, the Sandiganbayan issued a resolution that:

(a) The sequestered character of the SMC shares subject of the compromise, is independent
of the transaction involving the contracting parties;
(b) The reversions contemplated are without prejudice to sequestration;
(c) The PCGG has not interposed any objection to the contractual resolution of the problems
confronting the SMC and the UCPB groups.
Pursuant to June 3, 1991 Sandiganbayan resolution, the SMC Group and the UCPB Group
implemented the compromise agreement. They withdrew the joint petition for approval of the
compromise, and the PCGG gave its express conformity to the withdrawal.
In First Philippines, the Court held that, "Under the Civil Code, the court may reject a compromise
only if it is covered by the prohibition under Art. 2035, Civil Code. No compromise upon the following
question shall be valid: 1. The civil status of persons; 2. The validity of a marriage or legal
separation; 3. Any ground for legal separation; 4. Future support; 5. The jurisdiction of courts; 6.
Future legitime."
Article 2036, Civil Code provides that "a compromise comprises only objects which are definitely
stated therein, or which by necessary implication from its terms should be deemed to have been
included in the same. A general renunciation of rights is understood to refer only to those that are
connected with the dispute which is the subject of the compromise, or if it is, in general, contrary to
"law, morals, good customs, public order or public policy."2[First Philippine Holdings Corp. v.
Sandiganbayan, 202 SCRA 212, 219-220 [1991].]
Compromises, being consensual contracts, are perfected upon the meeting of minds of the parties.
Judicial approval is not required for its perfection. 3 Sanches v. Court of Appeals, 279 SCRA 647
[1997].]
In Republic of the Philippines v. Sandiganbayan,4 [173 SCRA 729 [1989].] "this Court categorically
stated that amicable settlements and compromises are not allowed but actually encouraged in civil
cases. In Benedicto v. Board of Administrators of Television Stations RPN, BBC and IBC, 5 [207
SCRA 659 [1992].] the Court ruled that the authority of the PCGG to validly enter into compromise
agreements for the purpose of avoiding litigation or putting an end to one already commenced was
indisputable. The Court took cognizance of the fact that the compromise agreement which is now the
subject of the present petition was pending before the Sandiganbayan for determination and
approval and, therefore, dismissed the petition directed against the agreements implementation and
enforcement."
The compromise is merely a contractual resolution of disputes since all that the compromise
resolves and lays to rest are the rights and obligations of the seller (UCPB) and the buyer (SMC)
under the March 1986 agreement (executed prior to the sequestration). Hence, Case No. 102 does
not involve COCOFED, et al.
Advantages of the approval of the compromise agreement.
On the part of SMC, in exchange for the P500 million down payment, it will receive 26,450,000
million shares to be treated as treasury shares. If 25,450,000 shares will be dispersed according to a
plan approved by the PCGG, the proceeds will enable SMC to be reimbursed for the P500 million
investment costs and be able to use such proceeds for its expansion program.
On the part of the UCPB group, the CIIF companies will be entitled to the dividends which as of 1993
amounted to P692,343,458.57, more than enough to pay out their debts and thus prevent its
collapse an foreclosure.
On the part of the PCGG, in the event that the assets involved are adjudged ill-gotten, the
government will be the owner of UCPB and the CIIF companies and their assets. So it is to the
interest of the government that said assets be preserved. The compromise agreement puts an end
to the claim of the SMC group to the sequestered shares. The Government will receive 5,500,000
shares in trust for the Comprehensive Agrarian Reform Program (CARP).
We are concerned with the SMC shares paid for with the P500 million first installment. The proceeds
of the sale of the five (5) million shares converted to treasury shares are with the UCPB, a
sequestered company. Thus, the interest of the government remains protected. In Liwayway
Publishing, Inc. v. PCGG,6 [160 SCRA 716 [1998].] we held "rights of the parties and of the
government, are adequately protected by the acceptance of a cash deposit for the shares in the
name of Eduardo Cojuangco, Jr."
We can not take as facts what was related in the book of Senator Jovito R. Salonga that the money
used to purchase the disputed shares would come from the sale by a San Miguel subsidiary of a
profitable Hong Kong company to Anheuser Busch for HK $1 or roughly P2.6 billion. This assertion
was based on "reliable accounts" not on indubitable facts. In fact, in SMC v. Khan, 7 [176 SCRA 447,
454 [1989].] it was alleged through the petition filed by Atty. Eduardo de los Angeles that, on April 1,
1986 Soriano, Kahn and Roxas, as directors of Neptunia Corporation, Ltd., had met and passed a
resolution authorizing the company to borrow up to $26,500,000.00 from the Hongkong Shanghai
Banking Corporation, HongKong, to enable the Soriano family to initiate steps and sign an
agreement for the purchase of some 33,133,266 shares of San Miguel Corporation. The loan of
$26,500,000.00 was obtained on the same day, the loan agreement was signed for Neptunia by
Ralph Karr and Carl Ottiger.
Consequently, there is no basis for ruling that the money involved in the compromise agreement
would come from an illegal source. The Sandiganbayan exceeded its jurisdiction and acted with
grave abuse of discretion when it required SMC to turn over treasury shares to the Sandiganbayan,
and worse, to pay dividends on treasury shares. By law, treasury shares do not earn
dividends.8 [Com. of Internal Revenue vs. Manning, 66 SCRA 14 [1975].]
IN VIEW WHEREOF, I vote to SET ASIDE the Sandiganbayan resolutions and to APPROVE the
compromise agreement.
Footnotes
1
Composed of fourteen companies, namely: Soriano Shares, Inc.; ASC Investors Inc.; Roxas
Shares, Inc.; ARC Investors, Inc.; APHOLDINGS, Inc.; TODA Holdings, Inc.; Fernandez
Holdings, Inc.; San Miguel Officers Corps, Inc.; Te Deum Resources, Inc.; ANGLO Ventures,
Inc.; First Meridian Development, Inc.; Rock Steel Resources, Inc.; Randy Allied Ventures,
Inc. and Valhalla Properties Limited, Inc.
2
Annex "A" of Petition in G.R. No. 104637-38; Rollo (Vol. I), pp. 34-50.
3
See also Salonga, Presidential Plunder, The Quest for the Marcos Ill-Gotten Wealth, pp.
100-101.
4
Docketed as Civil Case No. 13865.
5
Entitled "Soriano III, et al. vs. Hon. Manuel Yuzon, et al." and docketed as G.R. No. 74910.
6
Soriano III vs. Yuzon, 164 SCRA 226 (1988).
7
Annex "F" of Petition in G.R. No. 104637-38; Rollo (Vol. I), pp. 90-99.
8
Id., pp. 93-94.
9
Joint Manifestation for Implementation of Compromise Agreement and Amicable Settlement
and of Withdrawal of Petition, Annex "L" of Petition in G.R. No. 104637-38, pp. 2-
3; Rollo (Vol. I), pp. 192-193.
10
Annex "G", ibid.; Rollo (Vol. I), pp. 100-117.
11
Annex "I" of Petition in G.R. No. 109797; Rollo, p. 95.
Annex "5" of COCOFED, et al.'s Supplemental Comment in G.R. No. 109797; Rollo, pp.
12
390-435.
13
Id., pp. 26-28; Rollo, pp. 415-417.
14
Id., pp. 42-44; Rollo, pp. 431-433.
15
Annex "O" of Petition in G.R. No. 109797; Rollo, pp. 144-146.
Referring to Maria Clara L. Lobregat, Bienvenido Marquez, Jose R. Eleazar, Jr., Domingo
16
Espina, Jose Gomez, Celestino Sabate, Manuel del Rosario, Jose Martinez, Jr., Jose
Reynaldo Morente and Eladio Chatto.
17
Annex "Q" of Petition in G.R. No. 109797; Rollo, pp. 149-164.
18
Annex "H" in G.R. No. 104637-38; Rollo (Vol. I), pp. 118-119.
19
Annex "H-1", id., pp. 120-136.
20
Supra note 18.
21
Supra note 19, pp. 129-131.
22
Annex "H-2", id., pp. 137-139.
23
Annex "J-1", id., pp. 158-189.
24
Annex "T" of Petition in G.R. No. 109797; Rollo, p. 225.
25
Ibid.
Annex "6" of COCOFED, et al.'s Memorandum; Rollo, G.R. No. 104637-38 (Vol. II), pp.
26
781-797.
27
Annex "U" of Petition in G.R. No. 109797; Rollo, p. 226.
28
798-801.
29
Annex "8", ibid.; Rollo (Vol. II), pp. 802-803.
31
Annex "9", ibid.; Rollo (Vol. II), p. 804-807.
31
Annex "K" of Petition in G.R. No. 104637-38; Rollo (Vol. I), p. 190.
32
Annex "L", id., pp. 191-193.
33
Id., pp. 2-3.
34
Annex "M", id., pp. 194-195.
Cojuangco, Jr. filed his Motion to Nullify Implementation of "Compromise Agreement and
35
Amicable Settlement" dated March 20 and 22, 1991 with Urgent Prayer for Temporary
Restraining Order, Annex "N",id., pp. 196-201; COCOFED, et al. filed their Class Action
Manifestation and Motion, Annex "N-1", id., pp. 204-212.
36
Annex "O", id., p. 213.
Annex "10" of COCOFED, et al.'s Memorandum; Rollo, G.R. No. 104637-38 (Vol . II), pp.
37
808-809.
38
Annex "P" of Petition in G.R. No. 104637-38; Rollo (Vol. I), pp. 214-215.
39
Annex "11" of COCOFED, et al.'s Memorandum; Rollo (Vol. II), pp. 810-813.
40
Annex "Q" of Petition in G.R. No. 104637-38; Rollo (Vol. I), pp. 216-218.
41
Annex "T", id., p. 231.
42
949-953.
43
Annex "R" of Petition in G.R. No. 104637-38; Rollo (Vol. I), pp. 219-220.
44
Annex "V", id., pp. 257-262.
45
Annex "U", id., p. 232-237.
46
Annex "A" of Petition in G. R. No. 109797; Rollo, pp. 25-38.
47
Annex "B" , ibid.; Rollo, pp. 39-45.
48
Annex "W" of Petition in G.R. No. 104637-38; Rollo (Vol. I), pp. 266-270.
49
Annex "Y", ibid.; Rollo (Vol. I), pp. 291-314.
50
Annex "AA" of Petition in G.R. No. 109797; Rollo, pp. 242-247.
51
Annex "C" of Petition in G.R. No. 109797; Rollo, p. 46.
Reiterating Sandiganbayan Resolution dated July 23, 1991 and denying petitioners'
52
Manifestation and Motion for Reconsideration.
53
Annex "W" of Petition in G.R. No. 104637-38; Rollo (Vol. I), pp. 266-270.
54
The Resolution denied petitioners Motion for Reconsideration.
55
Annex "Y" of Petition in G.R. No. 104637-38; Rollo (Vol. I), pp. 291-314.
56
Annex "A" of Petition in G.R. No. 109797; Rollo, pp. 25-38.
57
Annex "B", ibid.; Rollo, pp. 39-45.
58
Annex "C", ibid., Rollo, p. 46.
59
Petition in G.R. No. 104637-38, p. 12; Rollo (Vol. I), p. 17.
60
Petition in G.R. No. 109797, pp. 10-11; Rollo, pp. 11-12.
61
COCOFED, et al.'s Comment in G.R. No. 104637-38, pp. 25-26; Rollo (Vol. I), pp. 384-385.
62
COCOFED, et al.'s Comment in G.R. No. 109797, pp. 10-11; Rollo, pp. 275-276.
Toyota Autoparts, Phil., Inc. vs. Director of Bureau of Labor Relations of the Department of
63
Labor and Employment, 304 SCRA 95 (1999).
Respondent COCOFED estimates the value of the shares as P9.4 billion. See
64
Consolidated Memorandum, p. 46; Rollo (Vol. II) in G.R. No. 104637-38, p. 762.
65
Annex "F" of Petition in GR No. 104637-38, p. 7; Rollo (Vol. I), p. 96.
66
Annex "H-1" of Petition in G.R. No. 104637-38, pp. 11-12; Rollo (Vol. I), pp. 130-131.
Annex "9" of COCOFED, et al.'s Memorandum in G.R. No. 104637-38; Rollo (Vol. II), pp.
67
804-807.
68
Id., p. 804.
69
150 SCRA 181 (1987).
70
Id., pp. 208-209.
71
Resolution dated July 5, 1991, Annex "O" of Petition in G.R. No. 104637-38; Rollo (Vol. I),
p. 213.
Sandiganbayan Resolution dated March 18, 1992, pp. 19-20; Annex "Y" of Petition in G.R.
72
No. 104637-38; Rollo (Vol. I), pp. 310-311.
73
[66 SCRA 14 (1975).
74
Id., pp. 23-24.
75
Broken down as 3,858,831 class "A" shares and 1,641,169 class "B" shares.
See COCOFED, et al.'s Consolidated Memorandum, p. 47; Rollo (Vol. II) in G.R. No.
76
104637-38, p. 763.
77
Id., p. 48. It considered the shares' stock market value and a premium of 3.48 times the
composite price.
78
202 SCRA 212 (1991).
79
SMC's Memorandum, pp. 29-30; Rollo (Vol. II) in G.R. No. 104637-38, pp. 1026-1027.
80
81
Annex "Y" of Petition in G.R. No. 104637-38, pp. 13-16; Rollo (Vol. I), pp. 304-307.
82
Id., p. 14; Rollo (Vol. I), p. 305.
83
84
It states that "an action may be dismissed by the plaintiff without order of court by filing a
notice of dismissal at any time before service of the answer or of a motion for summary
judgment x x x."
85
Supra note 6.
86
Id., pp. 239-240.
87
G.R. Nos. L-74910, 75075, 75094, 76397, 79459 and 79520.
88
Soriano III vs. Yuzon, supra at 242.
89
Guimoc v. Rosales, 201 SCRA 468 (1991).
90
Resolution dated September 30, 1991, Annex "A" of Petition in G.R. No. 109797, pp. 5-7,
9-12; Rollo, pp. 29-31, 33-36.
91
Section 2 (b), Rule 12 of the Rules of Court.
Toyota Autoparts, Phil., Inc. vs. Director of Bureau of Labor Relations of the Department of
92
Labor and Employment, 304 SCRA 95 (1999).
93
Big Country Ranch Corp. vs. Court of Appeals, 227 SCRA 161 (1993).
94
206 SCRA 506 (1992).
95
Id., p. 517.
Amendment

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 93073 December 21, 1992
REPUBLIC PLANTERS BANK, petitioner,

vs.
COURT OF APPEALS and FERMIN CANLAS, respondents.
CAMPOS, JR., J.:

This is an appeal by way of a Petition for Review on Certiorari from the decision * of the Court of Appeals in
CA G.R. CV No. 07302, entitled "Republic Planters Bank.Plaintiff-Appellee vs. Pinch Manufacturing Corporation, et al., Defendants, and
Fermin Canlas, Defendant-Appellant", which affirmed the decision ** in Civil Case No. 82-5448 except that it completely absolved Fermin
Canlas from liability under the promissory notes and reduced the award for damages and attorney's fees. The RTC decision, rendered on
June 20, 1985, is quoted hereunder:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiff Republic Planters Bank, ordering defendant Pinch Manufacturing Corporation
(formerly Worldwide Garment Manufacturing, Inc.) and defendants Shozo Yamaguchi
and Fermin Canlas to pay, jointly and severally, the plaintiff bank the following sums
with interest thereon at 16% per annum from the dates indicated, to wit:
Under the promissory note (Exhibit "A"), the sum of P300,000.00 with interest from
January 29, 1981 until fully paid; under promissory note (Exhibit "B"), the sum of
P40,000.00 with interest from November 27, 1980; under the promissory note
(Exhibit "C"), the sum of P166,466.00 which interest from January 29, 1981; under
the promissory note (Exhibit "E"), the sum of P86,130.31 with interest from January
29, 1981; under the promissory note (Exhibit "G"), the sum of P12,703.70 with
interest from November 27, 1980; under the promissory note (Exhibit "H"), the sum of
P281,875.91 with interest from January 29, 1981; and under the promissory note
(Exhibit "I"), the sum of P200,000.00 with interest from January 29, 1981.
Under the promissory note (Exhibit "D") defendants Pinch Manufacturing Corporation
(formerly named Worldwide Garment Manufacturing, Inc.), and Shozo Yamaguchi
are ordered to pay jointly and severally, the plaintiff bank the sum of P367,000.00
with interest of 16% per annum from January 29, 1980 until fully paid
Under the promissory note (Exhibit "F") defendant corporation Pinch (formerly
Worldwide) is ordered to pay the plaintiff bank the sum of P140,000.00 with interest
at 16% per annum from November 27, 1980 until fully paid.
Defendant Pinch (formely Worldwide) is hereby ordered to pay the plaintiff the sum of
P231,120.81 with interest at 12% per annum from July 1, 1981, until fully paid and
the sum of P331,870.97 with interest from March 28, 1981, until fully paid.
All the defendants are also ordered to pay, jointly and severally, the plaintiff the sum
of P100,000.00 as and for reasonable attorney's fee and the further sum equivalent
to 3% per annum of the respective principal sums from the dates above stated as
penalty charge until fully paid, plus one percent (1%) of the principal sums as service
charge.
With costs against the defendants.
SO ORDERED. 1
From the above decision only defendant Fermin Canlas appealed to the then Intermediate Court
(now the Court Appeals). His contention was that inasmuch as he signed the promissory notes in his
capacity as officer of the defunct Worldwide Garment Manufacturing, Inc, he should not be held
personally liable for such authorized corporate acts that he performed. It is now the contention of the
petitioner Republic Planters Bank that having unconditionally signed the nine (9) promissory notes
with Shozo Yamaguchi, jointly and severally, defendant Fermin Canlas is solidarity liable with Shozo
Yamaguchi on each of the nine notes.
We find merit in this appeal.
From the records, these facts are established: Defendant Shozo Yamaguchi and private respondent
Fermin Canlas were President/Chief Operating Officer and Treasurer respectively, of Worldwide
Garment Manufacturing, Inc.. By virtue of Board Resolution No.1 dated August 1, 1979, defendant
Shozo Yamaguchi and private respondent Fermin Canlas were authorized to apply for credit facilities
with the petitioner Republic Planters Bank in the forms of export advances and letters of credit/trust
receipts accommodations. Petitioner bank issued nine promissory notes, marked as Exhibits A to I
inclusive, each of which were uniformly worded in the following manner:
___________, after date, for value received, I/we, jointly and severaIly promise to
pay to the ORDER of the REPUBLIC PLANTERS BANK, at its office in Manila,
Philippines, the sum of ___________ PESOS(....) Philippine Currency...
On the right bottom margin of the promissory notes appeared the signatures of Shozo Yamaguchi
and Fermin Canlas above their printed names with the phrase "and (in) his personal capacity"
typewritten below. At the bottom of the promissory notes appeared: "Please credit proceeds of this
note to:
________ Savings Account ______XX Current Account
No. 1372-00257-6
of WORLDWIDE GARMENT MFG. CORP.
These entries were separated from the text of the notes with a bold line which ran horizontally
across the pages.
In the promissory notes marked as Exhibits C, D and F, the name Worldwide Garment
Manufacturing, Inc. was apparently rubber stamped above the signatures of defendant and private
respondent.
On December 20, 1982, Worldwide Garment Manufacturing, Inc. noted to change its corporate name
to Pinch Manufacturing Corporation.
On February 5, 1982, petitioner bank filed a complaint for the recovery of sums of money covered
among others, by the nine promissory notes with interest thereon, plus attorney's fees and penalty
charges. The complainant was originally brought against Worldwide Garment Manufacturing,
Inc. inter alia, but it was later amended to drop Worldwide Manufacturing, Inc. as defendant and
substitute Pinch Manufacturing Corporation it its place. Defendants Pinch Manufacturing Corporation
and Shozo Yamaguchi did not file an Amended Answer and failed to appear at the scheduled pre-
trial conference despite due notice. Only private respondent Fermin Canlas filed an Amended
Answer wherein he, denied having issued the promissory notes in question since according to him,
he was not an officer of Pinch Manufacturing Corporation, but instead of Worldwide Garment
Manufacturing, Inc., and that when he issued said promissory notes in behalf of Worldwide Garment
Manufacturing, Inc., the same were in blank, the typewritten entries not appearing therein prior to the
time he affixed his signature.
In the mind of this Court, the only issue material to the resolution of this appeal is whether private
respondent Fermin Canlas is solidarily liable with the other defendants, namely Pinch Manufacturing
Corporation and Shozo Yamaguchi, on the nine promissory notes.
We hold that private respondent Fermin Canlas is solidarily liable on each of the promissory notes
bearing his signature for the following reasons:
The promissory motes are negotiable instruments and must be governed by the Negotiable
Instruments Law. 2
Under the Negotiable lnstruments Law, persons who write their names on the face of promissory
notes are makers and are liable as such. 3 By signing the notes, the maker promises to pay to the order
of the payee or any holder4 according to the tenor thereof. 5 Based on the above provisions of law, there is
no denying that private respondent Fermin Canlas is one of the co-makers of the promissory notes. As
such, he cannot escape liability arising therefrom.
Where an instrument containing the words "I promise to pay" is signed by two or more persons, they
are deemed to be jointly and severally liable thereon. 6 An instrument which begins" with "I" ,We" , or
"Either of us" promise to, pay, when signed by two or more persons, makes them solidarily liable. 7 The
fact that the singular pronoun is used indicates that the promise is individual as to each other; meaning
that each of the co-signers is deemed to have made an independent singular promise to pay the notes in
full.
In the case at bar, the solidary liability of private respondent Fermin Canlas is made clearer and
certain, without reason for ambiguity, by the presence of the phrase "joint and several" as describing
the unconditional promise to pay to the order of Republic Planters Bank. A joint and several note is
one in which the makers bind themselves both jointly and individually to the payee so that all may be
sued together for its enforcement, or the creditor may select one or more as the object of the suit. 8 A
joint and several obligation in common law corresponds to a civil law solidary obligation; that is, one of several debtors bound in such wise
that each is liable for the entire amount, and not merely for his proportionate share. 9 By making a joint and several promise to
pay to the order of Republic Planters Bank, private respondent Fermin Canlas assumed the solidary
liability of a debtor and the payee may choose to enforce the notes against him alone or jointly with
Yamaguchi and Pinch Manufacturing Corporation as solidary debtors.
As to whether the interpolation of the phrase "and (in) his personal capacity" below the signatures of
the makers in the notes will affect the liability of the makers, We do not find it necessary to resolve
and decide, because it is immaterial and will not affect to the liability of private respondent Fermin
Canlas as a joint and several debtor of the notes. With or without the presence of said phrase,
private respondent Fermin Canlas is primarily liable as a co-maker of each of the notes and his
liability is that of a solidary debtor.
Finally, the respondent Court made a grave error in holding that an amendment in a corporation's
Articles of Incorporation effecting a change of corporate name, in this case from Worldwide Garment
manufacturing Inc to Pinch Manufacturing Corporation extinguished the personality of the original
corporation.
The corporation, upon such change in its name, is in no sense a new corporation, nor the successor
of the original corporation. It is the same corporation with a different name, and its character is in no
respect changed.10
A change in the corporate name does not make a new corporation, and whether effected by special
act or under a general law, has no affect on the identity of the corporation, or on its property, rights,
or liabilities. 11
The corporation continues, as before, responsible in its new name for all debts or other liabilities
which it had previously contracted or incurred. 12
As a general rule, officers or directors under the old corporate name bear no personal liability for
acts done or contracts entered into by officers of the corporation, if duly authorized. Inasmuch as
such officers acted in their capacity as agent of the old corporation and the change of name meant
only the continuation of the old juridical entity, the corporation bearing the same name is still bound
by the acts of its agents if authorized by the Board. Under the Negotiable Instruments Law, the
liability of a person signing as an agent is specifically provided for as follows:
Sec. 20. Liability of a person signing as agent and so forth. Where the instrument
contains or a person adds to his signature words indicating that he signs for or on
behalf of a principal , or in a representative capacity, he is not liable on the
instrument if he was duly authorized; but the mere addition of words describing him
as an agent, or as filling a representative character, without disclosing his principal,
does not exempt him from personal liability.
Where the agent signs his name but nowhere in the instrument has he disclosed the fact that he is
acting in a representative capacity or the name of the third party for whom he might have acted as
agent, the agent is personally liable to take holder of the instrument and cannot be permitted to
prove that he was merely acting as agent of another and parol or extrinsic evidence is not admissible
to avoid the agent's personal liability. 13
On the private respondent's contention that the promissory notes were delivered to him in blank for
his signature, we rule otherwise. A careful examination of the notes in question shows that they are
the stereotype printed form of promissory notes generally used by commercial banking institutions to
be signed by their clients in obtaining loans. Such printed notes are incomplete because there are
blank spaces to be filled up on material particulars such as payee's name, amount of the loan, rate
of interest, date of issue and the maturity date. The terms and conditions of the loan are printed on
the note for the borrower-debtor 's perusal. An incomplete instrument which has been delivered to
the borrower for his signature is governed by Section 14 of the Negotiable Instruments Law which
provides, in so far as relevant to this case, thus:
Sec. 14. Blanks: when may be filled. Where the instrument is wanting in any
material particular, the person in possesion thereof has a prima facie authority to
complete it by filling up the blanks therein. ... In order, however, that any such
instrument when completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up strictly in accordance with the
authority given and within a reasonable time...
Proof that the notes were signed in blank was only the self-serving testimony of private respondent
Fermin Canlas, as determined by the trial court, so that the trial court ''doubts the defendant (Canlas)
signed in blank the promissory notes". We chose to believe the bank's testimony that the notes were
filled up before they were given to private respondent Fermin Canlas and defendant Shozo
Yamaguchi for their signatures as joint and several promissors. For signing the notes above their
typewritten names, they bound themselves as unconditional makers. We take judicial notice of the
customary procedure of commercial banks of requiring their clientele to sign promissory notes
prepared by the banks in printed form with blank spaces already filled up as per agreed terms of the
loan, leaving the borrowers-debtors to do nothing but read the terms and conditions therein printed
and to sign as makers or co-makers. When the notes were given to private respondent Fermin
Canlas for his signature, the notes were complete in the sense that the spaces for the material
particular had been filled up by the bank as per agreement. The notes were not incomplete
instruments; neither were they given to private respondent Fermin Canlas in blank as he claims.
Thus, Section 14 of the NegotiabIe Instruments Law is not applicable.
The ruling in case of Reformina vs. Tomol relied upon by the appellate court in reducing the interest
rate on the promissory notes from 16% to 12% per annum does not squarely apply to the instant
petition. In the abovecited case, the rate of 12% was applied to forebearances of money, goods or
credit and court judgemets thereon, only in the absence of any stipulation between the parties.
In the case at bar however , it was found by the trial court that the rate of interest is 9% per annum,
which interest rate the plaintiff may at any time without notice, raise within the limits allowed law. And
so, as of February 16, 1984 , the plaintiff had fixed the interest at 16% per annum.
This Court has held that the rates under the Usury Law, as amended by Presidential Decree No.
116, are applicable only to interests by way of compensation for the use or forebearance of money.
Article 2209 of the Civil Code, on the other hand, governs interests by way of damages. 15 This fine
distinction was not taken into consideration by the appellate court, which instead made a general
statement that the interest rate be at 12% per annum.
Inasmuch as this Court had declared that increases in interest rates are not subject to any ceiling
prescribed by the Usury Law, the appellate court erred in limiting the interest rates at 12% per
annum. Central Bank Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest
rates. 16
In the 1ight of the foregoing analysis and under the plain language of the statute and jurisprudence
on the matter, the decision of the respondent: Court of Appeals absolving private respondent Fermin
Canlas is REVERSED and SET ASIDE. Judgement is hereby rendered declaring private respondent
Fermin Canlas jointly and severally liable on all the nine promissory notes with the following sums
and at 16% interest per annum from the dates indicated, to wit:
Under the promissory note marked as exhibit A, the sum of P300,000.00 with interest from January
29, 1981 until fully paid; under promissory note marked as Exhibit B, the sum of P40,000.00 with
interest from November 27, 1980: under the promissory note denominated as Exhibit C, the amount
of P166,466.00 with interest from January 29, 1981; under the promissory note denominated as
Exhibit D, the amount of P367,000.00 with interest from January 29, 1981 until fully paid; under the
promissory note marked as Exhibit E, the amount of P86,130.31 with interest from January 29, 1981;
under the promissory note marked as Exhibit F, the sum of P140,000.00 with interest from
November 27, 1980 until fully paid; under the promissory note marked as Exhibit G, the amount of
P12,703.70 with interest from November 27, 1980; the promissory note marked as Exhibit H, the
sum of P281,875.91 with interest from January 29, 1981; and the promissory note marked as Exhibit
I, the sum of P200,000.00 with interest on January 29, 1981.
The liabilities of defendants Pinch Manufacturing Corporation (formerly Worldwide Garment

Manufacturing, Inc.) and Shozo Yamaguchi, for not having appealed from the decision of the trial
court, shall be adjudged in accordance with the judgment rendered by the Court a quo.
With respect to attorney's fees, and penalty and service charges, the private respondent Fermin
Canlas is hereby held jointly and solidarity liable with defendants for the amounts found, by the
Court a quo. With costs against private respondent.
SO ORDERED.
Narvasa, C.J., (Chairman), Feliciano, Regalado and Nocon, JJ., concur.

Footnotes
* Associate Justice Hector C. Fule, ponente, Associate Justices Lorna S. Lombos-de

la Fuente and Luis L. Victor, concurring.
** Penned by Judge Daniel C. Macaraeg, RTC Manila, Branch LX.
1 Rollo, pp. 49-50.
2 Act 2031, enacted on February 3, 1911.
3 Negotiable Instruments Law, section 184; H.D. Lee Merchantile Co. vs. Merchantile
Co., 276 P. 807 (1929).
4 Ibid., Section 1.
5 lbid., Section 60.
6 lbid-, Section 17 (g).
7 Powell vs- Mobley, 142 S.E. 678 (1928); Keenig vs. Curran's Restaurant, 159 Atl.
553 (1932).
8 Rice vs.Gove, 22 pick Mass 158; 33 AM Dec. 724.
9 Blacks Law Dictionary, p. 1249 (5th ed., 1979
10 6 Fletcher, Cyclopedia of the Law of Private Corporations, pp. 224-225 (Rev. ed.,
1968).
11 Mutual Building & Loan Association vs. Corum, 220 Cal. 282, citing Corpus Juris;
30 P- 2d 509, 514 (1934)- Pilsen Brewing Co. vs. Wallace, 291 ILL. 59, 125 N.E.
714, 8 A.L.R. 579 (1919).
12 Ozan Lumber Co. vs. Davis Sewing Machine Co., 284 F-161 (1922); 18 C.J.S.
572.
13 Crocker National Bank vs. Say, 209 Cal. 436; 288 P. 69 (1930); Dayries vs.
Lindsly, 54 So. 791 (1911); Granada vs. PNB, 18 SCRA 1 (1966).
14 139 SCRA 260 (1985).
15 GSIS vs. Court of Appeals, 145 SCRA 311 (1986).
16 Philippine National Bank vs. Court of Appeals, 196 SCRA 536 (1991).
Doctrine of corporate entity vs piercing the veil of corporate fiction

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 170689 March 17, 2009
PANTRANCO EMPLOYEES ASSOCIATION (PEA-PTGWO) and PANTRANCO RETRENCHED

EMPLOYEES ASSOCIATION (PANREA), Petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC), PANTRANCO NORTH EXPRESS, INC.
(PNEI), PHILIPPINE NATIONAL BANK (PNB), PHILIPPINE NATIONAL BANK-MANAGEMENT
AND DEVELOPMENT CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY AND
HOLDINGS CORPORATION (MEGA PRIME), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 170705 March 17, 2009
PHILIPPINE NATIONAL BANK, Petitioner,

vs.
PANTRANCO EMPLOYEES ASSOCIATION, INC. (PEA-PTGWO), PANTRANCO RETRENCHED
EMPLOYEES ASSOCIATION (PANREA) AND PANTRANCO ASSOCIATION OF CONCERNED
EMPLOYEES (PACE), ET AL., PHILIPPINE NATIONAL BANK-MANAGEMENT DEVELOPMENT
CORPORATION (PNB-MADECOR), and MEGA PRIME REALTY HOLDINGS, INC., Respondents.
DECISION
NACHURA, J.:
Before us are two consolidated petitions assailing the Court of Appeals (CA) Decision 1 dated June 3,
2005 and its Resolution2 dated December 7, 2005 in CA-G.R. SP No. 80599.
In G.R. No. 170689, the Pantranco Employees Association (PEA) and Pantranco Retrenched
Employees Association (PANREA) pray that the CA decision be set aside and a new one be entered,
declaring the Philippine National Bank (PNB) and PNB Management and Development Corporation
(PNB-Madecor) jointly and solidarily liable for the P722,727,150.22 National Labor Relations
Commission (NLRC) judgment in favor of the Pantranco North Express, Inc. (PNEI)
employees;3 while in G.R. No. 170705, PNB prays that the auction sale of the Pantranco properties
be declared null and void.4
The facts of the case, as found by the CA,5 and established in Republic of the Phils. v.
NLRC,6 Pantranco North Express, Inc. v. NLRC,7 and PNB MADECOR v. Uy,8 follow:
The Gonzales family owned two corporations, namely, the PNEI and Macris Realty Corporation
(Macris). PNEI provided transportation services to the public, and had its bus terminal at the corner
of Quezon and Roosevelt Avenues in Quezon City. The terminal stood on four valuable pieces of
real estate (known as Pantranco properties) registered under the name of Macris. 9 The Gonzales
family later incurred huge financial losses despite attempts of rehabilitation and loan infusion. In
March 1975, their creditors took over the management of PNEI and Macris. By 1978, full ownership
was transferred to one of their creditors, the National Investment Development Corporation (NIDC),
a subsidiary of the PNB.
Macris was later renamed as the National Realty Development Corporation (Naredeco) and
eventually merged with the National Warehousing Corporation (Nawaco) to form the new PNB
subsidiary, the PNB-Madecor.
In 1985, NIDC sold PNEI to North Express Transport, Inc. (NETI), a company owned by Gregorio
Araneta III. In 1986, PNEI was among the several companies placed under sequestration by the
Presidential Commission on Good Government (PCGG) shortly after the historic events in EDSA. In
January 1988, PCGG lifted the sequestration order to pave the way for the sale of PNEI back to the
private sector through the Asset Privatization Trust (APT). APT thus took over the management of
PNEI.
In 1992, PNEI applied with the Securities and Exchange Commission (SEC) for suspension of
payments. A management committee was thereafter created which recommended to the SEC the
sale of the company through privatization. As a cost-saving measure, the committee likewise
suggested the retrenchment of several PNEI employees. Eventually, PNEI ceased its operation.
Along with the cessation of business came the various labor claims commenced by the former
employees of PNEI where the latter obtained favorable decisions.
On July 5, 2002, the Labor Arbiter issued the Sixth Alias Writ of Execution10 commanding the NLRC
Sheriffs to levy on the assets of PNEI in order to satisfy the P722,727,150.22 due its former
employees, as full and final satisfaction of the judgment awards in the labor cases. The sheriffs were
likewise instructed to proceed against PNB, PNB-Madecor and Mega Prime. 11 In implementing the
writ, the sheriffs levied upon the four valuable pieces of real estate located at the corner of Quezon
and Roosevelt Avenues, on which the former Pantranco Bus Terminal stood. These properties were
covered by Transfer Certificate of Title (TCT) Nos. 87881-87884, registered under the name of PNB-
Madecor.12 Subsequently, Notice of Sale of the foregoing real properties was published in the
newspaper and the sale was set on July 31, 2002. Having been notified of the auction sale, motions
to quash the writ were separately filed by PNB-Madecor and Mega Prime, and PNB. They likewise
filed their Third-Party Claims.13 PNB-Madecor anchored its motion on its right as the registered
owner of the Pantranco properties, and Mega Prime as the successor-in-interest. For its part, PNB
sought the nullification of the writ on the ground that it was not a party to the labor case. 14 In its Third-
Party Claim, PNB alleged that PNB-Madecor was indebted to the former and that the Pantranco
properties
would answer for such debt. As such, the scheduled auction sale of the aforesaid properties was not
legally in order.15
On September 10, 2002, the Labor Arbiter declared that the subject Pantranco properties were
owned by PNB-Madecor. It being a corporation with a distinct and separate personality, its assets
could not answer for the liabilities of PNEI. Considering, however, that PNB-Madecor executed a
promissory note in favor of PNEI forP7,884,000.00, the writ of execution to the extent of the said
amount was concerned was considered valid.16
PNBs third-party claim to nullify the writ on the ground that it has an interest in the Pantranco
properties being a creditor of PNB-Madecor, on the other hand, was denied because it only had an
inchoate interest in the properties.17
The dispositive portion of the Labor Arbiters September 10, 2002 Resolution is quoted hereunder:
WHEREFORE, the Third Party Claim of PNB Madecor and/or Mega Prime Holdings, Inc. is hereby
GRANTED and concomitantly the levies made by the sheriffs of the NLRC on the properties of PNB
Madecor should be as it (sic) is hereby LIFTED subject to the payment by PNB Madecor to the
complainants the amount of P7,884,000.00.
The Motion to Quash and Third Party Claim of PNB is hereby DENIED.
The Motion to Quash of PNB Madecor and Mega Prime Holdings, Inc. is hereby PARTIALLY
GRANTED insofar as the amount of the writ exceeds P7,884,000.00.
The Motion for Recomputation and Examination of Judgment Awards is hereby DENIED for want of
merit.
The Motion to Expunge from the Records claimants/complainants Opposition dated August 3, 2002
is hereby DENIED for lack of merit.
SO ORDERED.18
On appeal to the NLRC, the same was denied and the Labor Arbiters disposition was
affirmed.19 Specifically, the NLRC concluded as follows:
(1) PNB-Madecor and Mega Prime contended that it would be impossible for them to comply
with the requirement of the labor arbiter to pay to the PNEI employees the amount of P7.8
million as a condition to the lifting of the levy on the properties, since the credit was already
garnished by Gerardo Uy and other creditors of PNEI. The NLRC found no evidence that Uy
had satisfied his judgment from the promissory note, and opined that even if the credit was in
custodia legis, the claim of the PNEI employees should enjoy preference under the Labor
Code.
(2) The PNEI employees contested the finding that PNB-Madecor was indebted to the PNEI
for only P7.8 million without considering the accrual of interest. But the NLRC said that there
was no evidence that demand was made as a basis for reckoning interest.
(3) The PNEI employees further argued that the labor arbiter may not properly conclude from
a decision of Judge Demetrio Macapagal Jr. of the RTC of Quezon City that PNB-Madecor
was the owner of the properties as his decision was reconsidered by the next presiding
judge, nor from a decision of the Supreme Court that PNEI was a mere lessee of the
properties, the fact being that the transfer of the properties to PNB-Madecor was done to
avoid satisfaction of the claims of the employees with the NLRC and that as a result of a civil
case filed by Mega Prime, the subsequent sale of the properties by PNB to Mega Prime was
rescinded. The NLRC pointed out that while the Macapagal decision was set aside by Judge
Bruselas and hence, his findings could not be invoked by the labor arbiter, the titles of PNB-
Madecor are conclusive and there is no evidence that PNEI had ever been an owner. The
Supreme Court had observed in its decision that PNEI owed back rentals of P8.7 million to
PNB-Madecor.
(4) The PNEI employees faulted the labor arbiter for not finding that PNEI, PNB, PNB-
Madecor and Mega Prime were all jointly and severally liable for their claims. The NLRC
underscored the fact that PNEI and Macris were subsidiaries of NIDC and had passed
through and were under the Asset Privatization Trust (APT) when the labor claims accrued.
The labor arbiter was correct in not granting PNBs third-party claim because at the time the
causes of action accrued, the PNEI was managed by a management committee appointed
by the PNB as the new owner of PNRI (sic) and Macris through a deed of assignment or
transfer of ownership. The NLRC says at length that the same is not true with PNB-Madecor
which is now the registered owner of the properties. 20
The parties separate motions for reconsideration were likewise denied. 21 Thereafter, the matter was
elevated to the CA by PANREA, PEA-PTGWO and the Pantranco Association of Concerned
Employees. The latter group, however, later withdrew its petition. The former employees petition
was docketed as CA-G.R. SP No. 80599.
PNB-Madecor and Mega Prime likewise filed their separate petition before the CA which was
docketed as CA-G.R. SP No. 80737, but the same was dismissed.22
In view of the P7,884,000.00 debt of PNB-Madecor to PNEI, on June 23, 2004, an auction sale was
conducted over the Pantranco properties to satisfy the claim of the PNEI employees, wherein CPAR
Realty was adjudged as the highest bidder.23
On June 3, 2005, the CA rendered the assailed decision affirming the NLRC resolutions.
The appellate court pointed out that PNB, PNB-Madecor and Mega Prime are corporations with
personalities separate and distinct from PNEI. As such, there being no cogent reason to pierce the
veil of corporate fiction, the separate personalities of the above corporations should be maintained.
The CA added that the Pantranco properties were never owned by PNEI; rather, their titles were
registered under the name of PNB-Madecor. If PNB and PNB-Madecor could not answer for the
liabilities of PNEI, with more reason should Mega Prime not be held liable being a mere successor-
in-interest of PNB-Madecor.
Unsatisfied, PEA-PTGWO and PANREA filed their motion for reconsideration; 24 while PNB filed its
Partial Motion for Reconsideration.25 PNB pointed out that PNB-Madecor was made to answer
for P7,884,000.00 to the PNEI employees by virtue of the promissory note it (PNB-Madecor) earlier
executed in favor of PNEI. PNB, however, questioned the June 23, 2004 auction sale as the P7.8
million debt had already been satisfied pursuant to this Courts decision in PNB MADECOR v. Uy. 26
Both motions were denied by the appellate court.27
In two separate petitions, PNB and the former PNEI employees come up to this Court assailing the
CA decision and resolution. The former PNEI employees raise the lone error, thus:
The Honorable Court of Appeals palpably departed from the established rules and jurisprudence in
ruling that private respondents Pantranco North Express, Inc. (PNEI), Philippine National Bank
(PNB), Philippine National Bank Management and Development Corporation (PNB-MADECOR),
Mega Prime Realty and Holdings, Inc. (Mega Prime) are not jointly and severally answerable to
the P722,727,150.22 Million NLRC money judgment awards in favor of the 4,000 individual
members of the Petitioners.28
They claim that PNB, through PNB-Madecor, directly benefited from the operation of PNEI and had
complete control over the funds of PNEI. Hence, they are solidarily answerable with PNEI for the
unpaid money claims of the employees.29 Citing A.C. Ransom Labor Union-CCLU v. NLRC,30 the
employees insist that where the employer corporation ceases to exist and is no longer able to satisfy
the judgment awards in favor of its employees, the owner of the employer corporation should be
made jointly and severally liable.31 They added that malice or bad faith need not be proven to make
the owners liable.
On the other hand, PNB anchors its petition on this sole assignment of error, viz.:
THE AUCTION SALE OF THE PROPERTY COVERED BY TCT NO. 87884 INTENDED TO
PARTIALLY SATISFY THE CLAIMS OF FORMER WORKERS OF PNEI IN THE AMOUNT
OFP7,884,000.00 (THE AMOUNT OF PNB-MADECORS PROMISSORY NOTE IN FAVOR OF
PNEI) IS NOT IN ORDER AS THE SAID PROPERTY IS NOT OWNED BY PNEI. FURTHER, THE
SAID PROMISSORY NOTE HAD ALREADY BEEN GARNISHED IN FAVOR OF GERARDO C. UY
WHICH LED TO THREE (3) PROPERTIES UNDER THE NAME OF PNB-MADECOR, NAMELY TCT
NOS. 87881, 87882 AND 87883, BEING LEVIED AND SOLD ON EXECUTION IN THE "PNB-
MADECOR VS. UY" CASE (363 SCRA 128 [2001]) AND "GERARDO C. UY VS. PNEI" (CIVIL CASE
NO. 95-72685, RTC MANILA, BRANCH 38).32
PNB insists that the Pantranco properties could no longer be levied upon because the promissory
note for which the Labor Arbiter held PNB-Madecor liable to PNEI, and in turn to the latters former
employees, had already been satisfied in favor of Gerardo C. Uy. It added that the properties were in
fact awarded to the highest bidder. Besides, says PNB, the subject properties were not owned by
PNEI, hence, the execution sale thereof was not validly effected.33
Both petitions must fail.
G.R. No. 170689
Stripped of the non-essentials, the sole issue for resolution raised by the former PNEI employees is
whether they can attach the properties (specifically the Pantranco properties) of PNB, PNB-Madecor
and Mega Prime to satisfy their unpaid labor claims against PNEI.
We answer in the negative.
First, the subject property is not owned by the judgment debtor, that is, PNEI. Nowhere in the
records was it shown that PNEI owned the Pantranco properties. Petitioners, in fact, never alleged in
any of their pleadings the fact of such ownership. What was established, instead, in PNB MADECOR
v. Uy34 and PNB v. Mega Prime Realty and Holdings Corporation/Mega Prime Realty and Holdings
Corporation v. PNB35 was that the properties were owned by Macris, the predecessor of PNB-
Madecor. Hence, they cannot be pursued against by the creditors of PNEI.
We would like to stress the settled rule that the power of the court in executing judgments extends
only to properties unquestionably belonging to the judgment debtor alone. 36 To be sure, one mans
goods shall not be sold for another mans debts.37 A sheriff is not authorized to attach or levy on
property not belonging to the judgment debtor, and even incurs liability if he wrongfully levies upon
the property of a third person.38
Second, PNB, PNB-Madecor and Mega Prime are corporations with personalities separate and
distinct from that of PNEI. PNB is sought to be held liable because it acquired PNEI through NIDC at
the time when PNEI was suffering financial reverses. PNB-Madecor is being made to answer for
petitioners labor claims as the owner of the subject Pantranco properties and as a subsidiary of
PNB. Mega Prime is also included for having acquired PNBs shares over PNB-Madecor.
The general rule is that a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. 39 This is a fiction created by law
for convenience and to prevent injustice.40 Obviously, PNB, PNB-Madecor, Mega Prime, and PNEI
are corporations with their own personalities. The "separate personalities" of the first three
corporations had been recognized by this Court in PNB v. Mega Prime Realty and Holdings
Corporation/Mega Prime Realty and Holdings Corporation v. PNB41 where we stated that PNB was
only a stockholder of PNB-Madecor which later sold its shares to Mega Prime; and that PNB-
Madecor was the owner of the Pantranco properties. Moreover, these corporations are registered as
separate entities and, absent any valid reason, we maintain their separate identities and we cannot
treat them as one.
Neither can we merge the personality of PNEI with PNB simply because the latter acquired the
former. 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
Lastly, while we recognize that there are peculiar circumstances or valid grounds that may exist to
warrant the piercing of the corporate veil, 43 none applies in the present case whether between PNB
and PNEI; or PNB and PNB-Madecor.
Under the doctrine of "piercing the veil of corporate fiction," the court looks at the corporation as a
mere collection of individuals or an aggregation of persons undertaking business as a group,
disregarding the separate juridical personality of the corporation unifying the group. 44 Another
formulation of this doctrine is that when two business enterprises are owned, conducted and
controlled by the same parties, both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct entities and treat them as
identical or as one and the same.45
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.46
As between PNB and PNEI, petitioners want us to disregard their separate personalities, and insist
that because the company, PNEI, has already ceased operations and there is no other way by which
the judgment in favor of the employees can be satisfied, corporate officers can be held jointly and
severally liable with the company. Petitioners rely on the pronouncement of this Court in A.C.
Ransom Labor Union-CCLU v. NLRC47 and subsequent cases.48
This reliance fails to persuade. We find the aforesaid decisions inapplicable to the instant case.
For one, in the said cases, the persons made liable after the companys cessation of operations
were the officers and agents of the corporation. The rationale is that, since the corporation is an
artificial person, it must have an officer who can be presumed to be the employer, being the person
acting in the interest of the employer. The corporation, only in the technical sense, is the
employer.49 In the instant case, what is being made liable is another corporation (PNB) which
acquired the debtor corporation (PNEI).
Moreover, in the recent cases Carag v. National Labor Relations Commission50 and McLeod v.
National Labor Relations Commission,51 the Court explained the doctrine laid down in AC Ransom
relative to the personal liability of the officers and agents of the employer for the debts of the latter. In
AC Ransom, the Court imputed liability to the officers of the corporation on the strength of the
definition of an employer in Article 212(c) (now Article 212[e]) of the Labor Code. Under the said
provision, employer includes any person acting in the interest of an employer, directly or indirectly,
but does not include any labor organization or any of its officers or agents except when acting as
employer. It was clarified in Carag and McLeod that Article 212(e) of the Labor Code, by itself, does
not make a corporate officer personally liable for the debts of the corporation. It added that the
governing law on personal liability of directors or officers for debts of the corporation is still Section
3152 of the Corporation Code.
More importantly, as aptly observed by this Court in AC Ransom, it appears that Ransom, foreseeing
the possibility or probability of payment of backwages to its employees, organized Rosario to replace
Ransom, with the latter to be eventually phased out if the strikers win their case. The execution could
not be implemented against Ransom because of the disposition posthaste of its leviable assets
evidently in order to evade its just and due obligations.53 Hence, the Court sustained the piercing of
the corporate veil and made the officers of Ransom personally liable for the debts of the latter.
Clearly, what can be inferred from the earlier cases is that 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. 54 In the absence of
malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate
officer cannot be made personally liable for corporate liabilities.55
Applying the foregoing doctrine to the instant case, we quote with approval the CA disposition in this
wise:
It would not be enough, then, for the petitioners in this case, the PNEI employees, to rest on their
laurels with evidence that PNB was the owner of PNEI. Apart from proving ownership, it is necessary
to show facts that will justify us to pierce the veil of corporate fiction and hold PNB liable for the
debts of PNEI. The burden undoubtedly falls on the petitioners to prove their affirmative allegations.
In line with the basic jurisprudential principles we have explored, they must show that PNB was
using PNEI as a mere adjunct or instrumentality or has exploited or misused the corporate privilege
of PNEI.
We do not see how the burden has been met. Lacking proof of a nexus apart from mere ownership,
the petitioners have not provided us with the legal basis to reach the assets of corporations separate
and distinct from PNEI.56
Assuming, for the sake of argument, that PNB may be held liable for the debts of PNEI, petitioners
still cannot proceed against the Pantranco properties, the same being owned by PNB-Madecor,
notwithstanding the fact that PNB-Madecor was a subsidiary of PNB. The general rule remains that
PNB-Madecor has a personality separate and distinct from PNB. The mere fact that a corporation
owns all of the stocks of another corporation, taken alone, is not sufficient to justify their being
treated as one entity. If used to perform legitimate functions, a subsidiarys separate existence shall
be respected, and the liability of the parent corporation as well as the subsidiary will be confined to
those arising in their respective businesses.57
In PNB v. Ritratto Group, Inc.,58 we outlined the circumstances which are useful in the determination
of whether a subsidiary is but a mere instrumentality of the parent-corporation, to wit:
1. The parent corporation owns all or most of the capital stock of the subsidiary;
2. The parent and subsidiary corporations have common directors or officers;
3. The parent corporation finances the subsidiary;
4. The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation;
5. The subsidiary has grossly inadequate capital;
6. The parent corporation pays the salaries and other expenses or losses of the subsidiary;
7. The subsidiary has substantially no business except with the parent corporation or no
assets except those conveyed to or by the parent corporation;
8. In the papers of the parent corporation or in the statements of its officers, the subsidiary is
described as a department or division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporations own;
9. The parent corporation uses the property of the subsidiary as its own;
10. The directors or executives of the subsidiary do not act independently in the interest of
the subsidiary, but take their orders from the parent corporation;
11. The formal legal requirements of the subsidiary are not observed.
None of the foregoing circumstances is present in the instant case. Thus, piercing of PNB-Madecors
corporate veil is not warranted. Being a mere successor-in-interest of PNB-Madecor, with more
reason should no liability attach to Mega Prime.
G.R. No. 170705
In its petition before this Court, PNB seeks the annulment of the June 23, 2004 execution sale of the
Pantranco properties on the ground that the judgment debtor (PNEI) never owned said lots. It
likewise contends that the levy and the eventual sale on execution of the subject properties was null
and void as the promissory note on which PNB-Madecor was made liable had already been
satisfied.
It has been repeatedly stated that the Pantranco properties which were the subject of execution sale
were owned by Macris and later, the PNB-Madecor. They were never owned by PNEI or PNB.
Following our earlier discussion on the separate personalities of the different corporations involved in
the instant case, the only entity which has the right and interest to question the execution sale and
the eventual right to annul the same, if any, is PNB-Madecor or its successor-in-interest. Settled is
the rule that proceedings in court must be instituted by the real party in interest.
A real party in interest is the party who stands to be benefited or injured by the judgment in the suit,
or the party entitled to the avails of the suit.59 "Interest" within the meaning of the rule means material
interest, an interest in issue and to be affected by the decree, as distinguished from mere interest in
the question involved, or a mere incidental interest. 60 The interest of the party must also be personal
and not one based on a desire to vindicate the constitutional right of some third and unrelated
party.61 Real interest, on the other hand, means a present substantial interest, as distinguished from
a mere expectancy or a future, contingent, subordinate, or consequential interest. 62
Specifically, in proceedings to set aside an execution sale, the real party in interest is the person who
has an interest either in the property sold or the proceeds thereof. Conversely, one who is not
interested or is not injured by the execution sale cannot question its validity. 63
In justifying its claim against the Pantranco properties, PNB alleges that Mega Prime, the buyer of its
entire stockholdings in PNB-Madecor was indebted to it (PNB). Considering that said indebtedness
remains unpaid, PNB insists that it has an interest over PNB-Madecor and Mega Primes assets.
Again, the contention is bereft of merit. While PNB has an apparent interest in Mega Primes assets
being the creditor of the latter for a substantial amount, its interest remains inchoate and has not yet
ripened into a present substantial interest, which would give it the standing to maintain an action
involving the subject properties. As aptly observed by the Labor Arbiter, PNB only has an inchoate
right to the properties of Mega Prime in case the latter would not be able to pay its indebtedness.
This is especially true in the instant case, as the debt being claimed by PNB is secured by the
accessory contract of pledge of the entire stockholdings of Mega Prime to PNB-Madecor. 64
The Court further notes that the Pantranco properties (or a portion thereof ) were sold on execution
to satisfy the unpaid obligation of PNB-Madecor to PNEI. PNB-Madecor was thus made liable to the
former PNEI employees as the judgment debtor of PNEI. It has long been established in PNB-
Madecor v. Uy and other similar cases that PNB-Madecor had an unpaid obligation to PNEI
amounting to more or less P7 million which could be validly pursued by the creditors of the latter.
Again, this strengthens the proper parties right to question the validity of the execution sale,
definitely not PNB.
Besides, the issue of whether PNB has a substantial interest over the Pantranco properties has
already been laid to rest by the Labor Arbiter.65 It is noteworthy that in its Resolution dated
September 10, 2002, the Labor Arbiter denied PNBs Third-Party Claim primarily because PNB only
has an inchoate right over the Pantranco properties.66 Such conclusion was later affirmed by the
NLRC in its Resolution dated June 30, 2003.67Notwithstanding said conclusion, PNB did not elevate
the matter to the CA via a petition for review. Hence it is presumed to be satisfied with the
adjudication therein.68 That decision of the NLRC has become final as against PNB and can no
longer be reviewed, much less reversed, by this Court. 69 This is in accord with the doctrine that a
party who has not appealed cannot obtain from the appellate court any affirmative relief other than
the ones granted in the appealed decision.70
WHEREFORE, premises considered, the petitions are hereby DENIED for lack of merit.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA

Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
ANTONIO T. CARPIO MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice
DIOSDADO M. PERALTA
Associate Justice
ATT E STATI O N
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
Associate Justice
Chairperson, Third Division
C E RTI F I CATI O N
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
*
Additional member in lieu of Associate Justice Ma. Alicia Austria-Martinez per Special Order
No. 568 dated February 12, 2009.
1
Penned by Associate Justice Mario L. Guaria III, with Associate Justices Marina L. Buzon
and Hakim S. Abdulwahid, concurring; rollo (G.R. No. 170689), pp. 25-39.
2
Id. at 41.
3
Rollo (G.R. No. 170689), pp. 17-18.
4
Rollo (G.R. No. 170705), p. 63.
5
Rollo (G.R. No. 170689), pp. 25-33.
6
331 Phil. 608 (1996).
7
373 Phil. 520 (1999).
8
415 Phil. 348 (2001).
9
Rollo (G.R. No. 170689), p. 26.
10
Id. at 42-45.
11
Id. at 25-26.
12
Id. at 26.
13
Id. at 49.
14
CA rollo, pp. 113-120.
15
Id. at 138-143.
16
Rollo (G.R. No. 170689), pp. 52-55.
17
Id. at 55.
18
Id. at 56-57.
19
Id. at 59-73.
20
Id. at 27-28. (Citations omitted.)
21
Id. at 74-77.
22
Rollo (G.R. No. 170705), p. 139.
23
CA rollo, p. 537.
24
Id. at 504-515.
25
Id. at 534-549.
26
Supra note 8.
27
Supra note 2.
28
Rollo (G.R. No. 170689), p. 8.
29
Id. at 10-11.
30
226 Phil. 199 (1986).
31
Rollo (G.R. No. 170689), p. 11.
32
Rollo (G.R. No. 170705), p. 56.
33
Id. at 61-62.
34
Supra note 8.
35
G.R. Nos. 173454 and 173456, October 6, 2008.
Cleodia U. Francisco, et al. v. Sps. Jorge C. Gonzales and Purificacion W. Gonzales, G.R.
36
No. 177667, September 17, 2008; Yao v. Hon. Perello, 460 Phil. 658,662 (2003).
37
Id.
38
Cleodia U. Francisco, et al. v. Sps. Jorge C. Gonzales and Purificacion W. Gonzales,
supra; see Tanongon v. Samson, 431 Phil. 729 (2002).
39
China Banking Corporation v. Dyne-Sem Electronics Corporation, G.R. No. 149237, July
11, 2006, 494 SCRA 493, 499; see General Credit Corporation v. Alsons Development and
Investment Corporation, G.R. No. 154975, January 29, 2007, 513 SCRA 225, 237-238.
40
China Banking Corporation v. Dyne-Sem Electronics Corporation, supra, at 499.
41
Supra note 35.
42
China Banking Corporation v. Dyne-Sem Electronics Corporation, supra note 39, at 501.
43
Id. at 499.
General Credit Corporation v. Alsons Development and Investment Corporation, supra note
44
39, at 238.
45
Id.
46
Id.
47
Supra note 30.
48
Restaurante Las Conchas v. Llego, 372 Phil. 697 (1999); Naguiat v. NLRC, 336 Phil. 545
(1997); Valderrama v. NLRC, 326 Phil. 477 (1996).
49
A.C. Ransom Labor Union-CCLU v. NLRC, supra note 30, at 205.
50
G.R. No. 147590, April 2, 2007, 520 SCRA 28.
51
G.R. No. 146667, January 23, 2007, 512 SCRA 222.
52
Sec. 31. Liability of directors, trustees or officers. Directors or trustees who willfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any
interest adverse to the corporation in respect of any matter which has been reposed in him in
confidence, as to which equity imposes a disability upon him to deal in his own behalf, he
shall be liable as a trustee for the corporation and must account for the profits which
otherwise would have accrued to the corporation.
53
Carag v. National Labor Relations Commission, supra note 50, at 54-55.
General Credit Corporation v. Alsons Development and Investment Corporation, supra note
54
39, at 235, 238, 239; PNB v. Ritratto Group, Inc., 414 Phil. 494, 505 (2001).
55
McLeod v. National Labor Relations Commission, supra note 51, at 253.
56
Rollo (G.R. No. 170689), pp. 36-37.
57
Nisce v. Equitable PCI Bank, Inc., G.R. No. 167434, February 19, 2007, 516 SCRA 231,
258; MR Holdings, Ltd. v. Sheriff Bajar, 430 Phil. 443, 469-470 (2002); PNB v. Ritratto Group,
Inc., supra note 54, at 503.
58
Supra note 54.
59
Republic v. Agunoy, Sr., G.R. No. 155394, February 17, 2005, 451 SCRA 735, 746.
Caete v. Genuino Ice Company, Inc., G.R. No. 154080, January 22, 2008, 542 SCRA
60
206, 222; VSC Commercial Enterprises, Inc. v. Court of Appeals, 442 Phil. 269, 276 (2002).
Caete v. Genuino Ice Company, Inc., supra, at 222; VSC Commercial Enterprises, Inc. v.
61
Court of Appeals, supra, at 276-277.
Celestial Nickel Mining Exploration Corporation v. Macroasia Corporation, G.R. Nos.

62
169080, 172936, 176226 and 176319, December 19, 2007, 541 SCRA 166, 203; Caete v.
Genuino Ice Company, Inc., supra note 60, at 222; VSC Commercial Enterprises, Inc. v.
Court of Appeals, supra note 60, at 277.
63
De Leon v. CA, 343 Phil. 254, 265 (1997).
64
Rollo (G.R. No. 170689), p. 55.
65
Id. at 46-58.
66
Id. at 55.
67
Id. at 60-73.
68
Sps. Custodio v. CA, 323 Phil. 575, 583 (1996).
69
Id. at 583-584.
Universal Staffing Services, Inc. v. NLRC and Grace M. Morales, G.R. No. 177576, July
70
21, 2008.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 151413 February 13, 2008
CAGAYAN VALLEY DRUG CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
VELASCO, JR., J.:
The Case
This petition for review under Rule 45 of the Rules of Court seeks the recall of the August 31, 2000
Resolution1 of the Court of Appeals (CA) in CA-G.R. SP No. 59778, which dismissed petitioner
Cagayan Valley Drug Corporations petition for review of the April 26, 2000 Decision 2 of the Court of
Tax Appeals (CTA) in C.T.A. Case No. 5581 on the ground of defective verification and certification
against forum shopping.
The Facts
Petitioner, a corporation duly organized and existing under Philippine laws, is a duly licensed retailer
of medicine and other pharmaceutical products. It operates two drugstores, one in Tuguegarao,
Cagayan, and the other in Roxas, Isabela, under the name and style of "Mercury Drug."
Petitioner alleged that in 1995, it granted 20% sales discounts to qualified senior citizens on
purchases of medicine pursuant to Republic Act No. (RA) 74323 and its implementing rules and
regulations.
In compliance with Revenue Regulation No. (RR) 2-94, petitioner treated the 20% sales discounts
granted to qualified senior citizens in 1995 as deductions from the gross sales in order to arrive at
the net sales, instead of treating them as tax credit as provided by Section 4 of RA 7432.
On December 27, 1996, however, petitioner filed with the Bureau of Internal Revenue (BIR) a claim
for tax refund/tax credit of the full amount of the 20% sales discount it granted to senior citizens for
the year 1995, allegedly totaling to PhP 123,083 in accordance with Sec. 4 of RA 7432.
The BIRs inaction on petitioners claim for refund/tax credit compelled petitioner to file on March 18,
1998 a petition for review before the CTA docketed as C.T.A. Case No. 5581 in order to forestall the
two-year prescriptive period provided under Sec. 2304 of the 1977 Tax Code, as amended.
Thereafter, on March 31, 2000, petitioner amended its petition for review.
The Ruling of the Court of Tax Appeals
On April 26, 2000, the CTA rendered a Decision dismissing the petition for review for lack of merit. 5
The CTA sustained petitioners contention that pursuant to Sec. 4 of RA 7432, the 20% sales
discounts petitioner extended to qualified senior citizens in 1995 should be treated as tax credit and
not as deductions from the gross sales as erroneously interpreted in RR 2-94. The CTA reiterated its
consistent holdings that RR 2-94 is an invalid administrative interpretation of the law it purports to
implement as it contravenes and does not conform to the standards RA 7432 prescribes.
Notwithstanding petitioners entitlement to a tax credit from the 20% sales discounts it extended to
qualified senior citizens in 1995, the CTA nonetheless dismissed petitioners action for refund or tax
credit on account of petitioners net loss in 1995. First, the CTA rejected the refund as it is clear that
RA 7432 only grants the 20% sales discounts extended to qualified senior citizens as tax credit and
not as tax refund. Second, in rejecting the tax credit, the CTA reasoned that while petitioner may be
qualified for a tax credit, it cannot be so extended to petitioner on account of its net loss in 1995.
The CTA ratiocinated that on matters of tax credit claim, the government applies the amount
determined to be reimbursable after proper verification against any sum that may be due and
collectible from the taxpayer. However, if no tax has been paid or if no amount is due and collectible
from the taxpayer, then a tax credit is unavailing. Moreover, it held that before allowing recovery for
claims for a refund or tax credit, it must first be established that there was an actual collection and
receipt by the government of the tax sought to be recovered. In the instant case, the CTA found that
petitioner did not pay any tax by virtue of its net loss position in 1995.
Petitioners Motion for Reconsideration was likewise denied through the appellate tax courts June
30, 2000 Resolution.6
The Ruling of the Court of Appeals
Aggrieved, petitioner elevated the matter before the CA, docketed as CA-G.R. SP No. 59778. On
August 31, 2000, the CA issued the assailed Resolution 7 dismissing the petition on procedural
grounds. The CA held that the person who signed the verification and certification of absence of
forum shopping, a certain Jacinto J. Concepcion, President of petitioner, failed to adduce proof that
he was duly authorized by the board of directors to do so.
As far as the CA was concerned, the main issue was whether or not the verification and certification
of non-forum shopping signed by the President of petitioner is sufficient compliance with Secs. 4 and
5, Rule 7 of the 1997 Rules of Civil Procedure.
The verification and certification in question reads:
I, JACINTO J. CONCEPCION, of legal age with office address at 2nd Floor, Mercury Drug
Corporation, No. 7 Mercury Ave, Bagumbayan, Quezon City, under oath, hereby state that:
1. I am the President of Cagayan Valley Drug Corporation, Petitioner in the above-entitled

case and am duly authorized to sign this Verification and Certification of Absence of Forum
Shopping by the Board of Director.
xxxx
The CA found no sufficient proof to show that Concepcion was duly authorized by the Board of
Directors of petitioner. The appellate court anchored its disposition on our ruling in Premium Marble
Resources, Inc. v. Court of Appeals (Premium), that "[i]n the absence of an authority from the Board
of Directors, no person, not even the officers of the corporation, can validly bind the corporation." 8
Hence, we have this petition.
The Issues
Petitioner raises two issues: first, whether petitioners president can sign the subject verification and
certification sans the approval of its Board of Directors. And second, whether the CTA committed
reversible error in denying and dismissing petitioners action for refund or tax credit in C.T.A. Case
No. 5581.
The Courts Ruling
Premium not applicable
As regards the first issue, we find the CA to have erroneously relied on Premium. In said case, the
issue tackled was not on whether the president of Premium Marble Resources, Inc. was authorized
to sign the verification and certification against forum shopping, but rather on which of the two sets of
officers, both claiming to be the legal board of directors of Premium, have the authority to file the suit
for and in behalf of the company. The factual antecedents and issues in Premium are not on all fours
with the instant case and is, therefore, not applicable.
With respect to an individual litigant, there is no question that litigants must sign the sworn
verification and certification unless they execute a power of attorney authorizing another person to
sign it. With respect to a juridical person, Sec. 4, Rule 7 on verification and Sec. 5, Rule 7 on
certification against forum shopping are silent as to who the authorized signatory should be. Said
rules do not indicate if the submission of a board resolution authorizing the officer or representative
is necessary.
Corporate powers exercised through board of directors
It must be borne in mind that Sec. 23, in relation to Sec. 25 of the Corporation Code, clearly
enunciates that all corporate powers are exercised, all business conducted, and all properties
controlled by the board of directors. A corporation has a separate and distinct personality from its
directors and officers and can only exercise its corporate powers through the board of directors.
Thus, it is clear that an individual corporate officer cannot solely exercise any corporate power
pertaining to the corporation without authority from the board of directors. This has been our
constant holding in cases instituted by a corporation.
In a slew of cases, however, we have recognized the authority of some corporate officers to sign the
verification and certification against forum shopping. In Mactan-Cebu International Airport Authority
v. CA, we recognized the authority of a general manager or acting general manager to sign the
verification and certificate against forum shopping;9 in Pfizer v. Galan, we upheld the validity of a
verification signed by an "employment specialist" who had not even presented any proof of her
authority to represent the company;10 in Novelty Philippines, Inc., v. CA, we ruled that a personnel
officer who signed the petition but did not attach the authority from the company is authorized to sign
the verification and non-forum shopping certificate;11 and in Lepanto Consolidated Mining Company
v. WMC Resources International Pty. Ltd. (Lepanto), we ruled that the Chairperson of the Board and
President of the Company can sign the verification and certificate against non-forum shopping even
without the submission of the boards authorization.12
In sum, we have held that the following officials or employees of the company can sign the
verification and certification without need of a board resolution: (1) the Chairperson of the Board of
Directors, (2) the President of a corporation, (3) the General Manager or Acting General Manager,
(4) Personnel Officer, and (5) an Employment Specialist in a labor case.
While the above cases do not provide a complete listing of authorized signatories to the verification
and certification required by the rules, the determination of the sufficiency of the authority was done
on a case to case basis. The rationale applied in the foregoing cases is to justify the authority of
corporate officers or representatives of the corporation to sign the verification or certificate against
forum shopping, being "in a position to verify the truthfulness and correctness of the allegations in
the petition."13
Authority from board of directors required
In Philippine Airlines v. Flight Attendants and Stewards Association of the Philippines, we ruled that
only individuals vested with authority by a valid board resolution may sign the certificate of non-
forum shopping on behalf of a corporation. The action can be dismissed if the certification was
submitted unaccompanied by proof of the signatorys authority. 14 We believe that appending the
board resolution to the complaint or petition is the better procedure to obviate any question on the
authority of the signatory to the verification and certification. The required submission of the board
resolution is grounded on the basic precept that corporate powers are exercised by the board of
directors,15 and not solely by an officer of the corporation. Hence, the power to sue and be sued in
any court or quasi-judicial tribunal is necessarily lodged with the said board.
There is substantial compliance with Rule 7, Secs. 4 and 5
In the case at bar, we so hold that petitioner substantially complied with Secs. 4 and 5, Rule 7 of the
1997 Revised Rules on Civil Procedure. First, the requisite board resolution has been submitted
albeit belatedly by petitioner. Second, we apply our ruling in Lepanto with the rationale that the
President of petitioner is in a position to verify the truthfulness and correctness of the allegations in
the petition. Third, the President of petitioner has signed the complaint before the CTA at the
inception of this judicial claim for refund or tax credit.
Consequently, the petition in CA-G.R. SP No. 59778 ought to be reinstated. However, in view of the
enactment of RA 9282 which made the decisions of the CTA appealable to this Court, we will directly
resolve the second issue which is a purely legal one.
Petitioner entitled to tax credit
The pith of the dispute between petitioner and respondent is whether petitioner is entitled to a tax
refund or tax credit of 20% sales discount granted to senior citizens under RA 7432 or whether the
discount should be treated as a deduction from gross income.
This issue is not new, as the Court has resolved several cases involving the very same issue.
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation (Central Luzon),16 we held
that private drug companies are entitled to a tax credit for the 20% sales discounts they granted to
qualified senior citizens under RA 7432 and nullified Secs. 2.i and 4 of RR 2-94. In Bicolandia Drug
Corporation (formerly Elmas Drug Corporation) v. Commissioner of Internal Revenue,17 we ruled that
petitioner therein is entitled to a tax credit of the "cost" or the full 20% sales discounts it granted
pursuant to RA 7432. In the related case of Commissioner of Internal Revenue v. Bicolandia Drug
Corporation,18 we likewise ruled that respondent drug company was entitled to a tax credit, and we
struck down RR 2-94 to be null and void for failing to conform with the law it sought to implement.
A perusal of the April 26, 2000 CTA Decision shows that the appellate tax court correctly ruled that
the 20% sales discounts petitioner granted to qualified senior citizens should be deducted from
petitioners income tax due and not from petitioners gross sales as erroneously provided in RR 2-94.
However, the CTA erred in denying the tax credit to petitioner on the ground that petitioner had
suffered net loss in 1995, and ruling that the tax credit is unavailing.
Net loss in a taxable year does not preclude grant of tax credit
It is true that petitioner did not pay any tax in 1995 since it suffered a net loss for that taxable year.
This fact, however, without more, does not preclude petitioner from availing of its statutory right to a
tax credit for the 20% sales discounts it granted to qualified senior citizens. The law then applicable
on this point is clear and without any qualification. Sec. 4 (a) of RA 7432 pertinently provides:
Sec. 4. Privileges for the Senior citizens.The senior citizens shall be entitled to the
following:
a) the grant of twenty percent (20%) discount from all establishments relative to utilization of
transportation services, hotels and similar lodging establishments, restaurants and recreation
centers and purchase of medicines anywhere in the country: Provided, That private
establishments may claim the cost as tax credit. (Emphasis ours.)
The fact that petitioner suffered a net loss in 1995 will not make the tax credit due to petitioner
unavailable. This is the core issue resolved in Central Luzon, where we ruled that the net loss for a
taxable year does not bar the grant of the tax credit to a taxpayer pursuant to RA 7432 and that prior
tax payments are not required for such grant. We explained:
Although this tax credit benefit is available, it need not be used by losing ventures, since
there is no tax liability that calls for its application. Neither can it be reduced to nil by the
quick yet callow stroke of an administrative pen, simply because no reduction of taxes can
instantly be effected. By its nature, the tax credit may still be deducted from a future, not
a present, tax liability, without which it does not have any use. x x x
xxxx
While a tax liability is essential to the availment or use of any tax credit, prior tax payments
are not. On the contrary, for the existence or grant solely of such credit, neither a tax liability
nor a prior tax payment is needed. The Tax Code is in fact replete with provisions granting or
allowing tax credits, even though no taxes have been previously paid. 19
It is thus clear that petitioner is entitled to a tax credit for the full 20% sales discounts it extended to
qualified senior citizens for taxable year 1995. Considering that the CTA has not disallowed the PhP
123,083 sales discounts petitioner claimed before the BIR and CTA, we are constrained to grant
them as tax credit in favor of petitioner.
Consequently, petitioners appeal before the CA in CA-G.R. SP No. 59778 must be granted, and,
necessarily, the April 26, 2000 CTA Decision in C.T.A. Case No. 5581 reversed and set aside.
WHEREFORE, the petition is GRANTED. The August 31, 2000 CA Resolution in CA-G.R. SP No.
59778 isANNULLED AND SET ASIDE. The April 26, 2000 CTA Decision in C.T.A. Case No. 5581
dismissing petitioners claim for tax credit is accordingly REVERSED AND SET ASIDE. The
Commissioner of Internal Revenue isORDERED to issue a Tax Credit Certificate in the name of
petitioner in the amount of PhP 123,083. No costs.
SO ORDERED.
PRESBITERO J. VELASCO, JR.

Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO CONCHITA CARPIO MORALES

DANTE O. TINGA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
REYNATO S. PUNO
Chief Justice
Footnotes
1
Rollo, pp. 77-78. Penned by Associate Justice Ramon A. Barcelona and concurred in by
Associate Justices Marina L. Buzon and Edgardo P. Cruz.
2
Id. at 37-44. Penned by Associate Judge Ramon O. De Veyra and concurred in by
Associate Judge Amancio Q. Saga. Presiding Judge Ernesto D. Acosta dissented.
3
"An Act to Maximize the Contribution of Senior Citizens to Nation Building, Grant Benefits
and Special Privileges and for Other Purposes" (1992).
4
Now Sec. 229 of RA 8424 entitled "An Act Amending the National Internal Revenue Code,
as Amended, and for Other Purposes" (1997).
5
Supra note 2, at 44.
6
Rollo, p. 50.
7
Supra note 1.
8
G.R. No. 96551, November 4, 1996, 264 SCRA 11, 18.
9
G.R. No. 139495, November 27, 2000, 346 SCRA 126, 132-133.
10
G.R. No. 143389, May 25, 2001, 358 SCRA 240, 246-248.
11
G.R. No. 146125, September 17, 2003, 411 SCRA 211, 217-220.
12
G.R. No. 153885, September 24, 2003, 412 SCRA 101, 109.
13
Pfizer v. Galan, supra note 10, at 247.
14
G.R. No. 143088, January 24, 2006, 479 SCRA 605, 608.
15
Corporation Code, Sec. 23.
16
G.R. No. 159647, April 15, 2005, 456 SCRA 414.
17
G.R. No. 142299, June 22, 2006, 492 SCRA 159.
18
G.R. No. 148083, July 21, 2006, 496 SCRA 176.
19
Supra note 16, at 429-430.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 155056-57 October 19, 2007

THE HEIRS OF THE LATE PANFILO V. PAJARILLO, Petitioners,
vs.
THE HON. COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION and
SAMAHAN NG MGA MANGGAGAWA NG PANFILO V. PAJARILLO, ALFREDO HOYOHOY,
HERMINIO CASTILLO, BERNARDO ROCO, RODOLFO TORRES, JULIAN JORVINA, LOURDES
ROCO, FLORITA YAPOC, MARLON ALDANA, PARALUMAN ULANG, TOLENTINO SANHI,
JOHNNY SORIANO, ANDRES CALAQUE, ROBERTO LAVAREZ, FRANCISCO MORALES,
SALVACION PERINA, ANTONIO ABALA, ROMEO SALONGA, AUGUR M. MANIPOL,
BIENVENIDA TEQUIL, MARIO ELEP, ALADINO LATIGO, BERNARDINE BANSAL, PEDRO DE
BAGUIO, RICARDO CALICA, LAURA CO, VICENTE RECANA, ELENA TOLLEDO, ALFREDO
PLAZA, SR., HERMINIO BALDONO, FELIPE YAPOC, ARISTON NIPA, and ALFONSO C.
BALDOMAR, Respondents.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, 1 petitioners, heirs of
Panfilo V. Pajarillo, seek to set aside the Decision,2 and Resolution,3 dated 12 March 2002 and 28
August 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 54330 and CA-G.R. SP No.
54331, reversing the two Per Curiam Orders dated 28 October 1996 and 10 January 1997, 4 of the
National Labor Relations Commission (NLRC) in NLRC NCR Cases No. 08-03013-87 and 01-
00331-88.
Stripped of the non-essentials, the facts are as follows:
Panfilo V. Pajarillo (Panfilo) was the owner and operator of several buses plying certain routes in
Metro Manila. He used the name "PVP Liner" in his buses. Private respondents were employed as
drivers, conductors and conductresses by Panfilo.
During their employment with Panfilo, private respondents worked at least four times a week or for
an average of fifteen working days per month. They were required to observe a work schedule
starting from 4:00 in the morning up to 10:00 in the evening on a straight time basis. Private
respondent drivers were paid a daily commission of 10%, while private respondent conductors and
conductresses received a daily commission of 7%. In sum, each of the private respondents earned
an average daily commission of about P150.00 a day. They were not given emergency cost of living
allowance (ECOLA), 13th month pay, legal holiday pay and service incentive leave pay. 5
The following were deducted from the private respondents daily commissions: (a) costs of washing
the assigned buses; (b) terminal fees; (c) fees for sweeping the assigned buses; (d) fees paid to the
barangay tanod at bus terminals; and (e) rental fees for the use of stereo in the assigned buses. Any
employee who refused such deductions were either barred from working or dismissed from work. 6
Thereafter, private respondents and several co-employees formed a union called "SAMAHAN NG
MGA MANGGAGAWA NG PANFILO V. PAJARILLO" (respondent union). The Department of Labor
and Employment (DOLE) issued a Certificate of Registration in favor of the respondent union. 7
Upon learning of the formation of respondent union, Panfilo and his children ordered some of the
private respondents to sign a document affirming their trust and confidence in Panfilo and denying
any irregularities on his part. Other private respondents were directed to sign a blank document
which turned out to be a resignation letter. Private respondents refused to sign the said documents,
hence, they were barred from working or were dismissed without hearing and notice. Panfilo and his
children and relatives also formed a company union where they acted as its directors and officers. 8
On 25 August 1987, respondent union and several employees filed a Complaint for unfair labor
practice and illegal deduction before the Labor Arbiter with "Panfilo V. Pajarillo Liner" as party-
respondent. This was docketed as NLRC/NCR Case No. 00-08-03013-87. 9 On 28 September 1987,
the respondent union filed an Amended Complaint alleging this time not only unfair labor practice
and illegal deduction but also illegal dismissal.10
On 20 January 1988, respondent union and several employees filed another Complaint for violation
of labor standard laws claiming non-payment of (1) ECOLA, (2) 13th month pay, (3) overtime pay, (4)
legal holiday pay, (5) premium pay, and (6) service incentive leave. The party-respondents in this
complaint were "PVP LINER INC. and PANFILO V. PAJARILLO, as its General Manager/Operator."
This was docketed as NLRC Case No. 00-01-00331-88.11
Notifications and summons with respect to NLRC/NCR Case No. 00-08-03013-87 were addressed
and sent to "PANFILO V. PAJARILLO, President/Manager, Panfilo V. Pajarillo Liner, Pasig Line St.,
Sta. Ana, Manila" on 31 August 1987. The Registry Return Receipt dated 4 September 1987 was
addressed to Panfilo V. Pajarillo, and a signature therein appears on top of the signature of the name
of the addressee.12 With regard to NLRC Case No. 00-01-00331-88, notifications and summonses
were addressed and sent to "THE PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V. Pajarillo,
2175 Zamora Street, Sta. Ana, Manila" on 25 January 1988. The Registry Return Receipt dated 4
February 1988 was addressed to "PVP Liner Inc." and was signed by a certain "Irene G. Pajarillo" as
the addressees agent.13
Panfilo denied the charges in the complaints. He maintained that private respondents were not
dismissed from work on account of their union activities; that private respondents and several of their
co-employees either resigned or were separated from work, or simply abandoned their employment
long before the respondent union was organized and registered with the DOLE; that the private
respondents are not entitled to ECOLA and 13th month pay because they received wages above the
minimum provided by law; that the private respondents are not entitled to overtime and legal holiday
pay because these are already included in their daily commissions; that the private respondents are
not entitled to five days incentive leave pay because they work only four days a week; that no
deductions were made in the daily commissions of the private respondents; that the private
respondents voluntarily and directly paid certain individuals for barangay protection and for the
cleaning of the assigned buses; that he had no participation in these activities/arrangements; that
the private respondents were not dismissed from work; and that the private respondents either
abandoned their jobs or voluntarily resigned from work.14
Upon motion of Panfilo, the complaints in NLRC/NCR Case No. 00-08-03013-87 and NLRC Case
No. 00-01-00331-88 were consolidated.15 On 29 January 1991, Panfilo died.16
After hearing and submission by both parties of their respective position papers and memoranda,
Labor Arbiter Manuel P. Asuncion (Arbiter Asuncion) rendered a Decision17 dated 28 December 1992,
dismissing the consolidated complaints for lack of merit. Thus:
IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS, the complaint should be as it is

hereby dismissed for lack of merit.
Respondent union appealed to the NLRC. On 18 June 1996, the NLRC reversed the decision of
Arbiter Asuncion and ordered the reinstatement of, and payment of backwages, ECOLA, 13th month
pay, legal holiday pay and service incentive leave pay to, private respondents. 18 The dispositive
portion of the NLRC decision reads:
Wherefore, the appealed decision is hereby set aside. Accordingly, judgment is hereby rendered
directing:
(1) The respondent, PVP Liner, Inc. to reinstate to their former positions, without loss of
seniority rights and other benefits, the following complainants: Alfredo [Hoyohoy], Bernardo
Roco, Rodolfo Torres, Julian Jorvina, Florita Yapoc, Marlon Aldana, Paraluman Ulang,
Tolentino Sanhi, Johnny Soriano, Andres Calaque, Roberto Lavarez, Francisco Morales,
Salvacion Perina, Antonio Abala, Alfonso Baldomar, Jr., Romeo Salonga, Augur Manipol,
Bienvenida Tequil, Mario Elep, Aladino Latigo, Bernardine Bansal, Pedro de Baguio, Ricardo
Calica, Laura Co, Vicente Recana, Elena Tolledo, Alfredo Plaza, Sr., Herminio Baldono,
Felioe Yapoc, Ariston Nipa and Herminia Castillo and to pay them their backwages
corresponding to a period of three (3) years without qualifications and deductions;
(2) The same respondent PVP Liner, Inc. to pay amounts to be computed in a hearing called
for said purpose by the Arbitration Branch of Origin, the aforesaid complainants their claims
for emergency cost of living allowance (ECOLA), 13th month pay, legal holiday pay and
service incentive leave benefits subject to the three-year prescriptive period provided under
Article 291 of the Labor Code, as amended;
(3) The dismissal of the claims on alleged illegal deductions of the respondents for lack of
merits; and
(4) The dismissal of the case of Lourdes Roco due to prescription.
All other claims of the complainants and the respondents are likewise DISMISSED, for being without
merit.
The Arbitration Branch of Origin is hereby directed to enforce this decision.
Panfilos counsel filed a motion for reconsideration which was partially granted by the NLRC in its
Order dated 28 October 1996, to wit:
Dictated, however, by the imperatives of due process, we find it more judicious to just remand this
case for further hearing on key questions of:
1) whether or not PVP Liner Inc. was properly impleaded as party respondent in the
consolidated cases below;
2) whether or not summons was properly served on said corporation below; and
3) whether or not the subject cases can be considered as principally money claims which
have to be litigated in intestate/testate proceedings involving the estate of the late Panfilo V.
Pajarillo.
WHEREFORE, our decision dated June 18, 1996 is hereby set aside. Let this case be remanded to
the NCR Arbitration Branch for further hearing on the questions above-mentioned. 19
Respondent union filed a motion for reconsideration of the above-stated Order, but this was denied
by the NLRC in its Order dated 10 January 1997.20 Thus, respondent union filed a Petition for
Certiorari under Rule 65 before this Court. Pursuant, however, to our ruling in St. Martin Funeral
Home v. National Labor Relations Commission,21 we remanded the petition to the Court of Appeals
for proper disposition.
On 12 March 2002, the Court of Appeals rendered a Decision granting the respondent unions
petition and nullifying the Orders dated 28 October 1996 and 10 January 1997 of the NLRC. It also
reinstated the Decision dated 18 June 1986 of the NLRC. 22 The appellate court decreed:
WHEREFORE, premises considered, the PETITION FOR CERTIORARI is hereby GRANTED.

Accordingly, the Order dated October 28 1996 and January 10, 1997 of the NLRC are hereby
NULLIFIED and its Decision dated 18 June 1986 be REINSTATED.
Panfilos counsel filed a motion for reconsideration of the said decision but this was denied by the
appellate court in its Resolution dated 28 August 2002.23
Herein petitioners, as heirs of Panfilo, filed the instant petition before this Court assigning the
following errors:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ARRIVING AT THE

CONCLUSION THAT PVP LINER INC. WAS PROPERLY MISPLEADED, WHICH IS A NON-
EXISTING CORPORATION.
II.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT CONSIDERING

THAT THERE WAS NO PROPER AND EFFECTIVE SERVICE OF SUMMONS.
III.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN PIERCING THE VEIL

OF CORPORATE ENTITY OF PVP PAJARILLO LINER INC.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN REINSTATING THE

ORDER OF THE NLRC DATED JUNE 18, 1996, WHICH DECLARED THAT PRIVATE
RESPONDENTS WERE ILLEGALLY DISMISSED.24
Anent the first issue, petitioners alleged that the Decision dated 18 June 1996 of the NLRC, ordered
PVP Liner Inc. to reinstate private respondents and pay their backwages, ECOLA, 13th month pay,
legal holiday pay and service incentive leave pay; that there was no such entity as PVP Liner Inc.
organized and existing in the Philippines; that it was not possible for Arbiter Asuncion and the NLRC
to acquire jurisdiction over a non-existing company; that there can never be a service of summons or
notice to a non-existent entity; that the true employer of private respondents was Panfilo as the sole
proprietor/operator of passenger buses doing business under the tradename, PVP Liner, and not
PVP Liner Inc. which was non-existent; that Panfilo never used PVP Liner Inc. as his tradename;
that the present operator of PVP Liner buses is P.V. PAJARILLO LINER, a corporation duly
registered with the Securities and Exchange Commission; that at the time the instant case was filed
before Arbiter Asuncion in 1987, the latter did not have jurisdiction over P.V. PAJARILLO LINER
because it was organized and duly registered only on 22 January 1990; that P.V. PAJARILLO LINER
has a separate and distinct personality from Panfilo as the sole operator of PVP Liner buses; that,
therefore, P.V. PAJARILLO LINER cannot be made a party or impleaded in the present case; that the
amended complaint in NLRC/NCR Case No. 00-08-03013-87 impleaded as party-respondent
"PANFILO V. PAJARILLO LINER and PANFILO V. PAJARILLO, as operator and responsible officer";
that PVP Liner Inc. was not impleaded in the instant case; and that no summons was ever served on
PVP Liner Inc. in NLRC/NCR Case No. 00-08-03013-87.25
The contentions are bereft of merit.
In the Complaint dated 20 January 1988, PVP Liner Inc. and Panfilo were impleaded as party-
respondents, thus:
That respondent PVP Liner, Inc., is a private business entity, engaged in transportation of
passengers, duly organized and existing pursuant to law and for this purpose maintains its principal
office at 2175, Zamora Street, Sta. Ana, Manila; while individual respondent [Panfilo] is the General
Manager/Operator and may be served with summons, notices and other processes at the
aforementioned principal office.26
Panfilo did not question in his position paper or in his motion for consolidation of the complaints the
foregoing allegations. Neither did he assail the inclusion of PVP Liner Inc. as party-respondent in
respondent unions position paper dated 6 June 1988.
In Panfilos position paper as well as in the records of the proceedings before Arbiter Asuncion, there
is nothing that shows that Panfilo challenged the jurisdiction of Arbiter Asuncion over PVP Liner Inc.
When Arbiter Asuncion decided in favor of Panfilo, the latter said nothing about the inclusion of PVP
Liner Inc. as party respondent and the lack of jurisdiction of Arbiter Asuncion over the same. It was
only when the NLRC rendered a Decision adverse to Panfilo that the latter alleged the non-existence
of PVP Liner Inc. and the fact that Arbiter Asuncion and the NLRC had no jurisdiction over it.
Petitioners are now precluded from questioning the inclusion of PVP Liner Inc. as party-respondent
as well as the jurisdiction of Arbiter Asuncion and the NLRC over them under the principle of
estoppel. It is settled that the active participation of a party against whom the action was brought,
coupled with his failure to object to the jurisdiction of the court or quasi-judicial body where the action
is pending, is tantamount to an invocation of that jurisdiction and a willingness to abide by the
resolution of the case and will bar said party from later on impugning the court or bodys
jurisdiction.27 This Court has time and again frowned upon the undesirable practice of a party
submitting his case for decision and then accepting the judgment only if favorable, and attacking it
for lack of jurisdiction when adverse.28
It is apparent that Panfilo V. Pajarillo Liner and PVP Liner Inc. are one and the same entity belonging
to one and the same person, Panfilo. When PVP Liner Inc. and Panfilo V. Pajarillo Liner were
impleaded as party-respondents, it was Panfilo, through counsel, who answered the complaints and
filed the position papers, motions for reconsideration and appeals. It was also Panfilo, through
counsel, who participated in the hearings and proceedings. In fact, Abel Pajarillo (Abel), son of
Panfilo, testified before Arbiter Asuncion that he was the operations manager of PVP Liner
Inc.29 Further, both Panfilo and PVP Liner Inc. were charged jointly and severally in the aforesaid
complaints.
Apropos the second issue, petitioners alleged that the notices and summons were received by a
certain Irene G. Pajarillo (Irene) for and in behalf of the PVP Liner Inc.; that Irene was neither and
could not have been the President/Manager of PVP Liner Inc., the latter being non-existent; and that
Irene was not an officer of P.V. Pajarillo Liner.30
Sections 4 and 5 of Rule IV of the Revised Rules of Procedure of the NLRC provides the rule for the
service of summonses and notices in NLRC cases, viz:
Sec. 4. Service of notices and resolutions. a) Notices or summons and copies of orders,
resolutions or decisions shall be served personally by the bailiff or the duly authorized public officer
or by registered mail on the parties to the case within five (5) days from receipt thereof by the
serving officer.
Sec. 5. Proof and completeness of service. The return is prima facie proof of the facts indicated
therein. Service by registered mail is complete upon receipt by the addressee or his agent. 31
Records show that Irene received the summons for NLRC Case No. 00-01-00331-88 on 4 February
1988 in behalf of PVP Liner Inc. These summonses were addressed and sent to "THE
PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V. Pajarillo, 2175 Zamora Street, Sta. Ana,
Manila" on 25 January 1988. The Registry Return Receipt dated 4 February 1988 was addressed to
"PVP Liner Inc." and was signed by Irene as the addressees agent. 32 Abel, one of the heirs of
Panfilo and the Operations Manager of PVP Liner Inc., testified during the hearing before Arbiter
Asuncion that Irene was one of the secretaries of PVP Liner Inc.33 Hence, there was a valid service
of summons.
Regarding the third issue, petitioners posited that P.V. Pajarillo Liner Inc. is an independent
corporation and cannot be considered as an adjunct or extension of Panfilo as the sole operator of
PVP Liner buses; and that at the time P.V. Pajarillo Liner Inc. was established, it had no liability or
obligation which it tried to shield or circumvent.34
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. However, this
separate and distinct personality of a corporation is merely a fiction created by law for convenience
and to promote justice. Hence, when the notion of separate juridical personality is used to defeat
public convenience, justify wrong, protect fraud or defend crime, or is used as a device to defeat
labor laws, this separate personality of the corporation may be disregarded or the veil of the
corporate fiction pierced. This is true likewise when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation. The corporate mask may be lifted and the corporate
veil may be pierced when a corporation is but the alter ego of a person or another corporation. 35
It is apparent that Panfilo started his transportation business as the sole owner and operator of
passenger buses utilizing the name PVP Liner for his buses. After being charged by respondent
union of unfair labor practice, illegal deductions, illegal dismissal and violation of labor standard
laws, Panfilo transformed his transportation business into a family corporation, namely, P.V. Pajarillo
Liner Inc. He and petitioners were the incorporators, stockholders and officers therein. P.V. Pajarillo
Inc. and the sole proprietorship of Panfilo have the same business address. P.V. Pajarillo Inc. also
uses the name "PVP Liner" in its buses. Further, the license to operate or franchise of the sole
proprietorship was merely transferred to P.V. Pajarillo Liner Inc. The testimony of Abel during the
hearing before Arbiter Asuncion is revealing, thus:
Q: Mr. Pajarillo, when did you start assuming the functions of operations manager of PVP
Liner?
A: Seven years from now, sometime in the year 1984 or 1985, sir.
Q: Do you have any written appointment as Operations Manager?
A: No, sir.
Q: I noticed that your surname is Pajarillo you are one way or another related to Mr. Panfilo
V. Pajarillo, is that correct?
Witness:
A: I am the son of Panfilo Pajarillo, sir.
Q: In so far as PVP Liner is concerned and being the operations manager, are you aware if it
is a single proprietor or a corporation?
A: At the start it was a single proprietorship, lately, it has become a family corporation.
Atty. Flores, Jr. (to witness)
Q: When you became the Operations Manager of PVP Liner, is it a single proprietor or a
family Corporation?
A: It was a single proprietorship.
Q: Mr. Witness, since PVP Liner is a transportation business it has a license to operate these
buses?
A: Yes, there is, sir.
Atty. Flores, Jr. (to witness)
Q: In whose name was it registered?
A: Before it was with my father Panfilo V. Pajarillo, sir.
Q: Do I understand that the licensing of this transportation company was transferred to

another person?
A: It was never transferred to another person, except now, that it has been transferred to a
corporation.36
It is clear from the foregoing that P.V. Pajarillo Liner Inc. was a mere continuation and successor of
the sole proprietorship of Panfilo. It is also quite obvious that Panfilo transformed his sole
proprietorship into a family corporation in a surreptitious attempt to evade the charges of respondent
union. Given these considerations, Panfilo and P.V. Pajarillo Liner Inc. should be treated as one and
the same person for purposes of liability.37
Finally, petitioners averred that no unfair labor practice was committed, and that private respondents
were not illegally dismissed from work.
In its Decision dated 18 June 1996, the NLRC made an exhaustive discussion of the allegations and
evidence of both parties as regards unfair labor practice and illegal dismissal. It concluded that
private respondents, officers and members of respondent union were dismissed by reason of their
union activities and that there was no compliance with substantial and procedural due process in
terminating their services. It also held that the private respondents who were not members of the
respondent union were also dismissed without just or valid cause, and that they were denied due
process. These factual findings and conclusions were supported by substantial evidence comprised
of affidavits, sworn statements, testimonies of witnesses during hearings before Arbiter Asuncion,
and other documentary evidence. These findings were sustained by the Court of Appeals.
The rule is that findings of fact of quasi-judicial agencies like the NLRC are accorded by this Court
not only respect but even finality if they are supported by substantial evidence, or that amount of
relevant evidence which a reasonable mind might accept as adequate to justify a conclusion. 38 We
find no compelling reason to deviate from such findings of the NLRC as affirmed by the Court of
Appeals.
Consequently, the private respondents are entitled to reinstatement, backwages and other privileges
and benefits under Article 279 of the Labor Code. Separation pay may be given in lieu of
reinstatement if the employee concerned occupies a position of trust and confidence. In the case at
bar, however, the private respondents, as former bus drivers, conductors and conductresses of
petitioners, do not hold the position of trust and confidence.39
Nonetheless, it appears from the records that some of the private respondents, namely, Augur
Manipol, Rodolfo Torres, Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo Hoyohoy, Johnny
Soriano, Bernardo Roco, Tolentino Sanhi, Salvacion Perina, Pedro L. de Baguio, Ariston Nipa, Felipe
Yapoc, Laura Co, Bienvenida Tequil, Roberto Lavarez, Francisco Morales and Herminio Castillo, had
executed a Quitclaim/Release discharging petitioners "from any and all claims by way of unpaid
wages, separation pay, overtime pay, differential pay, ECOLA, 13th month pay, holiday pay, service
incentive leave pay or otherwise."40
Generally, deeds of release, waivers, or quitclaims cannot bar employees from demanding benefits
to which they are legally entitled or from contesting the legality of their dismissal, since quitclaims
are looked upon with disfavor and are frowned upon as contrary to public policy. Where, however,
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.41
There is no showing that the executions of these quitclaims were tainted with deceit or coercion. On
the contrary, each of the private respondents Sinumpaang Salaysay, which accompanied the
quitclaims, evinces voluntariness and full understanding of the execution and consequence of the
quitclaim. In their said Sinumpaang Salaysay, the private respondents stated that their lawyer had
extensively explained to them the computation and the actual amount of consideration they would
receive; that they were not forced or tricked by their lawyer in accepting the same; and that they
already received the amount of consideration.42
Further, the considerations received by the private respondents were credible and reasonable
because they were not grossly disproportionate to the computation by the NLRC of the amount of
backwages and other money claims.43
Given these circumstances, the quitclaims should be considered as binding on the private
respondents who executed them. It is settled that a legitimate waiver which represents a voluntary
and reasonable settlement of a workers claim should be respected as the law between the
parties.44 Accordingly, the private respondents who made such quitclaims are already precluded from
claiming reinstatement, backwages, ECOLA, 13TH month pay, legal holiday pay, service incentive
leave pay, and other monetary claims.
With regard to the other private respondents who did not execute such quitclaims, they are entitled
to reinstatement, backwages, ECOLA, 13TH month pay, legal holiday pay and service incentive leave
pay in accordance with the computation of the NLRC.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution dated 12 March 2002
and 28 August 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 54330 and CA-G.R.
SP No. 54331, are hereby AFFIRMED with the following MODIFICATIONS: (1) Private respondents
Augur Manipol, Rodolfo M. Torres, Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo Hoyohoy,
Johnny Soriano, Bernardo Roco, Tolentino Sanhi, Salvacion Perina, Pedro L. de Baguio, Ariston
Nipa, Felipe Yapoc, Laura Co, Bienvenida Tequil, Roberto Lavarez, Francisco Morales and Herminio
Castillo are hereby precluded from claiming reinstatement, backwages, ECOLA, 13 TH month pay,
legal holiday pay and service incentive leave pay by reason of their respective quitclaims; (2)
Petitioners are hereby ordered to reinstate private respondents Julian Jorvina, Florita Yapoc, Marlon
Aldana, Andres Calaque, Antonio Abala, Alfonso Baldomar, Romeo Salonga, Mario Elep, Aladino
Latigo, Bernardine Bansal, Vicente Recana, Elena Tolledo and Alfredo Plaza, Sr., and to pay these
respondents backwages from the time of their dismissal up to the finality of this Decision. Petitioners
are also ordered to pay the foregoing private respondents ECOLA, 13 TH month pay, legal holiday pay
and service incentive leave pay in accordance with the computation of the NLRC. Costs against
petitioners.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA

RUBEN T. REYES
Associate Justice
ATT E STATI O N
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
Associate Justice
Chairperson, Third Division
C E RTI F I CATI O N
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it
is hereby certified that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1
Rollo, pp. 39-56.
2
Penned by Associate Justice Bienvenido L. Reyes with Associate Justices Roberto A.
Barrios and Rebecca De Guia-Salvador, concurring; rollo, pp. 9-29.
3
Rollo, pp. 31-33.
4
Id. at 141-158 and 160-161.
5
Records, Vol. I, pp. 150-155, 158-159, 166-167, 182-186 and 260-263.
6
Id.
7
Id. at 46, 49-50 and 220-232.
8
Id. at 150-155, 158-159, 166-167, 182-186 and 260-263.
9
Id. at 2.
10
Id. at 7.
11
Records, Vol. II, pp. 2-4.
12
Records, Vol. I, pp. 3-4.
13
Records, Vol. II, pp. 5 and 13.
14
Records, Vol. I, pp. 110- 121.
15
Id. at 22-23.
16
Id. at 301.
17
Rollo, pp. 86-98.
18
Id. at 99-139.
19
Id. at 157-158.
20
Id. at 160-161.
21
356 Phil. 811 (1998).
22
Rollo, p. 29.
23
Id. at 31-33.
24
Id. at 44-45.
25
Id.at 45-46.
26
Records, Vol. II, p. 2.
27
Pastor Austria v. National Labor Relations Commission, 371 Phil. 340, 355 (1999).
Prudential Bank and Trust Company v. Reyes, 404 Phil. 961, 973 (2001), citing Banaga v.
28
Commission on the Settlement of Land Problems, G.R. No. 66386, 30 January 1990, 181
SCRA 599, 608.
29
TSN, 27 February 1992, pp. 5-9.
30
Rollo, p. 46.
This has been amended by the 2005 Revised Rules of Procedure of the National Labor
31
Relations Commission.
32
Records, Vol. II, pp. 5 and 13.
33
Id. at 15-16.
34
Rollo, p. 47.
35
Concept Builders, Inc. v. National Labor Relations Commission, 326 Phil. 955, 964-965
(1996).
36
TSN, 27 February 1992, pp. 5-9.
37
Jacinto v. Court of Appeals, G.R. No. 80043, 6 June 1991, 198 SCRA 211, 214.
Nueva Ecija Electric Cooperative (NEECO) II v. National Labor Relations Commission,

38
G.R. No. 157603, 23 June 2005, 461 SCRA 169, 184-185.
39
Vallacar v. National Labor Relations Commission, 316 Phil. 556, 561-562 (1995).
40
Records, Vols. I and II.
Wack Wack Golf and Country Club v. National Labor Relations Commission, G.R. No.
41
149793, 15 April 2005, 456 SCRA 280, 295.
42
Records, Vols. I and V.
43
Records, Vol. I.
Mendoza, Jr. v. San Miguel Foods, Inc., G.R. No. 158684, 16 May 2005, 458 SCRA 664,
44
680.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 154532 October 27, 2006

PETRON CORPORATION AND PETER C. MALIGRO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION AND CHITO S. MANTOS, respondents.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this petition for review under Rule 45 of the Rules of Court is
theResolution dated November 26, 20011 of the Court of Appeals (CA) in CA-G.R. SP No. 67702,
dismissing the petition for certiorari thereat filed by the herein petitioners on the ground that the
Verification and Certification on Non-Forum Shopping was defective because co-petitioner Peter C.
Maligro was not a signatory thereto, as reiterated in its subsequent Resolution of July 16,
2002,2 denying the petitioners' motion for reconsideration.
The facts:
Petitioner Petron Corporation (Petron), a corporation duly organized and existing under the laws of
the Philippines, is engaged in the refining, sale and distribution of petroleum and other related
products, while its co-petitioner Peter C. Maligro was the former Visayas Operations Assistant
Manager of Petron's Visayas-Mindanao District Office at Lahug, Cebu City.
On May 15, 1990, Petron, through its Cebu District Office, hired the herein private respondent Chito
S. Mantos, an Industrial Engineer, as a managerial, professional and technical employee with initial
designation as a Bulk Plant Engineering Trainee. He attained regular employment status on
November 15, 1990 and was later on designated as a Bulk Plant Relief Supervisor, remaining as
such for the next five years while being assigned to the different plants and offices of Petron within
the Visayas area.
It was while assigned at Petron's Cebu District Office with petitioner Peter Maligro as his immediate
superior, when Mantos, thru a Notice of Disciplinary Action dated October 29, 1996, 3 a copy of which
was received by him on November 18, 1996,4 was suspended for 30 days from November 1 to 30,
1996 for violating company rules and regulations regarding Absence Without Leave (AWOL), not
having reported for work during the period August 5 to 27, 1996.
Subsequently, in a notice Termination of Services bearing date November 20, 1996 5 and received by
him on November 25, 1996,6 Mantos' services were altogether terminated effective December 1,
1996, by reason of his continued absences from August 28, 1996 onwards, as well as for
Insubordination/Discourtesy for making false accusations against his superior.
Meanwhile, on November 8, 1996, contending that he has been constructively dismissed as of

August 5, 1996, Mantos filed with the National Labor Relations Commission, Regional Arbitration
Branch (NLRC-RAB), Cebu City, a complaint for illegal dismissal and other monetary claims against
Petron and/or Peter C. Maligro. The case was docketed as NLRC RAB-VII Case No. 11-1439-96.
In his complaint, Mantos made the following allegations:
xxx He had an unblemished record in his service with [Petron]. Intrigues and professional
jealousies, however, have prevailed over the work atmosphere in [Petron]. This became
more particularly true in regard to his close relationship with Jaime "Boy" Tamayo, then the
VISMIN Operations Manager who later left the company to migrate to Canada. His closeness
to Tamayo has caused problems with his relationship with Peter Maligro, Visayas Operations
Assistant Manager, who has been after his neck for sometime. Maligro's hatred on him
became evident when he was assigned to Nasipit Bulk Plant at Nasipit, Agusan del Norte for
two (2) months or so. He was deprived of his usual P1,000.00 a day per diem. He was also
deprived of the usual facilities such as the service vehicle and the use and access to
lighterage services.
Because of the tremendous work pressure, he availed and was granted a vacation leave in
March 1996. Before he reported back to work he was summoned to the office of Peter Paul
Shotwell. There, he was advised by [Petron's] officers to resign from [Petron] as they were
instructed by superiors that he should quit as they no longer liked him. Failing to convince
him he was later offered to avail of [Petron's] early retirement program dubbed as
"Manpower Reduction Program" or MRP. Thereafter he was advised to avail of his remaining
vacation leave while they process his MRP papers. After his vacation, he was no longer
allowed to report back at his assignment at Mactan Aviation Facilities but directly to Maligro
at the Cebu District Office. While being designated as Operations Engineer, he was assigned
only menial tasks such as recopying errands, digging up files, drafting and redrafting
memoranda and other mere clerical works. On August 5, 1996, Maligro bad-mouthed him in
the presence of his co-employees for alleged dissatisfaction of his work as a mere clerk.
What [Petron and Maligro] have done to him amounts to constructive dismissal. Hence, his
complaint.7 (Words in brackets supplied.)
For their part, Petron and Maligro averred that Mantos was dismissed for just and valid causes
effective December 1, 1996, asserting that:
xxx complainant [Mantos] incurred absences without leave (AWOL) on August 5 to 27, 1996
inclusive. He failed to comply with the instruction of a superior for him to report for work at
the Cebu City District office and to submit a formal explanation of his AWOL. From August
28, 1996, up to the filing of respondents' position paper, complainant has not reported for
work but continued to receive the salary for the months of August, September and October 2,
1996. An investigation was conducted on September 2, 1996 but complainant failed to
appear. Instead he sent two (2) letters thru his counsel accusing respondent Maligro of
certain acts humiliating and prejudicing him. After a series of hearings, [Petron's]
Investigation Committee in a report and recommendation of November 19, 1996,
recommended that after a 30-day suspension, complainant should be subjected to a more
severe penalty. Hence, they deny complainant's claims. 8
In a decision dated June 30, 1998, Labor Arbiter Dominador A. Almirante declared Mantos to have
been constructively dismissed but ruled that only Petron could be held liable to him for separation
pay in lieu of reinstatement and the cash equivalent of his certificate of stocks, less his personal
accountabilities. More specifically, the decision dispositively states:
WHEREFORE, foregoing premises considered, judgment is hereby rendered ordering the

respondent Petron Corporation VISMIN District Office to pay complainant the amount of One
Hundred Two thousand Nine Hundred Twenty-Eight Pesos and 41/100 (P102,928.41)
representing the separation pay for his six (6) years of service at P15,420.00 a month, the
cash equivalent of his certificate of stocks minus his outstanding account, computed as
follows:
a. Separation Pay:
P15,420.00 x 6 years - P 92, 520.00
b. Cash equivalent of certificate of

stocks - P 66,600.00
Total P159,120.00
Minus - P 56, 191.59
Net Award P102, 928.41
SO ORDERED. 9
Explains the Labor Arbiter in his decision:
It is an established fact that for his absences from August 5 to August 27, 1996, complainant
was imposed the penalty of suspension for thirty (30) days from November 1 to 30, 1996 per
the letter of respondent Maligro to complainant dated October 29, 1996 (Annex "D"). From
respondents' Annex "6" which is a memorandum of November 19, 1996 containing the report
of the Investigation Committee it is shown therein that the summons in this case was
received by respondents on November 14, 1996. The following day, November 15, 1996, the
Committee met to determine the factual basis of the charges of absence without leave and
insubordination against complainant. The Committee was convened seven (7) days after the
filing of the complaint herein on November 8, 1996.
We find that the foregoing factual milieu militates badly against the cause for the
respondents. It appears that the Investigation Committee was belatedly constituted as an
afterthought after the respondents received the summons in this case. For his AWOL,
complainant was already sufficiently penalized by suspension for thirty (30) days, the
maximum penalty authorized by law. In fact, complainant was still serving his suspension
when the Committee was convened and issued the memorandum of November 19, 1996
recommending his dismissal for AWOL and insubordination. The insubordination aspect
stemmed from complainant's accusation in his complaint for constructive dismissal and
withholding of his stock certificates. The imposition of the penalty of dismissal smacks of a
desire to get even for complainant's filing of a complaint against the respondents. Anyway,
the penalty of dismissal was too harshly and [d]isproportionately imposed on the complainant
considering his length of service.
Furthermore, there is in an (sic) unrebutted evidence for the complainant that earlier while
being assigned directly under respondent Maligro at the Cebu District Office, with the
designation as Operations Engineer, he was assigned only menial tasks like recopying
errands, digging up files, drafting and redrafting memoranda and other clerical works.
We find that respondents' act was tantamount to constructive dismissal xxx Under such
circumstances, the continuance of complainant's employment with respondent corporation
has been rendered impossible, unreasonable and unlikely. There exists also a demotion in
rank.
xxx xxx xxx
We find therefore that complainant was illegally dismissed from the service. He should have
been reinstated to his former position without loss of seniority rights. We find however, that
the filing of this complaint has spawned strained relationship between the parties. Hence,
reinstatement is no longer practical and feasible. Instead complainant should be awarded his
separation pay equivalent to one (1) month pay per year of service. He is not however
entitled to backwages. He is not completely free from blame in his separation from the
service. He committed absences without leave. xxx
xxx xxx xxx
Complainant is also entitled to the cash equivalent of his certificate of stocks admitted in
respondent's Exhibit "7" to be P66,600.00. From the total award shall be deducted the
amount of P56,191.59 complainant's outstanding account to respondent.
The rest of the claims are hereby ordered dismissed for lack of merit not having been
substantiated by clear and convincing evidence. Respondent Peter C. Maligro is hereby
absolved from any liability hereof there being no showing that he acted in bad faith and in
excess of his authority in dealing with the complainant. 10
Both dissatisfied, the parties questioned the aforementioned Labor Arbiter's decision: Petron and
Maligro, by way of an appeal to the NLRC at Cebu City, accompanied by a P102, 928.41 surety
bond in favor of Mantos; and the latter, by a motion for reconsideration which the NLRC eventually
treated as an appeal.
On July 31, 2000, the NLRC reversed the findings of the Labor Arbiter regarding Mantos'
constructive dismissal as of November 1, 1996 and considered him to have been illegally dismissed
only on December 1, 1996. In the same decision, the NLRC adjudged Maligro solidarily liable with
Petron, and accordingly modified the Labor Arbiter's decision as follows:
WHEREFORE, the questioned Decision is MODIFIED in that complainant was illegally

suspended from November 1-30, 1996 and was ILLEGALLY DISMISSED on December 1,
1996, accordingly and as discussed, he should be paid separation pay based on his one
month salary (P15,420.00) per year of service computed until the month of promulgation
(July, 2000) of this Decision. In addition, complainant is entitled to full backwages from
November 1, 1996 until July, 2000.
The finding below of cash equivalent of certificate of stocks in the amount of P66,600.00 is
deleted. The accountability of complainant in the amount of P56,191.59 shall be deleted from
his total awards.
Complainant is likewise entitled to ten percent (10%) of the total awards by way of attorney's
fees.
The foregoing liabilities are solidary against respondents Petron Corporation and Peter C.
Maligro.
SO ORDERED.11
Justifying its decision, the NLRC explained that Mantos failed to prove that he had to quit his job on
August 5, 1996 because his continued employment was rendered impossible, unbearable and
unlikely. On the other hand, Petron and Maligro did not observe the requisite procedural due process
considering that (1) the alleged Notice of Violation of Company Rules and Regulations dated August
27, 1996 which preceded the suspension of Mantos was not received by the latter; and (2) no
separate notice for the two new charges of Absence Without Leave (AWOL) starting August 28, 1996
and Insubordination/Discourtesy for making false accusations against his superior, were sent to
Mantos prior to the Notice of Termination dated November 20, 1996 based on the
report/recommendation dated November 19, 1996 of the Investigation Committee. Furthermore, the
Commission noted that on the day after Petron and Maligro received the summons with respect to
Mantos' complaint with the NLRC-RAB, the Investigation Committee was immediately convened
regarding Mantos' continued absences beginning August 28, 1996 with Maligro himself being a
member of said committee.
With their motion for reconsideration having been denied by the NLRC in its Resolution of August 31,
2001,12 the petitioners elevated the case via certiorari to the CA in CA-G.R. SP No. 67702.
As stated at the threshold hereof, the CA, in its assailed Resolution of November 26, 2001,
outrightly dismissed the petition for being defective in form because only petitioner Petron signed the
verification and certification on non-forum shopping without its co-petitioner Peter Maligro likewise
signing the same.
Their motion for reconsideration having been denied by the CA in its second impugned Resolution of
July 16, 2002, the petitioners are now with us via the present recourse on the following grounds:13
A. THE COURT OF APPEALS ERRED IN DISMISSING PETITIONERS' PETITION FOR

CERTIORARI ON THE GROUND THAT THE SAME FAILED TO COMPLY WITH THE RULE
ON CERTIFICATION ON NON-FORUM SHOPPING CONSIDERING THAT:
1. THERE WAS SUBSTANTIAL COMPLIANCE BY PETITIONERS WITH THE

REQUIREMENTS ON CERTIFICATION OF NON-FORUM SHOPPING.
2. THERE WAS A REASONABLE CAUSE FOR PETITIONER MALIGRO'S FAILURE

TO ATTACH A VERIFICATION/CERTIFICATION OF NON-FORUM SHOPPING.
B. THE OUTRIGHT DISMISSAL OF THE PETITION BY THE COURT OF APPEALS

WOULD DEFEAT SUBSTANTIAL JUSTICE CONSIDERING THAT THE NLRC COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
IN FINDING THAT:
1. PRIVATE RESPONDENT'S COMPLAINT FOR ILLEGAL DISMISSAL WAS NOT
FILED AS A MALICIOUS SCHEME AGAINST PETITIONERS, DESPITE
OVERWHELMING EVIDENCE ON RECORD.
2. PETITIONERS DISMISSED PRIVATE RESPONDENT MANTOS WITHOUT

OBSERVING THE REQUISITE PROCEDURAL DUE PROCESS BECAUSE
PETITIONERS ALLEGEDLY DID NOT PROVE THAT MANTOS RECEIVED THE
NOTICE OF VIOLATION OF COMPANY RULES DATED 27 AUGUST 1996 AS
WELL AS THE TWO TELEGRAMS REQUIRING MANTOS TO REPORT FOR
WORK, CONTRARY TO SUBSTANTIAL EVIDENCE ON RECORD.
3. THAT PETITIONERS DISMISSED MANTOS WITHOUT OBSERVING THE

REQUISITE PROCEDURAL DUE PROCESS BECAUSE PETITIONERS
ALLEGEDLY DID NOT SEND A NOTICE OF VIOLATION OF COMPANY RULES TO
PRIVATE RESPONDENT FOR THE OFFENSES THAT HE COMMITTED FOR THE
SECOND TIME, DESPITE CONTRARY EVIDENCE ON RECORD.
4. THAT PETITIONERS DID NOT SHOW HOW THE INVESTIGATION COMMITTEE

THAT INVESTIGATED MANTOS' VIOLATIONS OF COMPANY RULES WAS
CREATED AND THAT THE SAME WAS BIASED AGAINST MANTOS MERELY
BECAUSE ITS CHAIRMAN WAS MANTOS' SUPERIOR, DESPITE CONTRARY
EVIDENCE ON RECORD.
5. THAT PETITIONER PETER C. MALIGRO IS SOLIDARILY LIABLE WITH

PETITIONER PETRON CORPORATION FOR THE LATTER'S ALLEGED LIABILITY
TO MANTOS NOTWITHSTANDING THE ABSENCE OF EVIDENCE INDICATING
THAT MALIGRO ACTED WITH BAD FAITH AGAINST MANTOS.
6. THAT PRIVATE RESPONDENT IS ENTITLED TO AWARD OF FULL

BACKWAGES FROM 1 NOVEMBER 1996 UNTIL JULY 2000 AND TO THE OTHER
MONETARY AWARDS MADE BY THE NLRC.
In his Comment,14 the private respondent avers, among others, that the petitioners' petition
for certiorari in CA-G.R. SP No. 67702 cannot alter the factual findings of the Labor Arbiter as
affirmed by the NLRC. He argues that the sole office of a writ of certiorari is to correct jurisdictional
errors including grave abuse of discretion amounting to lack or excess of jurisdiction, and does not
include correction of the NLRC's evaluation of the evidence, whose factual findings are generally
accorded not only great respect but even finality.
The petition is partly meritorious.
Concededly, the fact that only Petron, minus its co-petitioner Peter C. Maligro, executed and signed
the Verification and Certification on Non-Forum Shopping, 15 attached to the petition
for certiorari in CA-G.R. SP No. 67702, is a cause for the dismissal of that petition, conformably with
Section 5, Rule 7 of the Rules of Court which expressly requires that the certification against forum
shopping must have to be certified under oath by "the plaintiff or principal party," and failure to
comply therewith shall cause the dismissal of the action. 16
Be that as it may, we hold that the CA erred in outrightly dismissing CA-G.R. SP No. 67702 solely on
the ground that therein co-petitioner Peter Maligro failed to equally sign the verification and
certification on non-forum shopping.
It must be remembered that the petitioners in CA-G.R. SP No. 67702 are Petron and its operations
assistant manager, Peter Maligro. Evidently, Maligro was included in the complaint filed by Mantos in
NLRC RAB-VII Case No. 11-1439-96 in Maligro's capacity as Petron's corporate officer. Maligro has
no separate and distinct personality from that of Petron, undoubtedly the direct employer of Mantos
against which any award in the latter's favor is enforceable. With Petron being the real party-in
interest in that case and not Maligro, the latter's failure to equally sign the verification and
certification on non-forum shopping should not have merited the CA's outright dismissal of
the certiorari petition in CA-G.R. SP No. 67702.
In outrightly dismissing the petition, the CA relied on Loquias v. Office of the Ombudsman.17 The
appellate court's reliance on that case is misplaced. For, in the subsequent case of Micro Sales
Operation Network and Willy Bendol v. NLRC, et. al., 18 wherein the CA based its dismissal of the
therein similarly defective petition for certiorari on the strength of Loquias, this Court ruled:
The Court of Appeals relied on Loquias v. Office of the Ombudsman, which held that a
certification on non-forum shopping signed by only one of two or more petitioners is
defective, unless he was duly authorized by his co-petitioner. However, the said ruling
applies when the co-parties are being sued in their individual capacities. Note that the
petitioners in Loquias are the mayor, vice-mayor, and three members of the municipal board
of San Miguel, Zamboanga del Sur. The said co-parties were charged with violation of
Republic Act No. 3019 15 in their various capacities.
In the instant case, the petitioners are the company and its operations manager, Willy
Bendol. The latter was impleaded simply because he was a co-respondent in the
illegal dismissal complaint. He has no interest in this case separate and distinct from
the company, which was the direct employer of private respondents. Any award of
reinstatement, backwages, and attorney's fees in favor of private respondents will be
enforced against the company as the real party in interest in an illegal dismissal case.
Petitioner Bendol is clearly a mere nominal party in the case. His failure to sign the
verification and certification on non-forum shopping is not a ground for the dismissal
of the petition. The appellate court erred in dismissing outright petitioners' special
civil action for certiorari solely on that ground. (Emphasis supplied.)
In any event, considering that Maligro derives his standing or personality in the case from Petron,
the certification on non-forum shopping executed and signed only by the corporation benefited
Maligro such that the attachment of said certification to the petition in CA-G.R. SP No. 67702 should
be deemed substantial compliance with the rule on certification on non-forum shopping.
We have, therefore, opted to give due course to the present petition. And realizing that a remand of
this case to the CA would only entail further delay in the proceedings, we deemed it prudent to
resolve the controversy to finally put it to a rest.
In the review of NLRC decisions through the special civil action of certiorari, resolution is confined
only to issues of jurisdiction and grave abuse of discretion on the part of the labor tribunal. The Court
refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative
functions, such as the NLRC. 19
Here, however, we are constrained to make a review of the records and a re-examination of the
questioned NLRC findings to arrive at a complete, just and proper determination of the case.
Essentially, the issue posed is the validity of private respondent's dismissal.

The validity of an employee's dismissal hinges on the satisfaction of two substantive requirements,
to wit: (1) the employee was accorded due process, basic of which are the opportunity to be heard
and to defend himself; and (2) the dismissal must be for any of the causes provided for in Article 282
of the Labor Code.20
The illegality of the act of dismissal constitutes discharge without just cause, while the illegality in the
manner of dismissal is dismissal without due process. 21
Here, private respondent was successively charged with two (2) sets of offenses and separately
penalized for each set.
The first set of infractions consisted of private respondent's being AWOL from August 5 to 27, 1996
and Insubordination/Discourtesy as set forth in the Notice of Violation of Company Rules and
Regulations dated August 27, 1996,22 for which he was penalized with suspension for 30 days
effective November 1 to 30, 1996 but only for the charge of being AWOL. The second set, as
contained in the Notice of Violation of Company Rules and Regulations (EM 300) dated November
12, 199623 consisted also of being AWOL, this time beginning August 28, 1996, and
Insubordination/Discourtesy for making false accusations against his superior, for which he
wasdismissed effective December 1, 1996.
Private respondent did not report for work starting August 5, 1996 due to his belief that he has
already been dismissed as of said date. But since he failed to prove his allegation of clear acts of
harassment and humiliation, which had allegedly become so unbearable as to leave him with no
choice but to forego his continued employment, we uphold the legality of his suspension due to his
unauthorized absences from August 5 to 27, 1996.
With respect to respondent's dismissal, however, we find the same unjustified.
Under paragraph (a), Article 282 of the Labor Code, 24 an employer may terminate the services of an
employee for his willful disobedience of the employer's lawful orders in connection with his work.
Verily, the employer's rules, instructions or commands, in order to be a ground for discharge on the
score of disobedience, must be reasonable and lawful, must be known to the employee, and must
pertain to the duties for which his services were engaged.25
From the foregoing, it is clear that the factual basis for the petitioners' charge of insubordination
against the private respondent, i.e., making false accusations against his superior cannot constitute
a just cause for dismissal. The so-called accusations are embodied in the complaint filed by the
private respondent in NLRC RAB-VII Case No. 11-1439-96, in which complaint he believed himself
to have been constructively dismissed as of August 5, 1996. By no stretch of imagination can the
filing of such complaint constitute insubordination. If, as asserted by the private respondent, he had
been constructively dismissed as of August 5, 1996, such assertion could not have risen to the level
of false accusation against his superior.
On the other hand, while respondent has indeed been absent from August 28, 1996, the penalty of
dismissal therefor is too harsh considering that all the while, he deemed himself to have been
already dismissed as early as August 5, 1996. Besides, private respondent has already been
penalized with suspension for his unauthorized absences, which notice of suspension he only
received on November 18, 1996.
Likewise, the petitioners failed to prove that they complied with the requisites of procedural due
process in dismissing private respondent.
It is horn-book law that an employee sought to be dismissed must be served two (2) written notices
before termination of employment: a notice to apprise the employee of the particular acts or
omissions for which his dismissal is sought; and the subsequent notice to inform him of the
employer's decision to discharge him from the service. 26 The procedure is mandatory and non-
observance thereof renders the dismissal illegal and void.27
Here, while the private respondent received the Notice of Disciplinary Action dated October 29, 1996
informing him of his suspension, and the Memorandum dated November 20, 1996 terminating his
services, he did not receive any prior notice[s] apprising him of the particular acts for which his
suspension and/or termination were being sought.
As rightly found by the NLRC, the private respondent was not given the following notices, to wit: (1)
the Notice of Violation of Company Rules and Regulations dated August 27, 1996 on his AWOL from
August 5 to 27, 1996 and Insubordination/Discourtesy with notice of an investigation on September
2, 1996; and (2) the Notice dated November 12, 1996 on the second set of charges of AWOL
starting August 28, 1996 and Insubordination/Discourtesy for allegedly making false accusations
against his superior with notice of the investigation on November 15, 1996.
As borne by the records, it was only in their motion for reconsideration of the NLRC decision that the
petitioners proffered the delivery records of a private courier to show that the aforementioned
notices, as well as two alleged telegrams requiring the private respondent to report for work, 28 were
in fact sent to the latter. But, a perusal of said delivery records does not bear the petitioners' claim.
For, apart from the private respondent's full name, Chito S. Mantos, being written in block letters on
the said delivery records, there is no other way of knowing whether it was really him who received
the notices or that another person could have received the same in his behalf. 29 Verily, said delivery
records do not substantially show respondent's receipt of the notices in question.
Given the above, we cannot give credence to petitioners' claim that as early as August 27, 1996, the
date of the notice allegedly sent to the respondent informing him of the first set of offenses, the latter
already knew that a committee was going to investigate him for infractions of company rules and
regulations in connection with thesecond set and that he was invited to attend the investigating
committee's scheduled hearing.
We, therefore, lend concurrence to the common findings of both the NLRC and the Labor Arbiter that
the committee which investigated the alleged second set of offenses and which eventually led to the
committee's recommendation for his dismissal was created only on November 15, 1996 or a day at
the heels of the petitioners' receipt on November 14, 1996 of the summons issued in NLRC RAB-VII
Case No. 11-1439-96.
With the reality that no notice of any investigation was timely served on the private respondent, the
latter's filing of his complaint for illegal dismissal in NLRC RAB-VII Case No. 11-1439-96 on
November 8, 1996 could not be said to have been made to preempt the investigation regarding his
alleged offenses as he was yet unaware of any such investigation. Moreover, as the NLRC rightly
observed:
We note from the records that although complainant quit working starting August 5, 1996
because he felt he was "constructively dismissed" he did not file outright the present
complaint. Instead, he wrote respondent Maligro on October 18, 1996, thru counsel asking
an explanation why no case for illegal dismissal with damages would be filed against
respondents. When he therefore finally filed the present case on Novemeber 8, 1996, that
showed his lingering belief that he was constructively dismissed although from the viewpoint
of respondents, he was already penalized with "grave suspension" for his AWOL from August
5-27, 1996. In short, the filing of the complaint was not a "malicious scheme" on the part of
the complainant contrary to the contention of respondents. 30
Petitioners' failure to comply with the two-notice requirement as shown above, let alone the lack of
just cause for terminating the services of private respondent, rendered the latter's dismissal illegal.
In fine, we rule and so hold that the NLRC did not gravely abuse its discretion in declaring the
illegality of private respondent's dismissal.
We are, however, with the petitioners in their submission that the NLRC erred in holding petitioner
Peter Maligro jointly and severally liable with petitioner Petron for the money claims of the private
respondent.
Settled is the rule in this jurisdiction that a corporation is invested by law with a legal personality
separate and distinct from those acting for and in its behalf and, in general, from the people
comprising it.31 Thus, obligations incurred by corporate officers acting as corporate agents are not
theirs but the direct accountabilities of the corporation they represent. 32 True, solidary liabilities may
at times be incurred by corporate officers, but only when exceptional circumstances so warrant. 33 For
instance, in labor cases, corporate directors and officers may be held solidarily liable with the
corporation for the termination of employment if done with malice or in bad faith. 34
In the present case, the apparent basis for the NLRC in holding petitioner Maligro solidarily liable
with Petron were its findings that (1) the Investigation Committee was created a day after the
summons in NLRC RAB-VII Case No. 11-1439-96 was received, with Maligro no less being the
chairman thereof; and (2) the basis for the charge of insubordination was the private respondent's
alleged making of false accusations against Maligro.
Those findings, however, cannot justify a finding of personal liability on the part of Maligro inasmuch
as said findings do not point to Maligro's extreme personal hatred and animosity with the
respondent. It cannot, therefore, be said that Maligro was motivated by malice and bad faith in
connection with private respondent's dismissal from the service.
If at all, what said findings show are the illegality itself of private respondent's dismissal, the lack of
just cause therefor and the non-observance of procedural due process. Verily, the creation of the
investigation committee and said committee's consideration of the insubordination charge against
the private respondent, were merely aimed to cover up the illegal dismissal or to give it a semblance
of legality.
Besides, the fact that Maligro himself was the committee chairman is not itself sufficient to impute
bad faith on his part or attribute bias against him. It is undisputed that Maligro was private
respondent's superior, being Petron's Operations Assistant Manager for Visayas and Mindanao. It is
thus logical for him to be part of the committee that will investigate private respondent's alleged
infractions of company rules and regulations. As well, the committee was composed of three other
Petron officers as members, and nowhere is there any showing that Maligro, as committee
chairman, influenced the other committee members to side against the private respondent.
In any event, it must be stressed that private respondent's allegation of bad faith on the part of
Maligro was not established in this case. We quote the NLRC's finding in this regard:
Whether he really caught the ire of his immediate supervisor (respondent Maligro) in view of
his alleged closeness to the previous one who migrated to Canada, and whether or not he
was assigned to menial clerical jobs when his designation was that of Operations Engineer,
were not clearly established by complainant.35
Lastly, as to the award of backwages, we refer to Article 279 of the Labor Code (as amended by
Section 34 of R.A. 6715) which provides that an employee who is unjustly dismissed from work is
entitled to reinstatement without loss of seniority rights and other privileges, and to the payment of
his full backwages, inclusive of allowances, and other benefits or their monetary equivalent
computed from the time his compensation was withheld from him (which, as a rule, is from the time
of his illegal dismissal) up to the time of his actual reinstatement. Similarly, under R.A.
6715,36 employees who are illegally dismissed are entitled to full backwages, inclusive of allowances
and other benefits or their monetary equivalent, computed from the time their actual compensation
was withheld from them up to the time of their actual reinstatement but if reinstatement is no longer
possible, the backwages shall be computed from the time of their illegal termination up to the finality
of the decision.37
Since the circumstances obtaining in this case do not warrant private respondent's reinstatement in
the light of the antagonism generated by this litigation which must have caused a severe strain in the
parties' employer-employee relationship, an award of separation pay in lieu of reinstatement,
equivalent to one month pay for every year of service, in addition to full backwages, allowances, and
other benefits or the monetary equivalent thereof, is in order. The award of attorney's fees is
sanctioned by law and must be upheld.
WHEREFORE, the assailed Resolution of the Court of Appeals is SET ASIDE, and the NLRC
decision dated July 31, 2000 is AFFIRMED with the MODIFICATION that (1) private respondent
Chito S. Mantos is awarded separation pay equivalent to one month pay for every year of service
and full backwages, other privileges and benefits or to the monetary equivalent thereof, computed
from the date of his illegal dismissal on December 1, 1996 until the finality of this decision; and (2)
petitioner Peter C. Maligro is ABSOLVED from any liability adjudged against co-petitioner Petron
Corporation.
Costs against the petitioners.
SO ORDERED.
Puno, J., Chairperson, Sandoval-Gutierrez, Corona, and Azcuna, JJ., concur.
Footnotes
1
Penned by Associate Justice Conrado M. Vasquez, Jr. and concurred in by Associate
Justices Andres B. Reyes, Jr. and Amelita G. Tolentino; Rollo, pp. 77-78.
2
Id. at 80.
3
Id. at 135.
4
Id.
5
Id. at 136.
6
Id.
7
Id. at 151-152.
8
Id. at 152-153.
9
Id. at 156.
10
Id. at 153-154, 155-156.
11
Id. at 188-189.
12
Id. at 212-215.
13
Id. at 28-29.
14
Id. at 479-486.
15
Id. at 267-268.
16
In full, said provision states:
SEC. 5. Certification against forum shopping. The plaintiff or principal party shall
certify under oath in the complaint or other initiatory pleading asserting a claim for
relief, or in a sworn certification annexed thereto and simultaneously filed therewith:
(a) that he has not theretofore commenced any action or filed any claim involving the
same issues in any court, tribunal or quasi judicial agency and, to the best of his
knowledge, no such other action or claim is pending therein; (b) if there is such other
pending action or claim, a complete statement of the present status thereof; and (c) if
he should thereafter learn that the same or similar action or claim has been filed or is
pending, he shall report the fact within five (5) days therefrom to the court wherein
his aforesaid complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be curable by mere
amendment of the complaint or other initiatory pleading but shall be cause for the
dismissal of the case without prejudice, unless otherwise provided, upon motion and
after hearing. The submission of a false certification or non-compliance with any of
the undertakings therein shall constitute indirect contempt of court, without prejudice
to the corresponding administrative and criminal actions. If the acts of the party or his
counsel clearly constitute willful and deliberate forum shopping, the same shall be
ground for summary dismissal with prejudice and shall constitute direct contempt, as
well as a cause for administrative sanctions.
17
G.R. No. 139396, August 15, 2000, 338 SCRA 62.
18
G.R. No. 155279, October 11, 2005, 472 SCRA 328.
Globe Telecom, Inc., Delfin Lazaro, Jr. and Roberto Galang v. Joan Florendo-Flores, G.R.
19
No. 150092, September 27, 2002, 390 SCRA 201, 208.

Edgardo B. Alcazaren v. Univet Agricultural Products, Inc., G.R. No. 149628, November
20
22, 2005, 475 SCRA 636.
21
Shoemart, Inc. v. NLRC, G.R. No. 74225, August 11, 1989, 176 SCRA 385, 390.
22
Rollo, p. 198.
23
Id. at 203.
24
Article 282 of the Labor Code enumerates the just causes for termination by the employer:
(a) serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or the latter's representative in connection with the employee's work; (b) gross and
habitual neglect by the employee of his duties; (c) fraud or willful breach by the employee of
the trust reposed in him by his employer or his duly authorized representative; (d)
commission of a crime or offense by the employee against the person of his employer or any
immediate member of his family or his duly authorized representative; and (e) other causes
analogous to the foregoing.
25
Textile Mills, Inc. v. Blanco, et. al., G.R. No. L-27029, November 12, 1981, 109 SCRA 87.
Voyeur Visage Studin, Inc. v. CA and Melissa Del Mundo, G.R. No. 144939, March 18,
26
2005, 453 SCRA 721.
Grandspan Development Corporation v. Ricardo Bernardo, et al., G.R. No. 141464,

27
September 21, 2005, 470 SCRA 461.
28
Rollo, pp. 200-201.
29
Id. at 199 and 204.
30
Id. at 186-187.
31
Uichico, et al. v. NLRC, G.R. No. 121434, June 2, 1997, 273 SCRA 35, 45.
MAM Realty Development Corp. and Manuel Centeno v. NLRC and Celso B. Balbastro,
32
G.R. No. 114787, June 2, 1995, 244 SCRA 797, 802.
33
As generally, in the following cases:
1. When directors and trustees or, in appropriate cases, the officers of a corporation:
(a) vote for or assent to patently unlawful acts of the corporation; (b) act in bad faith
or with gross negligence in directing the corporate affairs; (c) are guilty of conflict of
interest to the prejudice of the corporation, its stockholders or members, and other
persons.
2. When a director or officer has consented to the issuance of watered stocks or

who, having knowledge thereof, did not forthwith file with the corporate secretary his
written objection thereto.
3. When the director , trustee or officer has contractually agreed or stipulated to hold
himself personally and solidarily liable with the Corporation.
4. When a director, trustee or officer is made, by specific provision of law, personally
liable for his corporate action.
MAM Realty Development Corp. and Manuel Centeno v. NLRC and Celso B.
Balbastro, G.R. No. 114787, June 2, 1995, 244 SCRA 797, 802-803.
34
Ibid.; Uichico v. NLRC, at p. 46.
35
Rollo, p. 185.
R.A. 6715 is the "New Labor Relations Law" or the "Herrera-Veloso Law" which took effect
36
on March 21, 1989.
Philippine Journalists, Inc. v. Michael Mosqueda, G.R. No. 141430, May 7, 2004, 428
37
SCRA 369, 376-377.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 149237 June 11, 2006
CHINA BANKING CORPORATION, petitioner,

vs.
DYNE-SEM ELECTRONICS CORPORATION, respondent.
DECISION
CORONA, J.:
On June 19 and 26, 1985, Dynetics, Inc. (Dynetics) and Elpidio O. Lim borrowed a total
of P8,939,000 from petitioner China Banking Corporation. The loan was evidenced by six promissory
notes.1
The borrowers failed to pay when the obligations became due. Petitioner consequently instituted a
complaint for sum of money2 on June 25, 1987 against them. The complaint sought payment of the
unpaid promissory notes plus interest and penalties.
Summons was not served on Dynetics, however, because it had already closed down. Lim, on the
other hand, filed his answer on December 15, 1987 denying that "he promised to pay [the
obligations] jointly and severally to [petitioner]."3
On January 7, 1988, the case was scheduled for pre-trial with respect to Lim. The case against
Dynetics was archived.
On September 23, 1988, an amended complaint4 was filed by petitioner impleading respondent
Dyne-Sem Electronics Corporation (Dyne-Sem) and its stockholders Vicente Chuidian, Antonio
Garcia and Jacob Ratinoff. According to petitioner, respondent was formed and organized to be
Dynetics alter ego as established by the following circumstances:
Dynetics, Inc. and respondent are both engaged in the same line of business of
manufacturing, producing, assembling, processing, importing, exporting, buying, distributing,
marketing and testing integrated circuits and semiconductor devices;
[t]he principal office and factory site of Dynetics, Inc. located at Avocado Road, FTI
Complex, Taguig, Metro Manila, were used by respondent as its principal office and factory
site;
[r]espondent acquired some of the machineries and equipment of Dynetics, Inc. from banks
which acquired the same through foreclosure;
[r]espondent retained some of the officers of Dynetics, Inc.5
xxx xxx xxx
On December 28, 1988, respondent filed its answer, alleging that:
5.1 [t]he incorporators as well as present stockholders of [respondent] are totally different
from those of Dynetics, Inc., and not one of them has ever been a stockholder or officer of
the latter;
5.2 [n]ot one of the directors of [respondent] is, or has ever been, a director, officer, or
stockholder of Dynetics, Inc.;
5.3 [t]he various facilities, machineries and equipment being used by [respondent] in its
business operations were legitimately and validly acquired, under arms-length transactions,
from various corporations which had become absolute owners thereof at the time of said
transactions; these were not just "taken over" nor "acquired from Dynetics" by [respondent],
contrary to what plaintiff falsely and maliciously alleges;
5.4 [respondent] acquired most of its present machineries and equipment as second-hand
items to keep costs down;
5.5 [t]he present plant site is under lease from Food Terminal, Inc., a government-controlled
corporation, and is located inside the FTI Complex in Taguig, Metro Manila, where a number
of other firms organized in 1986 and also engaged in the same or similar business have
likewise established their factories; practical convenience, and nothing else, was behind
[respondents] choice of plant site;
5.6 [respondent] operates its own bonded warehouse under authority from the Bureau of
Customs which has the sole and absolute prerogative to authorize and assign customs
bonded warehouses; again, practical convenience played its role here since the warehouse
in question was virtually lying idle and unused when said Bureau decided to assign it to
[respondent] in June 1986.6
On February 28, 1989, the trial court issued an order archiving the case as to Chuidian, Garcia and
Ratinoff since summons had remained unserved.
After hearing, the court a quo rendered a decision on December 27, 1991 which read:
xxx [T]he Court rules that Dyne-Sem Electronics Corporation is not an alter ego of Dynetics,
Inc. Thus, Dyne-Sem Electronics Corporation is not liable under the promissory notes.
xxx xxx xxx
WHEREFORE, judgment is hereby rendered ordering Dynetics, Inc. and Elpidio O. Lim,
jointly and severally, to pay plaintiff.
xxx xxx xxx
Anent the complaint against Dyne-Sem and the latters counterclaim, both are hereby
dismissed, without costs.
SO ORDERED.7
From this adverse decision, petitioner appealed to the Court of Appeals 8 but the appellate court
dismissed the appeal and affirmed the trial courts decision. 9 It found that respondent was indeed not
an alter ego of Dynetics. The two corporations had different articles of incorporation. Contrary to
petitioners claim, no merger or absorption took place between the two. What transpired was a mere
sale of the assets of Dynetics to respondent. The appellate court denied petitioners motion for
reconsideration.10
Hence, this petition for review11 with the following assigned errors:
VI.
Issues
What is the quantum of evidence needed for the trial court to determine if the veil of
corporat[e] fiction should be pierced?
[W]hether or not the Regional Trial Court of Manila Branch 15 in its Decision dated
December 27, 1991 and the Court of Appeals in its Decision dated February 28, 2001 and
Resolution dated July 27, 2001, which affirmed en toto [Branch 15, Manila Regional Trial
Courts decision,] have ruled in accordance with law and/or applicable [jurisprudence] to the
extent that the Doctrine of Piercing the Veil of Corporat[e] Fiction is not applicable in the case
at bar?12
We find no merit in the petition.
The question of whether one corporation is merely an alter ego of another is purely one of fact. So is
the question of whether a corporation is a paper company, a sham or subterfuge or whether
petitioner adduced the requisite quantum of evidence warranting the piercing of the veil of
respondents corporate entity. This Court is not a trier of facts. Findings of fact of the Court of
Appeals, affirming those of the trial court, are final and conclusive. The jurisdiction of this Court in a
petition for review on certiorari is limited to reviewing only errors of law, not of fact, unless it is
shown, inter alia, that: (a) the conclusion is grounded entirely on speculations, surmises and
conjectures; (b) the inference is manifestly mistaken, absurd and impossible; (c) there is grave
abuse of discretion; (d) the judgment is based on a misapplication of facts; (e) the findings of fact of
the trial court and the appellate court are contradicted by the evidence on record and (f) the Court of
Appeals went beyond the issues of the case and its findings are contrary to the admissions of both
parties.13
We have reviewed the records and found that the factual findings of the trial and appellate courts
and consequently their conclusions were supported by the evidence on record.
The general rule is that a corporation has a personality separate and distinct from that of its
stockholders and other corporations to which it may be connected. 14 This is a fiction created by law
for convenience and to prevent injustice.15
Nevertheless, being a mere fiction of law, peculiar situations or valid grounds may exist to warrant
the disregard of its independent being and the piercing of the corporate veil. 16 In Martinez v. Court of
Appeals,17 we held:
The veil of separate corporate personality may be lifted when such personality is used to
defeat public convenience, justify wrong, protect fraud or defend crime; or used as a shield
to confuse the legitimate issues; or when the corporation is merely an adjunct, a business
conduit or an alter ego of another corporation or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency,
conduit or adjunct of another corporation; or when the corporation is used as a cloak or
cover for fraud or illegality, or to work injustice, or where necessary to achieve equity or for
the protection of the creditors. In such cases, the corporation will be considered as a mere
association of persons. The liability will directly attach to the stockholders or to the other
corporation.
To disregard the separate juridical personality of a corporation, the wrongdoing must be proven
clearly and convincingly.18
In this case, petitioner failed to prove that Dyne-Sem was organized and controlled, and its affairs
conducted, in a manner that made it merely an instrumentality, agency, conduit or adjunct of
Dynetics, or that it was established to defraud Dynetics creditors, including petitioner.
The similarity of business of the two corporations did not warrant a conclusion that respondent was
but a conduit of Dynetics. As we held in Umali v. Court of Appeals,19 "the mere fact that the
businesses of two or more corporations are interrelated is not a justification for disregarding their
separate personalities, absent sufficient showing that the corporate entity was purposely used as a
shield to defraud creditors and third persons of their rights."
Likewise, respondents acquisition of some of the machineries and equipment of Dynetics was not
proof that respondent was formed to defraud petitioner. As the Court of Appeals found, no
merger20 took place between Dynetics and respondent Dyne-Sem. What took place was a sale of the
assets21 of the former to the latter. Merger is legally distinct from a sale of assets.22 Thus, 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.
Petitioner itself admits that respondent acquired the machineries and equipment not directly from
Dynetics but from the various corporations which successfully bidded for them in an auction sale.
The contracts of sale executed between the winning bidders and respondent showed that the assets
were sold for considerable amounts.23 The Court of Appeals thus correctly ruled that the assets were
not "diverted" to respondent as an alter ego of Dynetics.24 The machineries and equipment were
transferred and disposed of by the winning bidders in their capacity as owners. The sales were
therefore valid and the transfers of the properties to respondent legal and not in any way in
contravention of petitioners rights as Dynetics creditor.
Finally, it may be true that respondent later hired Dynetics former Vice-President Luvinia Maglaya
and Assistant Corporate Counsel Virgilio Gesmundo. From this, however, we cannot conclude that
respondent was an alter ego of Dynetics. In fact, even the overlapping of incorporators and
stockholders of two or more corporations will not necessarily lead to such inference and justify the
piercing of the veil of corporate fiction.25 Much more has to be proven.
Premises considered, no factual and legal basis exists to hold respondent Dyne-Sem liable for the
obligations of Dynetics to petitioner.
WHEREFORE, the petition is hereby DENIED.The assailed Court of Appeals decision and
resolution in CA-G.R. CV No. 40672 are hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
Puno, Chairperson, Sandoval-Gutierrez, Azcuna, Garcia, J.J., concur.
Footnotes
1
The promissory notes and their corresponding amounts were as follows: (1) PN No. BD-
77698 forP39,000; (2) PN No. T-77701 for P900,000; (3) PN No. T-77702 for P900,000;
(4)PN No. T-77703 forP1,000,000; (5) PN No. T-77834 for P4,100,000 and (6) PN No. T-
77835 for P2,000,000; rollo, pp. 72-77.
2
Id., pp. 64-71.
3
Id., pp. 78-85.
4
Id., pp. 86-95.
5
Id., pp. 19-20.
6
Id., pp. 104-109.
7
Penned by Judge Benjamin P. Martinez of Branch 15, Regional Trial Court, Manila; id., pp.
48-63.
8
Docketed as CA-G.R. CV No. 40672; id., pp. 110-111.
9
Penned by Associate Justice Andres B. Reyes, Jr. and concurred in by Associate Justices
B.A. Adefuin-de la Cruz and Rebecca de Guia-Salvador of the 16th Division of the Court of
Appeals; February 28, 2001; id.,pp. 29-44.
10
July 27, 2001; id., p. 46.
11
Under Rule 45 of the Rules of Court; id., pp. 15-27.
12
Id., p. 20.
13
Ladanga v. Aseneta, G.R. No. 145874, 30 September 2005.
14
Corporation v. Court of Appeals, 368 Phil. 374 (1999).
15
Concept Builders, Inc. v. NLRC, G.R. No. 108734, 29 May 1996, 257 SCRA 149.
16
Santos v. NLRC, G.R. No. 101699, 13 March 1996, 254 SCRA 673.
17
G.R. No. 131673, 10 September 2004, 438 SCRA 130.
18
Complex Electronics Employees Association v. NLRC, G.R. Nos. 121315 and 122136, 19
July 1999, 310 SCRA 403.
19
G.R. No. 89561, 13 September 1990, 189 SCRA 529.
20
Merger is a union whereby one or more existing corporations are absorbed by another
corporation which survives and continues the combined business. (Villanueva, Philippine
Corporate Law, 1998 Edition, p. 464.)
21
In sale of assets, the purchaser is only interested in the raw assets of the selling
corporation perhaps to be used to establish his own business enterprise or as an addition to
his on-going business enterprise. (Id.,at p. 444.)
22
The Court of Appeals differentiated merger from sale of assets in this wise: (1) In merger, a
sale of assets is always involved, while in the latter, the former is not always involved; (2) In
the former, there is automatic assumption by the surviving corporation of the liabilities of the
constituent corporations, while in the latter, the purchasing corporation is not generally liable
for the debts and liabilities of the selling corporation; (3) In the former, there is a continuance
of the enterprise and of the stockholders therein though in the altered form, while in the
latter, the selling corporation ordinarily contemplates liquidation of the enterprise; (4) In the
former, the title to the assets of the constituent corporations is by operation of law transferred
to the new corporation, while in the latter, the transfer of title is by virtue of contract; and (5)
In the former, the constituent corporations are automatically dissolved, while in the latter, the
selling corporation is not dissolved by the mere transfer of all its property. (citing de Leon,
The Corporation Code of the Philippines Annotated, 1989 Edition, pp. 509-510.)
23
The total purchases made by respondent from Elders Pica Limited was for the amount of
US$1,158,977.77; from Piso Development Bank, P19,950,000 plus the peso equivalent of
US$280,000 and from Private Development Corporation of the Philippines, P11,956,134.44
plus the peso equivalent of US$1,616,324.17; rollo, p. 132.
24
Id., pp. 43-44.
25
Supra at note 19.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 131719 May 25, 2004
THE EXECUTIVE SECRETARY, THE SECRETARY OF JUSTICE, THE SECRETARY OF LABOR

AND EMPLOYMENT, AND THE SECRETARY OF FOREIGN AFFAIRS, OWWA PUNO,
ADMINISTRATOR, and POEA ADMINISTRATOR, petitioners,
vs.
THE HON. COURT OF APPEALS and ASIAN RECRUITMENT COUNCIL PHILIPPINE CHAPTER
(ARCO-PHIL.), INC., representing its members: Worldcare Services Internationale, Inc.,
Steadfast
International Recruitment Corporation, Dragon International Manpower Services Corporation,
Verdant Manpower Mobilization Corporation, Brent Overseas Personnel, Inc., ARL Manpower
Services, Inc., Dahlzhen International Services, Inc., Interworld Placement Center, Inc., Lakas
Tao Contract Services, Ltd. Co., and SSC Multiservices, respondents.
DECISION
CALLEJO, SR., J.:
In this petition for review on certiorari, the Executive Secretary of the President of the Philippines,
the Secretary of Justice, the Secretary of Foreign Affairs, the Secretary of Labor and Employment,
the POEA Administrator and the OWWA Administrator, through the Office of the Solicitor General,
assail the Decision1 of the Court of Appeals in CA-G.R. SP No. 38815 affirming the Order 2 of the
Regional Trial Court of Quezon City dated August 21, 1995 in Civil Case No. Q-95-24401, granting
the plea of the petitioners therein for a writ of preliminary injunction and of the writ of preliminary
injunction issued by the trial court on August 24, 1995.
The Antecedents
Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas Filipinos Act of 1995,
took effect on July 15, 1995. The Omnibus Rules and Regulations Implementing the Migrant
Workers and Overseas Filipino Act of 1995 was, thereafter, published in the April 7, 1996 issue of the
Manila Bulletin. However, even before the law took effect, the Asian Recruitment Council Philippine
Chapter, Inc. (ARCO-Phil.) filed, on July 17, 1995, a petition for declaratory relief under Rule 63 of
the Rules of Court with the Regional Trial Court of Quezon City to declare as unconstitutional
Section 2, paragraph (g), Section 6, paragraphs (a) to (j), (l) and (m), Section 7, paragraphs (a) and
(b), and Sections 9 and 10 of the law, with a plea for the issuance of a temporary restraining order
and/or writ of preliminary injunction enjoining the respondents therein from enforcing the assailed
provisions of the law.
In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No. 8042 was self-executory
and that no implementing rules were needed. It prayed that the court issue a temporary restraining
order to enjoin the enforcement of Section 6, paragraphs (a) to (m) on illegal recruitment, Section 7
on penalties for illegal recruitment, and Section 9 on venue of criminal actions for illegal
recruitments, viz:
Viewed in the light of the foregoing discussions, there appears to be urgent an imperative
need for this Honorable Court to maintain the status quo by enjoining the implementation or
effectivity of the questioned provisions of RA 8042, by way of a restraining order otherwise,
the member recruitment agencies of the petitioner will suffer grave or irreparable damage or
injury. With the effectivity of RA 8042, a great majority of the duly licensed recruitment
agencies have stopped or suspended their operations for fear of being prosecuted under the
provisions of a law that are unjust and unconstitutional. This Honorable Court may take
judicial notice of the fact that processing of deployment papers of overseas workers for the
past weeks have come to a standstill at the POEA and this has affected thousands of
workers everyday just because of the enactment of RA 8042. Indeed, this has far reaching
effects not only to survival of the overseas manpower supply industry and the active
participating recruitment agencies, the countrys economy which has survived mainly due to
the dollar remittances of the overseas workers but more importantly, to the poor and the
needy who are in dire need of income-generating jobs which can only be obtained from
abroad. The loss or injury that the recruitment agencies will suffer will then be immeasurable
and irreparable. As of now, even foreign employers have already reduced their manpower
requirements from the Philippines due to their knowledge that RA 8042 prejudiced and
adversely affected the local recruitment agencies.3
On August 1, 1995, the trial court issued a temporary restraining order effective for a period of only
twenty (20) days therefrom.
After the petitioners filed their comment on the petition, the ARCO-Phil. filed an amended petition,
the amendments consisting in the inclusion in the caption thereof eleven (11) other corporations
which it alleged were its members and which it represented in the suit, and a plea for a temporary
restraining order enjoining the respondents from enforcing Section 6 subsection (i), Section 6
subsection (k) and paragraphs 15 and 16 thereof, Section 8, Section 10, paragraphs 1 and 2, and
Sections 11 and 40 of Rep. Act No. 8042.
The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection (a) to (m), Section
7(a) to (b), and Section 10 paragraphs (1) and (2), quoted as follows:
(g) THE STATE RECOGNIZES THAT THE ULTIMATE PROTECTION TO ALL MIGRANT
WORKERS IS THE POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON AS
PRACTICABLE, THE GOVERNMENT SHALL DEPLOY AND/OR ALLOW THE
DEPLOYMENT ONLY OF SKILLED FILIPINO WORKERS.4
Sec. 2 subsection (i, 2nd par.)
Nonetheless, the deployment of Filipino overseas workers, whether land-based or sea-

based, by local service contractors and manning agents employing them shall be
encourages (sic). Appropriate incentives may be extended to them.
II. ILLEGAL RECRUITMENT
SEC. 6. Definition. For purposes of this Act, illegal recruitment shall mean any act of
canvassing, enlisting, contracting, transporting, utilizing, hiring, or procuring workers and
includes referring, contract services, promising or advertising for employment abroad,
whether for profit or not, when undertaken by a non-licensee or non-holder of authority
contemplated under Article 13(f) of Presidential Decree No. 442, as amended, otherwise
known as the Labor Code of the Philippines: Provided, That any such non-licensee or non-
holder who, in any manner, offers or promises for a fee employment abroad to two or more
persons shall be deemed so engaged. It shall, likewise, include the following acts, whether
committed by any person, whether a non-licensee, non-holder, licensee or holder of
authority:
(a) To charge or accept directly or indirectly any amount greater than that specified in
the schedule of allowable fees prescribed by the Secretary of Labor and
Employment, or to make a worker pay any amount greater than that actually received
by him as a loan or advance;
(b) To furnish or publish any false notice or information or document in relation to

recruitment or employment;
(c) To give any false notice, testimony, information or document or commit any act of
misrepresentation for the purpose of securing a license or authority under the Labor
Code;
(d) To induce or attempt to induce a worker already employed to quit his employment
in order to offer him another unless the transfer is designed to liberate a worker from
oppressive terms and conditions of employment;
(e) To influence or attempt to influence any person or entity not to employ any worker
who has not applied for employment through his agency;
(f) To engage in the recruitment or placement of workers in jobs harmful to public

health or morality or to the dignity of the Republic of the Philippines;
(g) To obstruct or attempt to obstruct inspection by the Secretary of Labor and

Employment or by his duly authorized representative;
(h) To fail to submit reports on the status of employment, placement vacancies,

remittance of foreign exchange earnings, separation from jobs, departures and such
other matters or information as may be required by the Secretary of Labor and
Employment;
(i) To substitute or alter to the prejudice of the worker, employment contracts

approved and verified by the Department of Labor and Employment from the time of
actual signing thereof by the parties up to and including the period of the expiration of
the same without the approval of the Department of Labor and Employment;
(j) For an officer or agent of a recruitment or placement agency to become an officer

or member of the Board of any corporation engaged in travel agency or to be
engaged directly or indirectly in the management of a travel agency;
(k) To withhold or deny travel documents from applicant workers before departure for
monetary or financial considerations other than those authorized under the Labor
Code and its implementing rules and regulations;
(l) Failure to actually deploy without valid reason as determined by the Department of
Labor and Employment; and
(m) Failure to reimburse expenses incurred by the worker in connection with his
documentation and processing for purposes of deployment, in cases where the
deployment does not actually take place without the workers fault. Illegal recruitment
when committed by a syndicate or in large scale shall be considered an offense
involving economic sabotage.
Illegal recruitment is deemed committed by a syndicate if carried out by a group of three (3)
or more persons conspiring or confederating with one another. It is deemed committed in
large scale if committed against three (3) or more persons individually or as a group.
The persons criminally liable for the above offenses are the principals, accomplices and
accessories. In case of juridical persons, the officers having control, management or
direction of their business shall be liable.
SEC. 7. Penalties.
(a) Any person found guilty of illegal recruitment shall suffer the penalty of imprisonment of
not less than six (6) years and one (1) day but not more than twelve (12) years and a fine of
not less than two hundred thousand pesos (P200,000.00) nor more than five hundred
thousand pesos (P500,000.00).
(b) The penalty of life imprisonment and a fine of not less than five hundred thousand pesos
(P500,000.00) nor more than one million pesos (P1,000,000.00) shall be imposed if illegal
recruitment constitutes economic sabotage as defined herein.
Provided, however, That the maximum penalty shall be imposed if the person illegally
recruited is less than eighteen (18) years of age or committed by a non-licensee or non-
holder of authority.
Sec. 8.
Prohibition on Officials and Employees. It shall be unlawful for any official or employee of
the Department of Labor and Employment, the Philippine Overseas Employment
Administration (POEA), or the Overseas Workers Welfare Administration (OWWA), or the
Department of Foreign Affairs, or other government agencies involved in the implementation
of this Act, or their relatives within the fourth civil degree of consanguinity or affinity, to
engage, directly or indirectly, in the business of recruiting migrant workers as defined in this
Act. The penalties provided in the immediate preceding paragraph shall be imposed upon
them. (underscoring supplied)
Sec. 10, pars. 1 & 2.
Money Claims. Notwithstanding any provision of law to the contrary, the Labor Arbiters of
the National Labor Relations Commission (NLRC) shall have the original and exclusive
jurisdiction to hear and decide,within ninety (90) calendar days after the filing of the
complaint, the claims arising out of an employer-employee relationship or by virtue of any
law or contract involving Filipino workers for overseas deployment including claims for actual,
moral, exemplary and other forms of damages.
The liability of the principal/employer and the recruitment/placement agency for any and all
claims under this section shall be joint and several. This provision shall be incorporated in
the contract for overseas employment and shall be a condition precedent for its approval.
The performance bond to be filed by the recruitment/placement agency, as provided by law,
shall be answerable for all money claims or damages that may be awarded to the workers. If
the recruitment/placement agency is a juridical being, the corporate officers and directors
and partners as the case may be, shall themselves be jointly and solidarily liable with the
corporation or partnership for the aforesaid claims and damages.
SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment Cases. The preliminary
investigations of cases under this Act shall be terminated within a period of thirty (30)
calendar days from the date of their filing. Where the preliminary investigation is conducted
by a prosecution officer and a prima facie case is established, the corresponding information
shall be filed in court within twenty-four (24) hours from the termination of the investigation. If
the preliminary investigation is conducted by a judge and a prima facie case is found to exist,
the corresponding information shall be filed by the proper prosecution officer within forty-
eight (48) hours from the date of receipt of the records of the case.
The respondent averred that the aforequoted provisions of Rep. Act No. 8042 violate Section 1,
Article III of the Constitution.5 According to the respondent, Section 6(g) and (i) discriminated against
unskilled workers and their families and, as such, violated the equal protection clause, as well as
Article II, Section 126 and Article XV, Sections 17 and 3(3) of the Constitution.8 As the law encouraged
the deployment of skilled Filipino workers, only overseas skilled workers are granted rights. The
respondent stressed that unskilled workers also have the right to seek employment abroad.
According to the respondent, the right of unskilled workers to due process is violated because they
are prevented from finding employment and earning a living abroad. It cannot be argued that skilled
workers are immune from abuses by employers, while unskilled workers are merely prone to such
abuses. It was pointed out that both skilled and unskilled workers are subjected to abuses by foreign
employers. Furthermore, the prohibition of the deployment of unskilled workers abroad would only
encourage fly-by-night illegal recruiters.
According to the respondent, the grant of incentives to service contractors and manning agencies to
the exclusion of all other licensed and authorized recruiters is an invalid classification. Licensed and
authorized recruiters are thus deprived of their right to property and due process and to the "equality
of the person." It is understandable for the law to prohibit illegal recruiters, but to discriminate against
licensed and registered recruiters is unconstitutional.
The respondent, likewise, alleged that Section 6, subsections (a) to (m) is unconstitutional because
licensed and authorized recruitment agencies are placed on equal footing with illegal recruiters. It
contended that while the Labor Code distinguished between recruiters who are holders of licenses
and non-holders thereof in the imposition of penalties, Rep. Act No. 8042 does not make any
distinction. The penalties in Section 7(a) and (b) being based on an invalid classification are,
therefore, repugnant to the equal protection clause, besides being excessive; hence, such penalties
are violative of Section 19(1), Article III of the Constitution.9 It was also pointed out that the penalty
for officers/officials/employees of recruitment agencies who are found guilty of economic sabotage or
large-scale illegal recruitment under Rep. Act No. 8042 is life imprisonment. Since recruitment
agencies usually operate with a manpower of more than three persons, such agencies are forced to
shut down, lest their officers and/or employees be charged with large scale illegal recruitment or
economic sabotage and sentenced to life imprisonment. Thus, the penalty imposed by law, being
disproportionate to the prohibited acts, discourages the business of licensed and registered
recruitment agencies.
The respondent also posited that Section 6(m) and paragraphs (15) and (16), Sections 8, 9 and 10,
paragraph 2 of the law violate Section 22, Article III of the Constitution10 prohibiting ex-post facto
laws and bills of attainder. This is because the provisions presume that a licensed and registered
recruitment agency is guilty of illegal recruitment involving economic sabotage, upon a finding that it
committed any of the prohibited acts under the law. Furthermore, officials, employees and their
relatives are presumed guilty of illegal recruitment involving economic sabotage upon such finding
that they committed any of the said prohibited acts.
The respondent further argued that the 90-day period in Section 10, paragraph (1) within which a
labor arbiter should decide a money claim is relatively short, and could deprive licensed and
registered recruiters of their right to due process. The period within which the summons and the
complaint would be served on foreign employees and, thereafter, the filing of the answer to the
complaint would take more than 90 days. This would thereby shift on local licensed and authorized
recruiters the burden of proving the defense of foreign employers. Furthermore, the respondent
asserted, Section 10, paragraph 2 of the law, which provides for the joint and several liability of the
officers and employees, is a bill of attainder and a violation of the right of the said corporate officers
and employees to due process. Considering that such corporate officers and employees act with
prior approval of the board of directors of such corporation, they should not be liable, jointly and
severally, for such corporate acts.
The respondent asserted that the following provisions of the law are unconstitutional:
SEC. 9. Venue. A criminal action arising from illegal recruitment as defined herein shall be
filed with the Regional Trial Court of the province or city where the offense was committed or
where the offended party actually resides at the time of the commission of the offense:
Provided, That the court where the criminal action is first filed shall acquire jurisdiction to the
exclusion of other courts: Provided, however, That the aforestated provisions shall also apply
to those criminal actions that have already been filed in court at the time of the effectivity of
this Act.
SEC. 10. Money Claims. Notwithstanding any provision of law to the contrary, the Labor
Arbiters of the National Labor Relations Commission (NLRC) shall have the original and
exclusive jurisdiction to hear and decide, within ninety (90) calendar days after the filing of
the complaint, the claims arising out of an employer-employee relationship or by virtue of any
law or contract involving Filipino workers for overseas deployment including claims for actual,
moral, exemplary and other forms of damages.
Sec. 40.
The departments and agencies charged with carrying out the provisions of this Act shall,
within ninety (90) days after the effectiviy of this Act, formulate the necessary rules and
regulations for its effective implementation.
According to the respondent, the said provisions violate Section 5(5), Article VIII of the
Constitution11 because they impair the power of the Supreme Court to promulgate rules of procedure.
In their answer to the petition, the petitioners alleged, inter alia, that (a) the respondent has no cause
of action for a declaratory relief; (b) the petition was premature as the rules implementing Rep. Act
No. 8042 not having been released as yet; (c) the assailed provisions do not violate any provisions
of the Constitution; and, (d) the law was approved by Congress in the exercise of the police power of
the State. In opposition to the respondents plea for injunctive relief, the petitioners averred that:
As earlier shown, the amended petition for declaratory relief is devoid of merit for failure of petitioner
to demonstrate convincingly that the assailed law is unconstitutional, apart from the defect and
impropriety of the petition. One who attacks a statute, alleging unconstitutionality must prove its
invalidity beyond reasonable doubt (Caleon v. Agus Development Corporation, 207 SCRA 748). All
reasonable doubts should be resolved in favor of the constitutionality of a statute (People v. Vera, 65
Phil. 56). This presumption of constitutionality is based on the doctrine of separation of powers which
enjoin upon each department a becoming respect for the acts of the other departments (Garcia vs.
Executive Secretary, 204 SCRA 516 [1991]). Necessarily, the ancillary remedy of a temporary
restraining order and/or a writ of preliminary injunction prayed for must fall. Besides, an act of
legislature approved by the executive is presumed to be within constitutional bounds (National Press
Club v. Commission on Elections, 207 SCRA 1).12
After the respective counsels of the parties were heard on oral arguments, the trial court issued on
August 21, 1995, an order granting the petitioners plea for a writ of preliminary injunction upon a
bond of P50,000. The petitioner posted the requisite bond and on August 24, 1995, the trial court
issued a writ of preliminary injunction enjoining the enforcement of the following provisions of Rep.
Act No. 8042 pending the termination of the proceedings:
Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections (a) to (m), and pars. 15
& 16; Section 7, subsections (a) & (b); Section 8; Section 9; Section 10; pars. 1 & 2; Section
11; and Section 40 of Republic Act No. 8042, otherwise known as the Migrant Workers and
Overseas Filipinos Act of 1995. 13
The petitioners filed a petition for certiorari with the Court of Appeals assailing the order and the writ
of preliminary injunction issued by the trial court on the following grounds:
1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its member-
agencies to be protected by the injunctive relief and/or violation of said rights by the
enforcement of the assailed sections of R.A. 8042;
2. Respondent Judge fixed a P50,000 injunction bond which is grossly inadequate to answer
for the damage which petitioner-officials may sustain, should respondent ARCO-PHIL. be
finally adjudged as not being entitled thereto.14
The petitioners asserted that the respondent is not the real party-in-interest as petitioner in the trial
court. It is inconceivable how the respondent, a non-stock and non-profit corporation, could sustain
direct injury as a result of the enforcement of the law. They argued that if, at all, any damage would
result in the implementation of the law, it is the licensed and registered recruitment agencies and/or
the unskilled Filipino migrant workers discriminated against who would sustain the said injury or
damage, not the respondent. The respondent, as petitioner in the trial court, was burdened to
adduce preponderant evidence of such irreparable injury, but failed to do so. The petitioners further
insisted that the petition a quo was premature since the rules and regulations implementing the law
had yet to be promulgated when such petition was filed. Finally, the petitioners averred that the
respondent failed to establish the requisites for the issuance of a writ of preliminary injunction
against the enforcement of the law and the rules and regulations issued implementing the same.
On December 5, 1997, the appellate court came out with a four-page decision dismissing the petition
and affirming the assailed order and writ of preliminary injunction issued by the trial court. The
appellate court, likewise, denied the petitioners motion for reconsideration of the said decision.
The petitioners now come to this Court in a petition for review on certiorari on the following grounds:
1. Private respondent ARCO-PHIL. had utterly failed to show its clear right/s or that of its
member-agencies to be protected by the injunctive relief and/or violation of said rights by the
enforcement of the assailed sections of R.A. 8042;
2. The P50,000 injunction bond fixed by the court a quo and sustained by the Court of
Appeals is grossly inadequate to answer for the damage which petitioners-officials may
sustain, should private respondent ARCO-PHIL. be finally adjudged as not being entitled
thereto.15
On February 16, 1998, this Court issued a temporary restraining order enjoining the respondents
from enforcing the assailed order and writ of preliminary injunction.
The Issues
The core issue in this case is whether or not the trial court committed grave abuse of its discretion
amounting to excess or lack of jurisdiction in issuing the assailed order and the writ of preliminary
injunction on a bond of onlyP50,000 and whether or not the appellate court erred in affirming the trial
courts order and the writ of preliminary injunction issued by it.
The petitioners contend that the respondent has no locus standi. It is a non-stock, non-profit
organization; hence, not the real party-in-interest as petitioner in the action. Although the respondent
filed the petition in the Regional Trial Court in behalf of licensed and registered recruitment agencies,
it failed to adduce in evidence a certified copy of its Articles of Incorporation and the resolutions of
the said members authorizing it to represent the said agencies in the proceedings. Neither is the suit
of the respondent a class suit so as to vest in it a personality to assail Rep. Act No. 8042; the
respondent is service-oriented while the recruitment agencies it purports to represent are profit-
oriented. The petitioners assert that the law is presumed constitutional and, as such, the respondent
was burdened to make a case strong enough to overcome such presumption and establish a clear
right to injunctive relief.
The petitioners bewail the P50,000 bond fixed by the trial court for the issuance of a writ of
preliminary injunction and affirmed by the appellate court. They assert that the amount is grossly
inadequate to answer for any damages that the general public may suffer by reason of the non-
enforcement of the assailed provisions of the law. The trial court committed a grave abuse of its
discretion in granting the respondents plea for injunctive relief, and the appellate court erred in
affirming the order and the writ of preliminary injunction issued by the trial court.
The respondent, for its part, asserts that it has duly established its locus standi and its right to
injunctive relief as gleaned from its pleadings and the appendages thereto. Under Section 5, Rule 58
of the Rules of Court, it was incumbent on the petitioners, as respondents in the RTC, to show cause
why no injunction should issue. It avers that the injunction bond posted by the respondent was more
than adequate to answer for any injury or damage the petitioners may suffer, if any, by reason of the
writ of preliminary injunction issued by the RTC. In any event, the assailed provisions of Rep. Act No.
8042 exposed its members to the immediate and irreparable damage of being deprived of their right
to a livelihood without due process, a property right protected under the Constitution.
The respondent contends that the commendable purpose of the law to eradicate illegal recruiters
should not be done at the expense and to the prejudice of licensed and authorized recruitment
agencies. The writ of preliminary injunction was necessitated by the great number of duly licensed
recruitment agencies that had stopped or suspended their business operations for fear that their
officers and employees would be indicted and prosecuted under the assailed oppressive penal
provisions of the law, and meted excessive penalties. The respondent, likewise, urges that the Court
should take judicial notice that the processing of deployment papers of overseas workers have come
to a virtual standstill at the POEA.
The Courts Ruling
The Respondent Has Locus Standi
To File the Petition in the RTC in Representation of the Eleven Licensed and Registered
Recruitment Agencies Impleaded in the Amended Petition
The modern view is that an association has standing to complain of injuries to its members. This
view fuses the legal identity of an association with that of its members. 16 An association has standing
to file suit for its workers despite its lack of direct interest if its members are affected by the action.
An organization has standing to assert the concerns of its constituents. 17
In Telecommunications and Broadcast Attorneys of the Philippines v. Commission on Elections, 18 we

held that standing jus tertii would be recognized only if it can be shown that the party suing has
some substantial relation to the third party, or that the right of the third party would be diluted unless
the party in court is allowed to espouse the third partys constitutional claims.
In this case, the respondent filed the petition for declaratory relief under Rule 64 of the Rules of
Court for and in behalf of its eleven (11) licensed and registered recruitment agencies which are its
members, and which approved separate resolutions expressly authorizing the respondent to file the
said suit for and in their behalf. We note that, under its Articles of Incorporation, the respondent was
organized for the purposes inter alia of promoting and supporting the growth and development of the
manpower recruitment industry, both in the local and international levels; providing, creating and
exploring employment opportunities for the exclusive benefit of its general membership; enhancing
and promoting the general welfare and protection of Filipino workers; and, to act as the
representative of any individual, company, entity or association on matters related to the manpower
recruitment industry, and to perform other acts and activities necessary to accomplish the purposes
embodied therein. The respondent is, thus, the appropriate party to assert the rights of its members,
because it and its members are in every practical sense identical. The respondent asserts that the
assailed provisions violate the constitutional rights of its members and the officers and employees
thereof. The respondent is but the medium through which its individual members seek to make more
effective the expression of their voices and the redress of their grievances. 19
However, the respondent has no locus standi to file the petition for and in behalf of unskilled
workers. We note that it even failed to implead any unskilled workers in its petition. Furthermore, in
failing to implead, as parties-petitioners, the eleven licensed and registered recruitment agencies it
claimed to represent, the respondent failed to comply with Section 2 of Rule 63 20 of the Rules of
Court. Nevertheless, since the eleven licensed and registered recruitment agencies for which the
respondent filed the suit are specifically named in the petition, the amended petition is deemed
amended to avoid multiplicity of suits.21
The Assailed Order and Writ of
Preliminary Injunction Is Mooted
By Case Law
The respondent justified its plea for injunctive relief on the allegation in its amended petition that its
members are exposed to the immediate and irreparable danger of being deprived of their right to a
livelihood and other constitutional rights without due process, on its claim that a great number of duly
licensed recruitment agencies have stopped or suspended their operations for fear that (a) their
officers and employees would be prosecuted under the unjust and unconstitutional penal provisions
of Rep. Act No. 8042 and meted equally unjust and excessive penalties, including life imprisonment,
for illegal recruitment and large scale illegal recruitment without regard to whether the recruitment
agencies involved are licensed and/or authorized; and, (b) if the members of the respondent, which
are licensed and authorized, decide to continue with their businesses, they face the stigma and the
curse of being labeled "illegal recruiters." In granting the respondents plea for a writ of preliminary
injunction, the trial court held, without stating the factual and legal basis therefor, that the
enforcement of Rep. Act No. 8042, pendente lite, would cause grave and irreparable injury to the
respondent until the case is decided on its merits.
We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the Court had, in a
catena of cases, applied the penal provisions in Section 6, including paragraph (m) thereof, and the
last two paragraphs therein defining large scale illegal recruitment committed by officers and/or
employees of recruitment agencies by themselves and in connivance with private individuals, and
imposed the penalties provided in Section 7 thereof, including the penalty of life imprisonment. 22 The
Informations therein were filed after preliminary investigations as provided for in Section 11 of Rep.
Act No. 8042 and in venues as provided for in Section 9 of the said act. InPeople v. Chowdury,23 we
held that illegal recruitment is a crime of economic sabotage and must be enforced.
In People v. Diaz,24 we held that Rep. Act No. 8042 is but an amendment of the Labor Code of the
Philippines and is not an ex-post facto law because it is not applied retroactively. In JMM Promotion
and Management, Inc. v. Court of Appeals,25 the issue of the extent of the police power of the State
to regulate a business, profession or calling vis--vis the equal protection clause and the non-
impairment clause of the Constitution were raised and we held, thus:
A profession, trade or calling is a property right within the meaning of our constitutional
guarantees. One cannot be deprived of the right to work and the right to make a living
because these rights are property rights, the arbitrary and unwarranted deprivation of which
normally constitutes an actionable wrong.
Nevertheless, no right is absolute, and the proper regulation of a profession, calling,

business or trade has always been upheld as a legitimate subject of a valid exercise of the
police power by the state particularly when their conduct affects either the execution of
legitimate governmental functions, the preservation of the State, the public health and
welfare and public morals. According to the maxim, sic utere tuo ut alienum non laedas, it
must of course be within the legitimate range of legislative action to define the mode and
manner in which every one may so use his own property so as not to pose injury to himself
or others.
In any case, where the liberty curtailed affects at most the rights of property, the permissible
scope of regulatory measures is certainly much wider. To pretend that licensing or
accreditation requirements violates the due process clause is to ignore the settled practice,
under the mantle of the police power, of regulating entry to the practice of various trades or
professions. Professionals leaving for abroad are required to pass rigid written and practical
exams before they are deemed fit to practice their trade. Seamen are required to take tests
determining their seamanship. Locally, the Professional Regulation Commission has begun
to require previously licensed doctors and other professionals to furnish documentary proof
that they had either re-trained or had undertaken continuing education courses as a
requirement for renewal of their licenses. It is not claimed that these requirements pose an
unwarranted deprivation of a property right under the due process clause. So long as
professionals and other workers meet reasonable regulatory standards no such deprivation
exists.
Finally, it is a futile gesture on the part of petitioners to invoke the non-impairment clause of
the Constitution to support their argument that the government cannot enact the assailed
regulatory measures because they abridge the freedom to contract. In Philippine Association
of Service Exporters, Inc. vs. Drilon, we held that "[t]he non-impairment clause of the
Constitution must yield to the loftier purposes targeted by the government." Equally
important, into every contract is read provisions of existing law, and always, a reservation of
the police power for so long as the agreement deals with a subject impressed with the public
welfare.
A last point. Petitioners suggest that the singling out of entertainers and performing artists
under the assailed department orders constitutes class legislation which violates the equal
protection clause of the Constitution. We do not agree.
The equal protection clause is directed principally against undue favor and individual or class
privilege. It is not intended to prohibit legislation which is limited to the object to which it is
directed or by the territory in which it is to operate. It does not require absolute equality, but
merely that all persons be treated alike under like conditions both as to privileges conferred
and liabilities imposed. We have held, time and again, that the equal protection clause of the
Constitution does not forbid classification for so long as such classification is based on real
and substantial differences having a reasonable relation to the subject of the particular
legislation. If classification is germane to the purpose of the law, concerns all members of the
class, and applies equally to present and future conditions, the classification does not violate
the equal protection guarantee.26
The validity of Section 6 of R.A. No. 8042 which provides that employees of recruitment agencies
may be criminally liable for illegal recruitment has been upheld in People v. Chowdury:27
As stated in the first sentence of Section 6 of RA 8042, the persons who may be held liable
for illegal recruitment are the principals, accomplices and accessories. An employee of a
company or corporation engaged in illegal recruitment may be held liable as principal,
together with his employer, if it is shown that he actively and consciously participated in
illegal recruitment. It has been held that the existence of the corporate entity does not shield
from prosecution the corporate agent who knowingly and intentionally causes the corporation
to commit a crime. The corporation obviously acts, and can act, only by and through its
human agents, and it is their conduct which the law must deter. The employee or agent of a
corporation engaged in unlawful business naturally aids and abets in the carrying on of such
business and will be prosecuted as principal if, with knowledge of the business, its purpose
and effect, he consciously contributes his efforts to its conduct and promotion, however slight
his contribution may be. 28
By its rulings, the Court thereby affirmed the validity of the assailed penal and procedural provisions
of Rep. Act No. 8042, including the imposable penalties therefor. Until the Court, by final judgment,
declares that the said provisions are unconstitutional, the enforcement of the said provisions cannot
be enjoined.
The RTC Committed Grave Abuse of Its Discretion Amounting to Excess or Lack of Jurisdiction in
Issuing the Assailed Order and the Writ of Preliminary Injunction
The matter of whether to issue a writ of preliminary injunction or not is addressed to the sound
discretion of the trial court. However, if the court commits grave abuse of its discretion in issuing the
said writ amounting to excess or lack of jurisdiction, the same may be nullified via a writ of certiorari
and prohibition.
In Social Security Commission v. Judge Bayona,29 we ruled that a law is presumed constitutional until
otherwise declared by judicial interpretation. The suspension of the operation of the law is a matter
of extreme delicacy because it is an interference with the official acts not only of the duly elected
representatives of the people but also of the highest magistrate of the land.
In Younger v. Harris, Jr.,30 the Supreme Court of the United States emphasized, thus:
Federal injunctions against state criminal statutes, either in their entirety or with respect to
their separate and distinct prohibitions, are not to be granted as a matter of course, even if
such statutes are unconstitutional. No citizen or member of the community is immune from
prosecution, in good faith, for his alleged criminal acts. The imminence of such a prosecution
even though alleged to be unauthorized and, hence, unlawful is not alone ground for relief in
equity which exerts its extraordinary powers only to prevent irreparable injury to the plaintiff
who seeks its aid. 752 Beal v. Missouri Pacific Railroad Corp., 312 U.S. 45, 49, 61 S.Ct. 418,
420, 85 L.Ed. 577.
And similarly, in Douglas, supra, we made clear, after reaffirming this rule, that:
"It does not appear from the record that petitioners have been threatened with any injury
other than that incidental to every criminal proceeding brought lawfully and in good faith "
319 U.S., at 164, 63 S.Ct., at 881.31
The possible unconstitutionality of a statute, on its face, does not of itself justify an injunction against
good faith attempts to enforce it, unless there is a showing of bad faith, harassment, or any other
unusual circumstance that would call for equitable relief. 32 The "on its face" invalidation of statutes
has been described as "manifestly strong medicine," to be employed "sparingly and only as a last
resort," and is generally disfavored.33
To be entitled to a preliminary injunction to enjoin the enforcement of a law assailed to be

unconstitutional, the party must establish that it will suffer irreparable harm in the absence of
injunctive relief and must demonstrate that it is likely to succeed on the merits, or that there are
sufficiently serious questions going to the merits and the balance of hardships tips decidedly in its
favor.34 The higher standard reflects judicial deference toward "legislation or regulations developed
through presumptively reasoned democratic processes." Moreover, an injunction will alter, rather
than maintain, the status quo, or will provide the movant with substantially all the relief sought and
that relief cannot be undone even if the defendant prevails at a trial on the merits. 35 Considering that
injunction is an exercise of equitable relief and authority, in assessing whether to issue a preliminary
injunction, the courts must sensitively assess all the equities of the situation, including the public
interest.36 In litigations between governmental and private parties, courts go much further both to
give and withhold relief in furtherance of public interest than they are accustomed to go when only
private interests are involved.37 Before the plaintiff may be entitled to injunction against future
enforcement, he is burdened to show some substantial hardship. 38
The fear or chilling-effect of the assailed penal provisions of the law on the members of the
respondent does not by itself justify prohibiting the State from enforcing them against those whom
the State believes in good faith to be punishable under the laws:
Just as the incidental "chilling effect" of such statutes does not automatically render them
unconstitutional, so the chilling effect that admittedly can result from the very existence of
certain laws on the statute books does not in itself justify prohibiting the State from carrying
out the important and necessary task of enforcing these laws against socially harmful
conduct that the State believes in good faith to be punishable under its laws and the
Constitution.39
It must be borne in mind that subject to constitutional limitations, Congress is empowered to define
what acts or omissions shall constitute a crime and to prescribe punishments therefor. 40 The power is
inherent in Congress and is part of the sovereign power of the State to maintain peace and order.
Whatever views may be entertained regarding the severity of punishment, whether one believes in
its efficiency or its futility, these are peculiarly questions of legislative policy. 41 The comparative
gravity of crimes and whether their consequences are more or less injurious are matters for the
State and Congress itself to determine.42 Specification of penalties involves questions of legislative
policy.43
Due process prohibits criminal stability from shifting the burden of proof to the accused, punishing
wholly passive conduct, defining crimes in vague or overbroad language and failing to grant fair
warning of illegal conduct.44Class legislation is such legislation which denies rights to one which are
accorded to others, or inflicts upon one individual a more severe penalty than is imposed upon
another in like case offending.45 Bills of attainder are legislative acts which inflict punishment on
individuals or members of a particular group without a judicial trial. Essential to a bill of attainder are
a specification of certain individuals or a group of individuals, the imposition of a punishment, penal
or otherwise, and the lack of judicial trial.46
Penalizing unlicensed and licensed recruitment agencies and their officers and employees and their
relatives employed in government agencies charged with the enforcement of the law for illegal
recruitment and imposing life imprisonment for those who commit large scale illegal recruitment is
not offensive to the Constitution. The accused may be convicted of illegal recruitment and large
scale illegal recruitment only if, after trial, the prosecution is able to prove all the elements of the
crime charged.47
The possibility that the officers and employees of the recruitment agencies, which are members of
the respondent, and their relatives who are employed in the government agencies charged in the
enforcement of the law, would be indicted for illegal recruitment and, if convicted sentenced to life
imprisonment for large scale illegal recruitment, absent proof of irreparable injury, is not sufficient on
which to base the issuance of a writ of preliminary injunction to suspend the enforcement of the
penal provisions of Rep. Act No. 8042 and avert any indictments under the law. 48 The normal course
of criminal prosecutions cannot be blocked on the basis of allegations which amount to speculations
about the future.49
There is no allegation in the amended petition or evidence adduced by the respondent that the
officers and/or employees of its members had been threatened with any indictments for violations of
the penal provisions of Rep. Act No. 8042. Neither is there any allegation therein that any of its
members and/or their officers and employees committed any of the acts enumerated in Section 6(a)
to (m) of the law for which they could be indicted. Neither did the respondent adduce any evidence in
the RTC that any or all of its members or a great number of other duly licensed and registered
recruitment agencies had to stop their business operations because of fear of indictments under
Sections 6 and 7 of Rep. Act No. 8042. The respondent merely speculated and surmised that
licensed and registered recruitment agencies would close shop and stop business operations
because of the assailed penal provisions of the law. A writ of preliminary injunction to enjoin the
enforcement of penal laws cannot be based on such conjectures or speculations. The Court cannot
take judicial notice that the processing of deployment papers of overseas workers have come to a
virtual standstill at the POEA because of the assailed provisions of Rep. Act No. 8042. The
respondent must adduce evidence to prove its allegation, and the petitioners accorded a chance to
adduce controverting evidence.
The respondent even failed to adduce any evidence to prove irreparable injury because of the
enforcement of Section 10(1)(2) of Rep. Act No. 8042. Its fear or apprehension that, because of time
constraints, its members would have to defend foreign employees in cases before the Labor Arbiter
is based on speculations. Even if true, such inconvenience or difficulty is hardly irreparable injury.
The trial court even ignored the public interest involved in suspending the enforcement of Rep. Act
No. 8042 vis--vis the eleven licensed and registered recruitment agencies represented by the
respondent. In People v. Gamboa,50 we emphasized the primary aim of Rep. Act No. 8042:
Preliminarily, the proliferation of illegal job recruiters and syndicates preying on innocent
people anxious to obtain employment abroad is one of the primary considerations that led to
the enactment of The Migrant Workers and Overseas Filipinos Act of 1995. Aimed at
affording greater protection to overseas Filipino workers, it is a significant improvement on
existing laws in the recruitment and placement of workers for overseas employment.
Otherwise known as the Magna Carta of OFWs, it broadened the concept of illegal
recruitment under the Labor Code and provided stiffer penalties thereto, especially those that
constitute economic sabotage, i.e., Illegal Recruitment in Large Scale and Illegal
Recruitment Committed by a Syndicate.51
By issuing the writ of preliminary injunction against the petitioners sans any evidence, the trial court
frustrated, albeit temporarily, the prosecution of illegal recruiters and allowed them to continue
victimizing hapless and innocent people desiring to obtain employment abroad as overseas workers,
and blocked the attainment of the salutary policies52 embedded in Rep. Act No. 8042. It bears
stressing that overseas workers, land-based and sea-based, had been remitting to the Philippines
billions of dollars which over the years had propped the economy.
In issuing the writ of preliminary injunction, the trial court considered paramount the interests of the
eleven licensed and registered recruitment agencies represented by the respondent, and
capriciously overturned the presumption of the constitutionality of the assailed provisions on the
barefaced claim of the respondent that the assailed provisions of Rep. Act No. 8042 are
unconstitutional. The trial court committed a grave abuse of its discretion amounting to excess or
lack of jurisdiction in issuing the assailed order and writ of preliminary injunction. It is for this reason
that the Court issued a temporary restraining order enjoining the enforcement of the writ of
preliminary injunction issued by the trial court.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed decision of the
appellate court isREVERSED AND SET ASIDE. The Order of the Regional Trial Court dated August
21, 1995 in Civil Case No. Q-95-24401 and the Writ of Preliminary Injunction issued by it in the said
case on August 24, 1995 are NULLIFIED. No costs.
SO ORDERED.
Puno*, Quisumbing**, Austria-Martinez, and Tinga, JJ., concur.
Footnotes
*
On official leave.
**
Acting Chairman.
1
Penned by Associate Justice Jesus M. Elbinias with Associate Justices Hector L. Hofilea
and Omar U. Amin concurring.
2
Penned by Judge Teodoro P. Regino, who was later promoted Associate Justice of the
Court of Appeals.
3
Records, Vol. I, pp. 86-87.
4
Section 2, paragraph (g).
5
Section 1. No person shall be deprived of life, liberty or property without due process of law,
nor shall any person be denied the equal protection of the laws.
6
Sec. 12. The State recognizes the sanctity of family life and shall protect and strengthen the
family as a basic autonomous social institution. It shall equally protect the life of the mother
and the life of the unborn from conception.
The natural and primary right and duty of parents in the rearing of the youth for civic
efficiency and the development of moral character shall receive the support of the
Government.
7
Section 1. The State recognizes the Filipino family as the foundation of the nation.
Accordingly, it shall strengthen its solidarity and actively promote its total development.
8
Sec. 3. The State shall defend the following:
(3) The right of the family to a family living wage and income.
9
Sec. 19. (1) Excessive fines shall not be imposed, nor cruel, degrading or inhuman
punishment inflicted. Neither shall death penalty be imposed, unless, for compelling reasons
involving heinous crimes, the Congress hereafter provides for it. Any death penalty already
imposed shall be reduced to reclusion perpetua. (Section 19, Article III of the Constitution.)
10
Sec. 22. No ex-post facto law or bill of attainder shall be enacted.
11
(5) Promulgate rules concerning the protection and enforcement of constitutional
rights, pleading, practice, and procedure in all courts, the admission to the practice of
law, the Integrated Bar, and legal assistance to the underprivileged. Such rules shall
provide a simplified and inexpensive procedure for the speedy disposition of cases,
shall be uniform for all courts of the same grade, and shall not diminish, increase, or
modify substantive rights. Rules of procedure of special courts and quasi-judicial
bodies shall remain effective unless disapproved by the Supreme Court.
12
Records, Vol. I, p. 223.
13
Id. at 235.
14
CA Rollo, p. 10.
15
Rollo, p. 19.
16
W.C.M. Winston Co., Inc. v. Bernardi, 730 F2d 486 (1984), citing NACCP v. Alabama, 2
L.ed.2d 1488 (1958).
17
Maite v. Chicago Board of Education, 415 NE2d 1034 (1980), cited in DeWitt County
Taxpayers Association v. The County Board of Deliot County, 445 NE2d 509 (1983).
18
289 SCRA 337 (1998).
National Associates for the Advancement of Colored People v. State of Alabama, 2 L.Ed.2d
19
1488 (1958).
20
SEC. 2. Parties. All persons who have or claim any interest which would be affected by
the declaration shall be made parties; and no declaration shall, except as otherwise provided
in these Rules, prejudice the rights of persons not parties to the action.
21
SEC. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of
parties is ground for dismissal of an action. Parties may be dropped or added by order of the
court on motion of any party or on its own initiative at any stage of the action and on such
terms as are just. Any claim against a misjoined party may be severed and proceeded with
separately.
22
People v. Navarra, 352 SCRA 84 (2001); People v. Fajardo, 345 SCRA 395 (2000); People
v. Saulo, 344 SCRA 605 (2000); People v. Gamboa, 341 SCRA 451 (2000); People v.
Banzales, 336 SCRA 64 (2000);People v. Ordoo, 335 SCRA 331 (2000); People v. Mercado
de Arabia, 332 SCRA 49 (2000); People v. Moreno, 314 SCRA 556 (1999); People v.
Castillon, 306 SCRA 271 (1999); People v. Mercado, 304 SCRA 504 (1999); People v.
Peralta, 283 SCRA 81 (1997); People v. Ortiz-Miyake, 279 SCRA 180 (1997); People v.
Villas, 277 SCRA 391 (1997); People v. Santos, 276 SCRA 329 (1997); People v. Tan Tiong
Meng, 271 SCRA 125 (1997); People v. Maozca, 269 SCRA 513 (1997); People v.
Seoron, 267 SCRA 278 (1997);People v. De Leon, 267 SCRA 644 (1997); People v.
Benemerito, 264 SCRA 677 (1996); People v. Pabalan, 262 SCRA 574 (1996); People v.
Calonzo, 262 SCRA 534 (1996).
23
325 SCRA 572 (2000).
24
259 SCRA 441 (1996).
25
260 SCRA 319 (1996).
26
Id. at 330-332.
27
Supra at note 23.
28
Supra.
29
5 SCRA 126 (1962).
30
27 L.Ed.2d 669 (1971).
31
Ibid.
32
Id.; Fieger v. Thomas, 74 F.3d 740 (1996).
33
Broaderick v. Oklahoma, 37 L.Ed.2d 841.
34
Latino Officers Association v. Safir, 170 F.3d 167 (1999).
35
Forest City Daly Housing, Inc. v. Town of North Hempstead, 175 F.3d 144 (1999).
36
Beal v. Stern, 184 F.3d 117 (1999).
Maryland Commission on Human Relations v. Downey Communications, Inc., 110 Md.App.

37
493, 678 A.2d 55 (1996).
38
Croselto v. State Bar of Wisconsin, 12 F.3d 396 (1993).
39
Younger v. Harris, Jr., supra.
40
U.S. v. Schnell, 982 F.2d 216 (1992); United States v. Bogle, 689 F.Supp. 1121 (1988).
41
United States v. Bogle, supra.
42
Collins v. Joluston, 59 L.Ed. 1071 (1915).
43
Gore v. United States, 62 L.Ed.2d 1405 (1958).
44
U.S. v. Schnell, supra.
45
State v. Murray, 175 NE 666 (1919).
46
Misolas v. Panga, 181 SCRA 648 (1990).
47
The essential elements for illegal recruitment are:
(1) the offender undertakes either any activity within the meaning of
"recruitment and placement" defined under Art. 13(b), or any of the prohibited
practices enumerated under Article 34 of the Labor Code; and
(2) he has no valid license or authority required by law to enable one to
lawfully engage in recruitment and placement of workers. [People v. Pascua,
366 SCRA 505 (2001)].
The essential elements for large scale illegal recruitment are:
(1) the accused engages in the recruitment and placement of workers, as

defined under Article 13(b) or in any prohibited activities under Article 34 of
the Labor Code;
(2) accused has not complied with the guidelines issued by the Secretary of
Labor and Employment, particularly with respect to the securing of a license
or an authority to recruit and deploy workers, whether locally or overseas;
and
(3) accused commits the same against three (3) or more persons, individually
or as a group. [People v. Saulo, 344 SCRA 605 (2000)].
48
See Beal v. Pacific Railroad Corporation, 85 L.Ed. 577, cited in Younger v. Harris, Jr.,
supra.
49
Boyle v. Landry, 27 L.Ed.2d 696 (1971).
50
341 SCRA 451 (2000).
51
Id. at 456-458.
52
(a) In the pursuit of an independent foreign policy and while considering national
sovereignty, territorial integrity, national interest and the right to self-determination paramount
in its relations with other states, the State shall, at all times, uphold the dignity of its citizens
whether in country or overseas, in general, and Filipino migrant workers, in particular.
(b) The State shall afford full protection to labor, local and overseas,
organized and unorganized, and promote full employment and equality of
employment opportunities for all. Towards this end, the State shall provide
adequate and timely social, economic and legal services to Filipino migrant
workers.
(c) While recognizing the significant contribution of Filipino migrant workers to

the national economy through their foreign exchange remittances, the State
does not promote overseas employment as a means to sustain economic
growth and achieve national development. The existence of the overseas
employment program rests solely on the assurance that the dignity and
fundamental human rights and freedoms of the Filipino citizen shall not, at
any time, be compromised or violated. The State, therefore, shall
continuously create local employment opportunities and promote the
equitable distribution of wealth and the benefits of development.
(d) The State affirms the fundamental equality before the law of women and
men and the significant role of women in nation-building. Recognizing the
contribution of overseas migrant women workers and their particular
vulnerabilities, the State shall apply gender sensitive criteria in the
formulation and implementation of policies and programs affecting migrant
workers and the composition of bodies tasked for the welfare of migrant
workers.
(e) Free access to the courts and quasi-judicial bodies and adequate legal
assistance shall not be denied to any person by reason of poverty. In this
regard, it is imperative that an effective mechanism be instituted to ensure
that the rights and interest of distressed overseas Filipinos, in general, and
Filipino migrant workers, in particular, documented or undocumented, are
adequately protected and safeguarded.
(f) The right of Filipino migrant workers and all overseas Filipinos to
participate in the democratic decision-making processes of the State and to
be represented in institutions relevant to overseas employment is recognized
and guaranteed.
(g) The State recognizes that the ultimate protection to all migrant workers is
the possession of skills. Pursuant to this and as soon as practicable, the
government shall deploy and/or allow the deployment only of skilled Filipino
workers.
(h) Non-governmental organizations, duly recognized as legitimate, are

partners of the State in the protection of Filipino migrant workers and in the
promotion of their welfare. The State shall cooperate with them in a spirit of
trust and mutual respect.
(i) Government fees and other administrative costs of recruitment,

introduction, placement and assistance to migrant workers shall be rendered
free without prejudice to the provision of Section 36 hereof.
Nonetheless, the deployment of Filipino overseas workers, whether land-based or

sea-based, by local service contractors and manning agencies employing them shall
be encouraged. Appropriate incentives may be extended to them. (Records, Vol. I, p.
35.)

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 155214 February 13, 2004

R & E TRANSPORT, INC., and HONORIO ENRIQUEZ, petitioners,
vs.
AVELINA P. LATAG, representing her deceased husband,
PEDRO M. LATAG, respondents.
DECISION
PANGANIBAN, J.:
Factual issues may be reviewed by the Court of Appeals (CA) when the findings of fact of the
National Labor Relations Commission (NLRC) conflict with those of the labor arbiter. By the same
token, this Court may review factual conclusions of the CA when they are contrary to those of the
NLRC or of the labor arbiter.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the June 3,
2002 Decision2 and the August 28, 2002 Resolution3 of the Court of Appeals in CA-GR SP No.
67998. The appellate court disposed as follows:
"WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Order of
public respondent NLRC is SET ASIDE. The March 14, 2001 4 [D]ecision of the Labor Arbiter a quo is
REINSTATED."5
The challenged Resolution denied petitioners Motion for Reconsideration.
The Factual Antecedents
The antecedents of the case are narrated by the CA as follows:
"Pedro Latag was a regular employee x x x of La Mallorca Taxi since March 1, 1961. When La
Mallorca ceased from business operations, [Latag] x x x transferred to [petitioner] R & E Transport,
Inc. x x x. He was receiving an average daily salary of five hundred pesos (P500.00) as a taxi driver.
"[Latag] got sick in January 1995 and was forced to apply for partial disability with the SSS, which
was granted. When he recovered, he reported for work in September 1998 but was no longer
allowed to continue working on account of his old age.
"Latag thus asked Felix Fabros, the administrative officer of [petitioners], for his retirement pay
pursuant to Republic Act 7641 but he was ignored. Thus, on December 21, 1998, [Latag] filed a case
for payment of his retirement pay before the NLRC.
"Latag however died on April 30, 1999. Subsequently, his wife, Avelina Latag, substituted him. On
January 10, 2000, the Labor Arbiter rendered a decision in favor of [Latag], the dispositive portion of
which reads:
WHEREFORE, judgment is hereby rendered ordering x x x LA MALLORCA TAXI, R & E

TRANSPORT, INC. and their owner/chief executive officer HONORIO ENRIQUEZ to jointly and
severally pay MRS. AVELINA P. LATAG the sum of P277,500.00 by way of retirement pay for her
deceased husband, PEDRO M. LATAG.
SO ORDERED.
"On January 21, 2000, [Respondent Avelina Latag,] with her then counsel[,] was invited to the office
of [petitioners] counsel and was offered the amount of P38,500.00[,] which she accepted.
[Respondent] was also asked to sign an already prepared quitclaim and release and a joint motion to
dismiss the case.
"After a day or two, [respondent] received a copy of the January 10, 2000 [D]ecision of the Labor
Arbiter.
"On January 24, 2000, [petitioners] filed the quitclaim and motion to dismiss. Thereafter, on May 23,
2000, the Labor Arbiter issued an order, the relevant portion of which states:
WHEREFORE, the decision stands and the Labor Arbitration Associate of this Office is directed to
prepare the Writ of Execution in due course.
SO ORDERED.
"On January 21, 2000, [petitioners] interposed an appeal before the NLRC. On March 14, 2001, the
latter handed down a [D]ecision[,] the decretal portion of which provides:
WHEREFORE, in view of the foregoing, respondents Appeal is hereby DISMISSED for failure to
post a cash or surety bond, as mandated by law.
SO ORDERED.
"On April 10, 2001, [petitioners] filed a motion for reconsideration of the above resolution. On
September 28, 2001, the NLRC came out with the assailed [D]ecision, which gave due course to the
motion for reconsideration."6(Citations omitted)
Respondent appealed to the CA, contending that under Article 223 of the Labor Code and Section 3,
Rule VI of the New Rules of Procedure of the NLRC, an employers appeal of a decision involving
monetary awards may be perfected only upon the posting of an adequate cash or surety bond.
Ruling of the Court of Appeals
The CA held that the labor arbiters May 23, 2000 Order had referred to the earlier January 10, 2000
Decision awarding respondent P277,500 as retirement benefit.
According to the appellate court, because petitioners appeal before the NLRC was not accompanied
by an appropriate cash or surety bond, such appeal was not perfected. The CA thus ruled that the
labor arbiters January 10, 2000 Decision and May 23, 2000 Order had already become final and
executory.
Hence, this Petition.7
Issues
Petitioners submit the following issues for our consideration:

"I
Whether or not the Court should respect the findings of fact [of] the NLRC as against [those] of the
labor arbiter.
"II
Whether or not, in rendering judgment in favor of petitioners, the NLRC committed grave abuse of
discretion.
"III
Whether or not private respondent violated the rule on forum-shopping.
"IV
Whether or not the appeal of petitioners from the Order of the labor arbiter to the NLRC involves [a]
monetary award."8
In short, petitioners raise these issues: (1) whether the CA acted properly when it overturned the
NLRCs factual findings; (2) whether the rule on forum shopping was violated; and (3) whether the
labor arbiters Order of May 23, 2000 involved a monetary award.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Factual Findings of the NLRC
Petitioners maintain that the CA erred in disregarding the factual findings of the NLRC and in
deciding to affirm those of the labor arbiter. Allegedly, the NLRC findings were based on substantial
evidence, while those of the labor arbiter were groundless. Petitioners add that the appellate court
should have refrained from tackling issues of fact and, instead, limited itself to those of jurisdiction or
grave abuse of discretion on the part of the NLRC.
The power of the CA to review NLRC decisions via a Rule 65 petition is now a settled issue. As early
as St. Martin Funeral Homes v. NLRC,9 we have definitively ruled that the proper remedy to ask for
the review of a decision of the NLRC is a special civil action for certiorari under Rule 65 of the Rules
of Court,10 and that such petition should be filed with the CA in strict observance of the doctrine on
the hierarchy of courts.11 Moreover, it has already been explained that under Section 9 of Batas
Pambansa (BP) 129, as amended by Republic Act 7902,12 the CA -- pursuant to the exercise of its
original jurisdiction over petitions for certiorari -- was specifically given the power to pass upon the
evidence, if and when necessary, to resolve factual issues.13
Likewise settled is the rule that when supported by substantial evidence, 14 factual findings made by
quasi-judicial and administrative bodies are accorded great respect and even finality by the courts.
These findings are not infallible, though; when there is a showing that they were arrived at arbitrarily
or in disregard of the evidence on record, they may be examined by the courts. 15 Hence, when
factual findings of the NLRC are contrary to those of the labor arbiter, the evidentiary facts may be
reviewed by the appellate court.16 Such is the situation in the present case; thus, the doors to a
review are open.17
The very same reason that behooved the CA to review the factual findings of the NLRC impels this
Court to take its own look at the findings of fact. Normally, the Supreme Court is not a trier of
facts.18 However, since the findings of fact in the present case are conflicting, 19 it waded through the
records to find out if there was enough basis for the appellate courts reversal of the NLRC Decision.
Number of Creditable Years of Service for Retirement Benefits
Petitioners do not dispute the fact that the late Pedro M. Latag is entitled to retirement benefits.
Rather, the bone of contention is the number of years that he should be credited with in computing
those benefits. On the one hand, we have the findings of the labor arbiter, 20 which the CA affirmed.
According to those findings, the 23 years of employment of Pedro with La Mallorca Taxi must be
added to his 14 years with R & E Transport, Inc., for a total of 37 years. On the other, we also have
the findings of the NLRC21 that Pedro must be credited only with his service to R & E Transport, Inc.,
because the evidence shows that the aforementioned companies are two different entities.
After a careful and painstaking review of the evidence on record, we support the NLRCs findings.
The labor arbiters conclusion -- that La Mallorca Taxi and R & E Transport, Inc., are one and the
same entity -- is negated by the documentary evidence presented by petitioners. Their
evidence22 sufficiently shows the following facts: 1) R & E Transport, Inc., was established only in
1978; 2) Honorio Enriquez, its president, was not a stockholder of La Mallorca Taxi; and 3) none of
the stockholders of the latter company hold stocks in the former. In the face of such evidence, which
the NLRC appreciated in its Decision, it seems that mere surmises and self-serving assertions of
Respondent Avelina Latag formed the bases for the labor arbiters conclusions as follows:
"While [Pedro M. Latag] claims that he worked as taxi driver since March 1961 since the days of the
La Mallorca Taxi, which was later renamed R & E Transport, Inc., [petitioners] limit the employment
period to 14 years.
"Resolving this matter, we note [respondents] ID (Annex "A", [Latag] position paper), which appears
to bear the signature of Miguel Enriquez on the front portion and the date February 27, 1961 when [x
x x Latag] started with the company. We also note an SSS document (Annex C) which shows that
the date of initial coverage of Pedro Latag, with SSS No. 03-0772155, is February 1961.
"Viewed against [petitioners] non-disclaimer [sic] that La Mallorca preceded R & E Taxi, Inc.[;] x x x
that both entities were/are owned by the Enriquez family, with [petitioner] Honorio [Enriquez] as the
latters President[; and] x x x that La Mallorca was a different entity (page 2, [petitioners] position
paper), we are of the conclusion that [Latags] stint with the Enriquez family dated back since
February 1961 and thus, he should be entitled to retirement benefits for 37 years, as of the date of
the filing of this case on December 12, 1998."23
Furthermore, basic is the rule that the corporate veil may be pierced only if it becomes a shield for
fraud, illegality or inequity committed against a third person.24 We have thus cautioned against the
inordinate application of this doctrine. In Philippine National Bank v. Andrada Electric & Engineering
Company,25 we said:
"x x x [A]ny application of the doctrine of piercing the corporate veil should be done with caution. A
court should be mindful of the milieu where it is to be applied. It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another,
in disregard of its rights. The wrongdoing must be clearly and convincingly established; it cannot be
presumed. Otherwise, an injustice that was never unintended may result from an erroneous
application.
xxx xxx xxx
"The question of whether a corporation is a mere alter ego is one of fact. Piercing the veil of
corporate fiction may be allowed only if the following elements concur: (1) control -- not mere stock
control, but complete domination -- not only of finances, but of policy and business practice in
respect to the transaction attacked, must have been such that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) such control must have
been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or
other positive legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right;
and (3) the said control and breach of duty must have proximately caused the injury or unjust loss
complained of."26
Respondent has not shown by competent evidence that one taxi company had stock control and
complete domination over the other or vice versa. In fact, no evidence was presented to show the
alleged renaming of "La Mallorca Taxi" to "R & E Transport, Inc." The seven-year gap between the
time the former closed shop and the date when the latter came into being also casts doubt on any
alleged intention of petitioners to commit a wrong or to violate a statutory duty. This lacuna in the
evidence compels us to reverse the Decision of the CA affirming the labor arbiters finding of fact that
the basis for computing Pedros retirement pay should be 37 years, instead of only 14 years.
Validity of the Quitclaim and Waiver
As to the Quitclaim and Waiver signed by Respondent Avelina Latag, the appellate court committed
no error when it ruled that the document was invalid and could not bar her from demanding the
benefits legally due her husband. This is not to say that all quitclaims are invalid per se. Courts,
however, are wary of schemes that frustrate workers rights and benefits, and look with disfavor upon
quitclaims and waivers that bargain these away.
Courts have stepped in to annul questionable transactions, especially where there is clear proof that
a waiver, for instance, was wangled from an unsuspecting or a gullible person; or where the
agreement or settlement was "unconscionable on its face."27 A quitclaim is ineffective in barring
recovery of the full measure of a workers rights, and the acceptance of benefits therefrom does not
amount to estoppel.28 Moreover, a quitclaim in which the consideration is "scandalously low and
inequitable" cannot be an obstacle to the pursuit of a workers legitimate claim. 29
Undisputably, Pedro M. Latag was credited with 14 years of service with R & E Transport, Inc. Article
287 of the Labor Code, as amended by Republic Act No. 7641,30 provides:
"Art. 287. Retirement. - x x x
"x x x x x x x x x
"In the absence of a retirement plan or agreement providing for retirement benefits of employees in
the establishment, an employee upon reaching the age of sixty (60) years or more, but not beyond
sixty-five (65) years which is hereby declared the compulsory retirement age, who has served at
least five (5) years in said establishment, may retire and shall be entitled to retirement pay
equivalent to at least one-half (1/2) month salary for every year of service, a fraction of at least six
(6) months being considered as one whole year.
"Unless the parties provide for broader inclusions, the term one half-month salary shall mean fifteen
(15) days plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five
(5) days of service incentive leaves.
x x x x x x x x x" (Italics supplied)
The rules implementing the New Retirement Law similarly provide the above-mentioned formula for
computing the one-half month salary.31 Since Pedro was paid according to the "boundary" system, he
is not entitled to the 13th month32 and the service incentive pay;33 hence, his retirement pay should
be computed on the sole basis of his salary.
It is accepted that taxi drivers do not receive fixed wages, but retain only those sums in excess of the
"boundary" or fee they pay to the owners or operators of their vehicles. 34 Thus, the basis for
computing their benefits should be the average daily income. In this case, the CA found that Pedro
was earning an average of five hundred pesos (P500) per day. We thus compute his retirement pay
as follows: P500 x 15 days x 14 years of service equalsP105,000. Compared with this amount,
the P38,850 he received, which represented just over one third of what was legally due him, was
unconscionable.
Second Issue:
Was There Forum Shopping?
Also assailed are the twin appeals that two different lawyers filed for respondent before the CA.
Petitioners argue that instead of accepting her explanation, the appellate court should have
dismissed the appeals outright for violating the rule on forum shopping.
Forum shopping is the institution of two or more actions or proceedings grounded on the same
cause, on the supposition that one or the other court would render a favorable disposition. 35 Such act
is present when there is an identity of parties, rights or causes of action, and reliefs sought in two or
more pending cases.36 It is usually resorted to by a party against whom an adverse judgment or
order has been issued in one forum, in an attempt to seek and possibly to get a favorable opinion in
another forum, other than by an appeal or a special civil action for certiorari. 37
We find, as the CA38 did, that respondent has adequately explained why she had filed two appeals
before the appellate court. In the August 5, 2002 Affidavit39 that she attached as Annex "A" to her
Compliance to Show Cause Order with Comment on petitioners Motion for Reconsideration, 40 she
averred that she had sought the services of another counsel to file her Petition for certiorari before
the CA. She did so after her original counsel had asked for an extension of time to file the Petition
because of time constraints and a tremendous workload, only to discover later that the original
counsel had filed a similar Petition.
We cannot fault respondent for her tenacity. Besides, to disallow her appeal would not be in keeping
with the policy of labor laws41 to shun highly technical procedural laws in the higher interest of justice.
Third Issue:
Monetary Award
Petitioners contention is that the labor arbiters January 10, 2000 Decision was supplanted by the
Compromise Agreement that had preceded the formers official release 42 to, and receipt43 by, the
parties. It appears from the records that they had entered into an Amicable Settlement on January
21, 2000; that based on that settlement, respondent filed a Motion to Dismiss on January 24, 2000,
before the labor arbiter who officially released on the same day his Decision dated January 10,
2000; that upon receipt of a copy thereof, respondent filed a Manifestation and Motion to Set Aside
the Motion to Dismiss; and that the labor arbiter subsequently calendared the case for conference,
held hearings thereon, and required the parties to exchange positions -- by way of comments,
replies and rejoinders -- after which he handed down his May 23, 2000 Order.
Under the circumstances, the case was in effect reopened by the proceedings held after respondent
had filed her Manifestation and Motion to Set Aside the Motion to Dismiss. This ruling is in
accordance with the fourth paragraph of Section 2, Rule V of the New Rules of Procedure of the
NLRC,44 which therefore correctly held as follows:
"x x x Thus, the further hearings conducted thereafter, to determine the validity of complainants
manifestation and motion are but mute confirmation that indeed the 10 January 2000 decision in this
case has not as yet attained finality. Finally, the appealed order of 23 May 2000 itself declaring [that]
the decision stands and the Labor Arbitration Associate of this office is directed to prepare the Writ
of Execution in due course, obviously, is a conclusion that the decision in this case has been
supplanted and rendered functus officio by the herein parties acts. Thus, when the Labor Arbiter a
quo found in his appealed order that the amount of P38,850.00 is unconscionable viewed against
the amount awarded in the decision, the same became appealable independently of the 10 January
2000 decision, which has not attained finality, in the first place."45
We cannot concur, however, in petitioners other contention that the May 23, 2000 Order did not
involve a monetary award. If the amicable settlement between the parties had rendered the January
10, 2000 Decision functus oficio, then it follows that the monetary award stated therein was
reinstated -- by reference -- by the aforementioned Order. The appeal from the latter should perforce
have followed the procedural requirements under Article 223 of the Labor Code.
As amended, this provision explicitly provides that an appeal from the labor arbiters decision, award
or order must be made within ten (10) calendar days from receipt of a copy thereof by the party
intending to appeal it; and, if the judgment involves a monetary award, an appeal by the employer
may be perfected only upon the posting of a cash or surety bond. Such cash or bond must have
been issued by a reputable bonding company duly accredited by the NLRC in the amount equivalent
to the monetary award stated in the judgment. Sections 1, 3 and 6 of Rule VI of the New Rules of
Procedure of the NLRC implement this Article.
Indeed, this Court has repeatedly ruled that the perfection of an appeal in the manner and within the
period prescribed by law is not only mandatory but jurisdictional, and the failure to perfect an appeal
has the effect of rendering the judgment final and executory.46 Nonetheless, procedural lapses may
be disregarded because of fundamental considerations of substantial justice; 47 or because of the
special circumstances of the case combined with its legal merits or the amount and the issue
involved.48
The requirement to post a bond to perfect an appeal has also been relaxed in cases when the
amount of the award has not been included in the decision of the labor arbiter. 49 Besides, substantial
justice will be better served in the present case by allowing petitioners appeal to be threshed out on
the merits,50 especially because of serious errors in the factual conclusions of the labor arbiter as to
the award of retirement benefits.
WHEREFORE, this Petition is partly GRANTED. The Decision of the Court of Appeals is MODIFIED
by crediting Pedro M. Latag with 14 years of service. Consequently, he is entitled to retirement pay,
which is hereby computed at P105,000 less the P38,850 which has already been received by
respondent, plus six (6) percent interest thereon from December 21, 1998 until its full payment. No
costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
Footnotes
1
Rollo, pp. 8-33.
2
Id., pp. 36-44. Penned by Justice Eliezer R. de los Santos, with the concurrence of acting
Presiding Justice Cancio C. Garcia and Justice Marina L. Buzon.
3
Rollo, p. 46.
4
This date should be January 10, 2000.
5
CA Decision, p. 8; rollo, p. 43.
6
Id., pp. 2-4 & 37-39.
7
The Petition was deemed submitted for decision on May 27, 2003, upon the Courts receipt
of private respondents Memorandum signed by Atty. Ernesto R. Arellano. Petitioners
Memorandum, which was signed by Atty. Roberto T. Neri, was received by the Court on May
26, 2003.
8
Petitioners Memorandum, p. 4; rollo, p. 193. Original in upper case.
9
356 Phil. 811, September 16, 1998.
10
Id., p. 823.
11
Id., p. 824.
"An Act Expanding the Jurisdiction of the Court of Appeals, amending for the purpose
12
Section Nine of Batas Pambansa Blg. 129, as amended, known as the Judiciary
Reorganization Act of 1980." Effective March 18, 1995.
13
Tanjuan v. PPSBI, GR No. 155278, September 16, 2003, pp. 13-14.
Pabu-aya v. Court of Appeals, 356 SCRA 651, 657, April 18, 2001; Philtranco Service
14
Enterprises, Inc. v. NLRC, 351 Phil. 827, 835, April 1, 1998; Philippine Airlines, Inc. v. NLRC,
344 Phil. 860, 873, September 25, 1997.
15
Columbus Philippines Bus Corp. v. NLRC, 417 Phil. 81, 99, September 7, 2001; Zarate Jr.
v. Hon. Olegario, 331 Phil. 278, 288-289, October 7, 1996.
16
Gonzales v. NLRC, 355 SCRA 195, 204, March 26, 2001; Aklan Electric Cooperative
Incorporated v. NLRC, 380 Phil. 225, 237, January 25, 2000; San Jose v. NLRC, 355 Phil.
759, August 17, 1998; Manila Electric Company v. NLRC, 331 Phil. 838, 846, October 24,
1996.
17
Asuncion v. NLRC, 414 Phil. 329, 336, July 31, 2001.
18
Dico Jr. v. Court of Appeals, 365 Phil. 184, 193, April 14, 1999.
19
The instances in which factual issues may be resolved by this Court are as follows: (1) the
conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the
inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the
judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6)
the Court of Appeals goes beyond the issues of the case, and its findings are contrary to the
admissions of both appellant and appellees; (7) the findings of fact of the Court of Appeals
are contrary to those of the trial court; (8) said findings of fact are conclusions without citation
of specific evidence on which they are based; (9) the facts set forth in the petition as well as
in the petitioners main and reply briefs are not disputed by the respondent; and (10) the
findings of fact of the Court of Appeals are premised on the supposed absence of evidence
and contradicted by the evidence on record. (Sarmiento v. Court of Appeals, 353 Phil. 834,
846, July 2, 1998)
20
Decision of Labor Arbiter Ernesto S. Dinopol dated January 10, 2000, p. 3; rollo, p.53.
21
NLRC Decision dated September 28, 2001, pp. 7-8; rollo, pp. 121-122.
See the Articles of Incorporation of La Mallorca Taxi and R & E Transport, Inc., which was
22
appended to the Petition for Review on Certiorari as Annexes "N-1" and "N-2"; rollo, pp. 63-
83.
23
Labor Arbiters Decision dated January 10, 2000, pp. 3-4; rollo, p. 52-53.
Philippine National Bank & National Sugar Development Corporation v. Andrada Electric &
24
Engineering Company, 381 SCRA 244, 254, April 17, 2002; Francisco Motors Corporation v.
CA, 368 Phil. 374, 384, June 25, 1999; San Juan Structural and Steel Fabricators, Inc. v. CA,
357 Phil. 631, 648-649, September 29, 1998.
25
Supra.
26
Id., pp. 254-255, per Panganiban, J.
27
Periquet v. NLRC, 186 SCRA 724, 731, June 22, 1990, per Cruz, J.
28
Galicia v. NLRC, 342 Phil. 342, 348, July 28, 1997.
Principe v. Philippine Singapore Transport Services, Inc., 176 SCRA 514, 521, August 16,
29
1989, per Gancayco, J.

30
Effective July 7, 1993.
31
Section 5, Rule II of the Rules Implementing RA 7641 or the New Retirement Law.
32
Section 3 of the Rules and Regulations Implementing Presidential Decree (PD) 851 reads:
"Section 3. Employers Covered. - The Decree shall apply to all employers except to:
xxx xxx xxx
(d) Employers of those who are paid on purely commission, boundary, or task basis,
and those who are paid a fixed amount for performing specific work, irrespective of
the time consumed in the performance thereof, except where the workers are paid on
piece-rate basis in which case the employer shall be covered by this issuance insofar
as such workers are concerned.
xxx xxx x x x"
33
Section 1 of Rule V, Book III of the Omnibus Rules Implementing the Labor Code provides:
"Section 1. Coverage. - This rule shall apply to all employees except:
xxx xxx xxx
(d) Field personnel and other employees whose performance is unsupervised by the
employer including those who are engaged on task or contract basis, purely
commission basis, or those who are paid a fixed amount for performing work
irrespective of the time consumed in the performance.
xxx xxx x x x"
Jardin v. NLRC, 383 Phil. 187, 196, February 23, 2000; Martinez v. NLRC, 339 Phil. 176,
34
182, May 29, 1997; National Labor Union v. Dinglasan, 98 Phil. 649, 652, March 3, 1956.
Government Service Insurance System v. Bengson Commercial Buildings, Inc., 375 SCRA
35
431, 440, January 31, 2002; Gatmaytan v. CA, 335 Phil. 155, 167, February 3, 1997.
36
International School, Inc. (Manila) v. CA, 368 Phil. 791, 798, June 29, 1999.
37
Cabarrus Jr. v. Bernas, 344 Phil. 802, 808, September 24, 1997.
38
CA Resolution dated August 28, 2002; rollo, p. 46.
39
Id., pp. 128-133 & 267-272.
40
Rollo, pp. 267-275.
41
See Article 221 of the Labor Code; and Section 9 of Rule V and Section 10 of Rule VII of
the New Rules of Procedure of the NLRC.
42
The January 10, 2000 Decision was officially released to the parties on January 24, 2000.
43
Petitioners received a copy of the Decision on January 27, 2000, while respondent
received her copy on January 28, 2000.
44
The pertinent portion of Sec. 2, Rule V, The New Rules of the NLRC, provides:
"Section 1. Mandatory Conciliation/Mediation Conference. - x x x
xxx xxx xxx
"A compromise agreement entered into by the parties not in the presence of the
Labor Arbiter before whom the case is pending shall be approved by him if, after
confronting the parties, particularly the complainants, he is satisfied that they
understand the terms and conditions of the settlement and that it was entered into
freely and voluntarily by them and the agreement is not contrary to law, morals, and
public policy.
"A compromise agreement duly entered in accordance with this Section shall be final
and binding upon the parties and the Order approving it shall have the effect of a
judgment rendered by the Labor Arbiter.
xxx xxx x x x"
45
NLRC Decision dated September 28, 2001, pp. 6-7; rollo, pp. 120-121.
46
Philippine Airlines v. NLRC, 331 Phil. 937, 961, October 28, 1996.
Kathy-O Enterprises v. NLRC, 350 Phil. 380, 391, March 2, 1998; Aurora Land Projects
47
Corp. v. NLRC, 334 Phil. 44, 59, January 2, 1997.
48
Philippine Airlines, Inc. v. NLRC, supra.
Taberrah v. NLRC, 342 Phil. 394, 402-403,July 29, 1997; National Federation of Labor
49
Unions v. Ladrido III, 196 SCRA 833, 844, May 8, 1991.
Manila Mandarin Employees Union v. NLRC, 332 Phil. 354, 364, November 19, 1996;
50
Oriental Mindoro Electric Cooperative, Inc. v. NLRC, 316 Phil. 959, 968, July 31, 1995.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 138660 February 5, 2004

HEIRS OF TRINIDAD DE LEON VDA. DE ROXAS, petitioners
vs.
COURT OF APPEALS and MAGUESUN MANAGEMENT AND DEVELOPMENT
CORPORATION, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition to cite for indirect contempt the officers of Meycauayan Central Realty Corporation
("Meycauayan") for defying the final and executory Decision and Resolution of this Court in G.R. No.
118436 entitled "Heirs of Manuel A. Roxas and Trinidad de Leon Vda. De Roxas v. Court of Appeals
and Maguesun Management & Development Corporation" ("G.R. No. 118436"). 1
The Antecedents
This petition stems from a case filed by Trinidad de Leon Vda. De Roxas to set aside the decree of
registration over two unregistered parcels of land in Tagaytay City granted to Maguesun
Management and Development Corporation ("Maguesun") before the Regional Trial Court on the
ground of actual fraud. The trial court dismissed the petition to set aside the decree of registration.
On appeal, the Court of Appeals denied the petition for review and affirmed the findings of the trial
court. On 21 March 1997, this Court reversed the appellate court's decision in G.R. No. 118436. The
dispositive portion reads:
WHEREFORE, the instant petition is hereby GRANTED. The Decision of the Court of Appeals in
C.A. G.R. CV No. 38328 ("Trinidad de Leon Vda. de Roxas v. Maguesun Management &
Development Corporation, et al.") promulgated on December 8, 1994 is hereby REVERSED AND
SET ASIDE. Accordingly, registration of title over the subject parcels of land, described in Plan AS-
04-000108, Lot Nos. 7231 and 7239, with an area of 3,461 and 10,674 square meters, respectively,
as shown and supported by the corresponding technical descriptions now forming part of the
Records of LRC No. TG-373, is awarded to herein petitioner Trinidad de Leon vda. de Roxas and
her heirs, herein substituted as petitioners. Upon finality of this Decision, the Land Registration
Authority is hereby directed to ISSUE with reasonable dispatch the corresponding decree of
registration and certificate of title pursuant to Section 39 of Presidential Decree No. 1529. 2
On 22 May 1997, Meycauayan filed a Petition for Intervention in G.R. No. 118436. Meycauayan
alleged that on 14 May 1992, it purchased three parcels of land from Maguesun which form part of
the property awarded to the heirs of Trinidad de Leon Vda. De Roxas ("Roxas heirs"). Meycauayan
contended that since it is a purchaser in good faith and for value, the Court should afford it the
opportunity to be heard. Meycauayan contends that the adverse decision in G.R. No. 118436 cannot
impair its rights as a purchaser in good faith and for value.
On 25 June 1997, this Court denied the Petition for Intervention. This Court also denied the Motion
for Reconsideration filed by Maguesun. Thus, on 21 August 1997, the Decision dated 21 March 1997
in G.R. No. 118436 became final and executory.
On 13 April 1998, the Land Registration Authority ("LRA") submitted a Report to the Regional Trial
Court of Tagaytay City, Branch 18 ("land registration court"), in LR Case No. TG-373, praying that
the land registration court:
a) Order the LRA to cancel Decree No. N-197092 in the name of Maguesun to enable it to
issue another decree in favor of the heirs of Manuel A. Roxas and Trinidad de Leon Vda. de
Roxas;
b) Order the Register of Deeds to cancel OCT No. 0-515 and all its derivative titles; and
c) Order the issuance of the Decree with respect to the decision of the Supreme Court dated
21 March 1997.
Meycauayan filed with the land registration court a "Motion For Leave To Intervene And For Period
Of Time To File Opposition To The Report Dated March 25, 1998 Filed By The LRA And To File
Complaint-in-Intervention."
On 4 June 1998, the Roxas heirs filed a Motion for Clarification with this Court raising the following
issues:
a) Whether it is necessary for the trial court to first order the LRA "to cancel Decree No. N-
197092 in the name of Maguesun Management and Development Corporation to enable (the
LRA) to issue another decree in favor of the Heirs of Manuel A. Roxas and Trinidad de Leon
Vda. de Roxas"? Or is that order necessarily included in the dispositive portion of the
Supreme Court decision directing the LRA "to issue with reasonable dispatch the
corresponding decree of registration and certificate of title" in favor of the Roxas heirs?
Please note that this necessary implication is a consequence of the Supreme Court finding
that the decree in favor of Maguesun was wrongfully issued because it was "not entitled to
the registration decree" as it had no registrable title, since "Zenaida Melliza (from whom
Maguesun supposedly bought the lots) conveyed no title over the subject parcels of land to
Maguesun Corporation as she was not the owner thereof."
b) Whether an order from the trial court is necessary for "the Register of Deeds concerned to
cancel OCT No. 0-515 and all its derivative titles"? Or is that order necessarily included in
the dispositive portion of the Supreme Court decision directing the LRA to issue the
corresponding decree of registration and certificate of title in favor of the Roxas heirs,
considering that the original certificate of title issued to Maguesun wasbased on an illegal
decree of registration as found by this Honorable Court. Further, the unconditional order of
the Supreme Court to LRA to issue the corresponding certificate of title to the Roxas heirs
necessarily implies that the OCT issued to Maguesun and its derivative titles shall be
canceled, for it cannot [be] assumed that the Supreme Court intended that the same parcel
of land shall be covered by more than one certificate of title.
c) Whether an order from the trial court is necessary before the LRA can comply with the
Supreme Court decision directing the LRA "to issue with reasonable dispatch the
corresponding decree of registration andcertificate of title" in favor of the Roxas heirs?
On 23 June 1998, the Roxas heirs filed a Supplement to Motion for Clarification, the pertinent
portions of which are:
1. In petitioners' Motion for Clarification, one of the items sought to be clarified is whether the
derivative titles (i.e., the titles derived from Maguesun Management and Development
Corporation's ["Maguesun"] Original Certificate of Title No. 0-515 and issued to Meycauayan
Central Realty Corp.) should be canceled, together with Maguesun's certificates of title, so
that new decree of registration and certificate of title can be issued to petitioners, as ordered
in the decision of this Honorable Court dated 21 March 1997, which has become final and
executory?
2. From the Petition for Intervention filed by Meycauayan Central Realty Corporation
("Meycauayan") with this Honorable Court on 22 May 1997, the following statements, among
others, are alleged:
a. "That on May 14, 1992, the intervenor purchased for value several parcels of real
property from private respondent Maguesun Management and Development Corp.
covered by TCT Nos. 24294, 24295 and 24296 containing an area of 2,019 square
meters each, more or less."
b. "That prior to paying the agreed purchase price in full to respondent Maguesun, an
investigation with the Tagaytay City Office of the Register of Deeds was made to
determine and ascertain the authenticity, status and condition of the titles of
Maguesun over the aforesaid properties."
c. "That investigation made by the intervenor with the Office of Register of Deeds of
Tagaytay City showed that in all the certified true copies of the titles to the properties
above-mentioned which were registered in the name of Maguesun, the last entry
which appeared was the following, to wit: x x x".
d. "Appearing that the properties to be purchased by the herein intervenor from

respondent Maguesun have no existing liens and/or encumbrances and considering
that the properties do not appear to be the subject of a pending case which would
affect the titles of those who may subsequently purchase the same, the herein
intervenor proceeded to pay, in full, the total amount of ONE MILLION FIVE
HUNDRED THOUSAND PESOS (P1,500,000.00) to Maguesun. Immediately
thereafter, Maguesun, through its duly authorized officer, executed the corresponding
Deeds of Absolute Sale."
e. "That after the corresponding taxes and/or fees were paid by herein intervenor, the
aforementioned TCT Nos. T-24294, 24295 and 24296, were canceled and in lieu
thereof, new titles in the name of intervenor were issued by the Register of Deeds of
Tagaytay City."
f. "That on March 25, 1997, an officer of the intervenor corporation was informed of a
newspaper report stating, in big bold letters, the following sub-headline, to wit:
SC RULES ON ROXAS FAMILY
LAND ROW IN TAGAYTAY".
g. "The President of herein intervenor right after secured from the Tagaytay City
Office of the Register of Deeds certified true copies of torrens titles over its Tagaytay
City properties."
h. "That only then, after it secured certified true copies of the titles mentioned in the
preceding paragraph from the Office of the Register of Deeds of Tagaytay City, did
intervenor come to know of the existence of a case involving the properties sold to it
by respondent Maguesun on May 14, 1992."
3. Meycauayan's Petition for Intervention was denied by this Honorable Court in its
Resolution dated 25 June 1997, a denial that has since become final and executory.
However, as stated in petitioners' Motion for Clarification, Meycauayan committed the
proscribed act of forum-shopping by filing with the trial court a motion for leave to intervene
raising again the issue of its alleged ownership of portions of the land.
4. In order to settle once and for all Meycauayan's allegation that it was a buyer in good faith,
and to show that its derivative titles should be declared void and canceled by this Honorable
Court, petitioners will show herein that the sale to Meycauayan was spurious or, at the very
least, it was a buyer in bad faith.
In a Resolution dated 29 July 1998, this Court acted favorably on the Roxas heirs' Motion for
Clarification and its Supplement. The pertinent portions of the Resolution read:
Upon careful consideration of the points made by petitioners in their motions, this Court finds the
same meritorious and, hence, a clarification is in order. We, therefore, declare that our directive on
the LRA to issue with reasonable dispatch the corresponding decree of registration and certificate of
title also includes, as part thereof, the cancellation, without need of an order of the land registration
court, of Decree No. N-197092, as well as OCT No. 0-515, and all its derivative titles. This is a
necessary consequence of the Court's earlier finding that the foregoing documents were illegally
issued in the name of respondent. But in light of Section 39 of Presidential Decree No. 1529 (the
"Property Registration Decree"), Decree No. N-197092 which originated from the LRA must be
cancelled by the LRA itself. On account of this cancellation, it is now incumbent upon the LRA to
issue in lieu of the cancelled decree a new one in the name of petitioners as well as the
corresponding original certificate of title. Cancellation of OCT No. 0-515, on the other hand, properly
devolves upon the Register of Deeds who, under Section 40 of P.D. No. 1529, has earlier entered a
copy thereof in his record book. OCT No. 0-515 having been nullified, all titles derived therefrom
must also be considered void it appearing that there had been no intervening rights of an innocent
purchaser for value involving the lots in dispute.
ACCORDINGLY, the Court hereby resolves to GRANT petitioners' Motion for Clarification together
with the Supplement thereto. For this reason, the dispositive portion of our decision dated March 21,
1997 is clarified, thus:
First, the Register of Deeds shall CANCEL OCT No. 0-515 and all its derivative titles, namely, TCT
Nos. T-25625, T-25626, T-25627, T-25628, T-25688, T-25689, and T-25690, the latter three being
already in the name of Meycauayan Realty and Development Corporation (also designated as
"Meycauayan Central Realty, Inc." and "Meycauayan Realty Corporation").
Thereafter, the Land Registration Authority shall:
(a) CANCEL Decree No. N-197092 originally issued in the name of Maguesun Management
and Development Corporation without need of an order from the land registration court; and
(b) ISSUE with reasonable dispatch a new decree of registration and a new original
certificate of title (OCT) in favor of petitioners pursuant to Section 39 of Presidential Decree
No. 1529. (Emphasis added)
On 11 December 1998, the land registration court issued an order denying the LRA Report dated 25
March 1998 and the Motion for Leave to Intervene filed by Meycauayan since the Supreme Court
Resolution of 29 July 1998 had rendered them moot.
The Register of Deeds of Tagaytay City then canceled TCT Nos. T-25626, T-25627, T-25628, T-
25688, T-25689, T-25690 and T-27390.3 TCT Nos. T-25688, T-25689, T-25690 and T-27390 were
derivative titles already in the name of Meycauayan.
On 5 April 1999, the Roxas heirs filed a Motion for Issuance of Writ of Possession with the land
registration court.
On 20 April 1999, Meycauayan filed a Complaint for reconveyance, damages and quieting of title
with the trial court entitled "Meycauayan Central Realty Corp. v. Heirs of Manuel A. Roxas and
Trinidad de Leon Vda. de Roxas, Maguesun Management and Development Corp., Register of
Deeds of Tagaytay City, City Assessor of Tagaytay City and Land Registration Authority." 4 The
Complaint is almost an exact reproduction of the Petition for Intervention filed by Meycauayan before
this Court. The Complaint prayed for judgment:
1. Ordering the defendants Land Registration Authority and the Register of Deeds of
Tagaytay City to cancel the titles and decree of registration they issued in lieu of TCT Nos.
25688, 25689, 25690 and 27390 registered in the name of plaintiff Meycauayan Central
Realty Corporation and reconvey said properties to the plaintiff corporation by reinstating the
said cancelled titles or if the same not be possible, cause the issuance of new decrees and
titles thereto;
2. Ordering the defendant City Assessor of Tagaytay City to reinstate the Assessments for
real estate taxes it previously cancelled covering the properties of plaintiff;
3. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff
actual and/or compensatory damages in the total amount of FIVE HUNDRED THOUSAND
PESOS (P500,000.00);
4. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff the
amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) as and by way of nominal
damages;
exemplary damages in the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00);
Attorney's fees in the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00); and
7. Ordering the defendants Roxas and Maguesun to jointly and solidarily pay the plaintiff the
costs of suit.5
On 6 May 1999, Meycauayan filed a "Special Appearance Questioning Court Jurisdiction and
Opposition to the Motion for Issuance of Writ of Possession Against Meycauayan Central Realty
Corporation" with the land registration court.
On 2 September 1999, the land registration court issued an order, the dispositive portion of which
reads:
WHEREFORE, in the light of the foregoing, let a Writ of Possession be issued against Maguesun
Management and Development Corporation in these cases. However, insofar as Meycauayan
Central Realty is concerned, let a resolution of the motion filed by the movants herein be deferred
until the Supreme Court had resolved with finality the petition for contempt of herein movant in G.R.
No. 138660.
On 7 March 2000, the trial court dismissed for lack of merit Meycauayan's complaint for
reconveyance, damages and quieting of title. The trial court held that (1) the nullity of OCT No. 0-
515, which is the source of Meycauayan's titles, is now res judicata; (2) the complaint's prayer for the
trial court to annul the decision of the Supreme Court in G.R. No. 118436 is beyond the trial court's
jurisdiction; and (3) Meycauayan is guilty of forum shopping. 6 The trial court likewise denied
Meycauayan's Motion for Reconsideration in an Order dated 20 June 2000. 7 On 24 August 2000,
Meycauayan filed a petition for certiorari under Rule 65 of the Rules of Court with the Court of
Appeals assailing the trial court's dismissal of the complaint.
Meanwhile, the Roxas heirs filed on 2 June 1999 this petition to cite for indirect contempt the officers
of Meycauayan.
The Issues
The parties raised the following issues:
1. Whether this Court's Decision and Resolution in G.R. No. 118436 bind Meycauayan;
2. Whether Meycauayan's act of filing with the trial court a complaint for reconveyance,
damages and quieting of title involving parcels of land, which were the subject of this Court's
Decision and Resolution in G.R. No. 118436, constitutes indirect contempt under Section 3,
Rule 71 of the Rules of Civil Procedure; and
3. Whether Meycauayan is guilty of forum shopping.
The Court's Ruling
The petition is meritorious. We find Meycauayan's Executive Vice-President Juan M. Lamson, Jr.
guilty of indirect contempt. We also find that Meycauayan committed forum shopping, and thus
Meycauayan and its Executive Vice President Juan M. Lamson, Jr. are guilty of direct contempt.
The Roxas heirs allege that the following acts of Meycauayan constitute indirect contempt under
Section 3, Rule 71 of the Rules of Civil Procedure: (1)Meycauayan's defiance of the final and
executory Decision and Resolution of this Court in G.R. No. 118436; (2) its act of filing pleadings
before the land registration court to prevent execution of the Decision and Resolution; (3) its act of
filing a Complaint raising the same issues in its Petition for Intervention which this Court had already
denied and urging the trial court to ignore and countermand the orders of this Court.
On the other hand, Meycauayan alleges that the Decision in G.R. No. 118436 does not bind
Meycauayan because it was not a party in the case. According to Meycauayan, the Decision in G.R.
No. 118436 may be enforced against Maguesun but not against Meycauayan which is a stranger to
the case. Meycauayan insists that as a purchaser in good faith and for value its rights cannot be
prejudiced by the alleged fraudulent acquisition by Maguesun of the subject properties.
Meycauayan, therefore, is not liable for contempt of court for filing an action for reconveyance,
quieting of title and damages.
The issue of whether the Decision in G.R. No. 118436 binds Meycauayan was already addressed by
this Court when it denied Meycauayan's Petition for Intervention. Furthermore, this Court's
Resolution dated 29 July 1998 clarified the Decision dated 21 March 1997 by ordering the Register
of Deeds to CANCEL OCT No. 0-515 and all its derivative titles, namely, TCT Nos. T-25625, T-
25626, T-25627, T-25628, T-25688, T-25689, and T-25690, the latter three already in the name of
Meycauayan Realty and Development Corporation (also designated as "Meycauayan Central Realty,
Inc." and "Meycauayan Realty Corporation"). This Court also found that there had been no
intervening rights of an innocent purchaser for value involving the lots in dispute.
Indirect Contempt
Meycauayan's obstinate refusal to abide by the Court's Decision in G.R. No. 118436 has no basis in
view of this Court's clear pronouncement to the contrary. The fact that this Court specifically ordered
the cancelation of Meycauayan's titles to the disputed parcels of land in the Resolution dated 29 July
1998 should have laid to rest the issue of whether the Decision and Resolution in G.R. No. 118436 is
binding on Meycauayan. Clearly, Meycauayan's defiance of this Court's Decision and Resolution by
filing an action for reconveyance, quieting of title and damages involving the same parcels of land
which this Court already decided with finality constitutes indirect contempt under Section 3(d), Rule
71 of the Rules of Civil Procedure. Section 3(d) of Rule 71 reads:
SEC. 3. Indirect contempt to be punished after charge and hearing. - After a charge in writing has
been filed, and an opportunity given to the respondent to comment thereon within such period as
may be fixed by the court and to be heard by himself or counsel, a person guilty of any of the
following acts may be punished for indirect contempt:
xxx
(d) Any improper conduct tending, directly or indirectly, to impede, obstruct, or degrade the
administration of justice;
In Halili, et al. v. CIR, et al.,8 this Court explained the concept of contempt of court:
Contempt of court is a defiance of the authority, justice or dignity of the court; such conduct as tends
to bring the authority and administration of the law into disrespect or to interfere with or prejudice
parties litigant or their witnesses during litigation (12 Am. Jur. 389, cited in 14 SCRA 813).
Contempt of court is defined as a disobedience to the Court by acting in opposition to its authority,
justice and dignity. It signifies not only a willful disregard or disobedience of the court's orders, but
such conduct as tends to bring the authority of the court and the administration of law into disrepute
or in some manner to impede the due administration of justice (17 C.J.S. 4).
This Court has thus repeatedly declared that the power to punish for contempt is inherent in all
courts and is essential to the preservation of order in judicial proceedings and to the enforcement of
judgments, orders, and mandates of the court, and consequently, to the due administration of justice
(Slade Perkins vs. Director of Prisons, 58 Phil. 271; In re Kelly, 35 Phil. 944; Commissioner of
Immigration vs. Cloribel, 20 SCRA 1241; Montalban vs. Canonoy, 38 SCRA 1).
Meycauayan's continuing resistance to this Court's judgment is an affront to the Court and to the
sovereign dignity with which it is clothed.9 Meycauayan's persistent attempts to raise issues long
since laid to rest by a final and executory judgment of no less than the highest tribunal of the land
constitute contumacious defiance of the authority of this Court and impede the speedy administration
of justice.10
Well-settled is the rule that when a court of competent jurisdiction has tried and decided a right or
fact, so long as the decision remains unreversed, it is conclusive on the parties and those in privity
with them.11 More so where the Supreme Court has already decided the issue since the Court is the
final arbiter of all justiciable controversies properly brought before it. 12 As held in Buaya v. Stronghold
Insurance Co., Inc.:13
x x x An existing final judgment or decree - rendered upon the merits, without fraud or collusion, by a
court of competent jurisdiction acting upon a matter within its authority - is conclusive of the rights of
the parties and their privies. This ruling holds in all other actions or suits, in the same or any other
judicial tribunal of concurrent jurisdiction, touching on the points or matters in issue in the first suit.
xxx
Courts will simply refuse to reopen what has been decided. They will not allow the same parties or
their privies to litigate anew a question, once it has been considered and decided with finality.
Litigations must end and terminate sometime and somewhere. The effective and efficient
administration of justice requires that once a judgment has become final, the prevailing party should
not be deprived of the fruits of the verdict by subsequent suits on the same issues filed by the same
parties.
This is in accordance with the doctrine of res judicata which has the following elements: (1) the
former judgment must be final; (2) the court which rendered it had jurisdiction over the subject matter
and the parties; (3) the judgment must be on the merits; and (4) there must be between the first and
the second actions, identity of parties, subject matter and causes of action. 14 The application of the
doctrine of res judicata does not require absolute identity of parties but merely substantial identity of
parties.15 There is substantial identity of parties when there is community of interest or privity of
interest between a party in the first and a party in the second case even if the first case did not
implead the latter.16
The Court ruled in G.R. No. 118436 that Meycauayan's predecessor-in-interest, Maguesun,
committed actual fraud in obtaining the decree of registration of the subject properties. The Decision
in G.R. No. 118436 binds Meycauayan under the principle of "privity of interest" since it was a
successor-in-interest of Maguesun. Meycauayan, however, insists that it was a purchaser in good
faith because it had no knowledge of any pending case involving the lots. Meycauayan claims that
the trial court had already canceled the notice of lis pendens on the titles when it purchased the lots
from Maguesun. In its Memorandum, Meycauayan stresses that to ensure the authenticity of the
titles and the annotations appearing on the titles, particularly the cancelation of the notice of lis
pendens, Meycauayan checked with the Register of Deeds and the Regional Trial Court of Tagaytay
City.17 Since Meycauayan checked with the Regional Trial Court of Tagaytay City, Meycauayan then
had actual knowledge, before it purchased the lots, of the pending case involving the lots despite the
cancelation of the notice of lis pendens on the titles.
Furthermore, as found by this Court in G.R. No. 118436, the Roxas family has been in possession of
the property uninterruptedly through their caretaker, Jose Ramirez, who resided on the
property.18 Where the land sold is in the possession of a person other than the vendor, the purchaser
must go beyond the certificates of title and make inquiries concerning the rights of the actual
possessor.19 Meycauayan therefore cannot invoke the right of a purchaser in good faith and could
not have acquired a better right than its predecessor-in-interest. This Court has already rejected
Meycauayan's claim that it was a purchaser in good faith when it ruled in G.R. No. 118436 that there
had been no intervening rights of an innocent purchaser for value involving the lots in dispute. As
held in Heirs of Pael v. Court of Appeals:20
In the case of Santiago Land Development Corporation vs. Court of Appeals (G.R. No. 106194, 276
SCRA 674 [1997]), petitioner maintained that as a purchaser pendente lite of the land in litigation, it
had a right to intervene under Rule 12, Section 2. We rejected this position and said that "since
petitioner is not a stranger to the action between Quisumbing and the PNB, petitioner in fact having
stepped into the shoes of PNB in a manner of speaking, it follows that it cannot claim any further
right to intervene in the action." As in the instant Petition, it was argued that the denial of the Motion
to Intervene would be a denial likewise of due process. But this, too, was struck down in Santiago
Land where we held that "petitioner is not really denied protection. It is represented in the action by
its predecessor in interest." Indeed, since petitioner is a transferee pendente lite with notice of the
pending litigation between Reyes and private respondent Carreon, petitioner stands exactly in the
shoes of Reyes and is bound by any judgment or decree which may be rendered for or against the
latter.
Indeed, one who buys property with full knowledge of the flaws and defects of the title of his vendor
and of a pending litigation over the property gambles on the result of the litigation and is bound by
the outcome of his indifference.21 A purchaser cannot close his eyes to facts which should put a
reasonable man on guard and then claim that he acted in good faith believing that there was no
defect in the title of the vendor.22
For the penalty for indirect contempt, Section 7 of Rule 71 of the Rules of Court provides:
SEC. 7. Punishment for indirect contempt. - If the respondent is adjudged guilty of indirect contempt
committed against a Regional Trial Court or a court of equivalent or higher rank, he may be punished
by a fine not exceeding thirty thousand pesos or imprisonment not exceeding six (6) months or both.
xxx
In this case, Meycauayan Executive Vice President Juan M. Lamson, Jr. caused the preparation and
the filing of the Petition for Intervention in G.R. No. 118436 and the Complaint for Reconveyance,
Damages and Quieting of Title with the trial court.23 Juan M. Lamson, Jr. signed the verification and
certification of non-forum shopping for the Petition for Intervention and the Complaint for
Reconveyance, Damages and Quieting of Title. "Even though a judgment, decree, or order is
addressed to the corporation only, the officers, as well as the corporation itself, may be punished for
contempt for disobedience to its terms, at least if they knowingly disobey the court's mandate, since
a lawful judicial command to a corporation is in effect a command to the officers." 24 Thus, for
improper conduct tending to impede the orderly administration of justice, Meycauayan Executive
Vice President Juan M. Lamson, Jr. should be fined ten thousand pesos (P10,000).25
Direct Contempt
Meycauayan's act of filing a Complaint for Reconveyance, Quieting of Title and Damages raising the
same issues in its Petition for Intervention, which this Court had already denied, also constitutes
forum shopping. Forum shopping is the act of a party against whom an adverse judgment has been
rendered in one forum, seeking another and possibly favorable opinion in another forum other than
by appeal or special civil action of certiorari. There is also forum shopping when a party institutes two
or more actions based on the same cause on the expectation that one or the other court might look
with favor on the party.26
In this case, the Court had already rejected Meycauayan's claim on the subject lots when the Court
denied Meycauayan's Petition for Intervention in G.R. No. 118436. The Court ruled that there had
been no intervening rights of an innocent purchaser for value involving the lots in dispute. The
Decision of this Court in G.R. No. 118436 is already final and executory. The filing by Meycauayan of
an action to re-litigate the title to the same property, which this Court had already adjudicated with
finality, is an abuse of the court's processes and constitutes direct contempt.
Section 5 of Rule 7 of the Rules of Court provides that "if the acts of the party or his counsel clearly
constitute willful and deliberate forum shopping, the same shall be a ground for summary dismissal
with prejudice and shall constitute direct contempt, as well as a cause for administrative sanctions."
The fact that Meycauayan did mention in its certification of non-forum shopping its attempt to
intervene in G.R. No. 118436, which this Court denied, 27does not negate the existence of forum
shopping. This disclosure does not exculpate Meycauayan for deliberately seeking a friendlier forum
for its case and re-litigating an issue which this Court had already decided with finality. 28
The general rule is that a corporation and its officers and agents may be held liable for contempt. A
corporation and those who are officially responsible for the conduct of its affairs may be punished for
contempt in disobeying judgments, decrees, or orders of a court made in a case within its
jurisdiction.29
Under Section 1 of Rule 71 of the Rules of Court, direct contempt is punishable by a fine not
exceeding two thousand pesos (P2,000) or imprisonment not exceeding ten (10) days, or both, if
committed against a Regional Trial Court or a court of equivalent or higher rank. Hence,
Meycauayan30 and its Executive Vice President Juan M. Lamson, Jr. are each fined P2,000 for direct
contempt of court for forum shopping.
WHEREFORE, we find Meycauayan Central Realty Corporation's Executive Vice President Juan M.
Lamson, Jr. GUILTY of INDIRECT CONTEMPT and FINE him TEN THOUSAND PESOS (P10,000).
Furthermore, we find Meycauayan Central Realty Corporation and its Executive Vice President Juan
M. Lamson, Jr. GUILTY of DIRECT CONTEMPT for forum shopping and FINE them TWO
THOUSAND PESOS (P2,000) each. The Court warns them that a repetition of the same or similar
offense shall merit a more severe penalty.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, and Ynares-Santiago, JJ., concur.

Azcuna, J., on official leave.
Footnotes
1
337 Phil. 41 (1997).
2
Ibid.
3
TCT No. 27390 was the new title issued in the name of Meycauayan in lieu of the canceled
TCT No. 25625 registered in the name of Maguesun.
4
Civil Case No. TG-1893.
5
Rollo, pp. 62-63.
6
Ibid., pp. 283-287.
7
Ibid., p. 288.
8
220 Phil. 507 (1985).
9
People v. Godoy, 312 Phil. 977 (1995).
10
See Pacquing v. Court of Appeals, et al., 200 Phil. 516 (1982).
11
Fulgencio, et al. v. National labor Relations Commission (First Division) and Raycor
Aircontrol Systems, Inc., G.R. No. 141600, 12 September 2003; Bardillon v. Barangay Masili
of Calamba, Laguna, G.R. No. 146886, 30 April, 2003; Oropeza Marketing Corporation, et al.
v. Allied Banking Corporation, G.R. No. 129788, 3 December 2002.
12
Firestone Ceramics, Inc. v. Court of Appeals, 372 Phil. 401 (1999).
13
G.R. No. 139020, 11 October 2000, 342 SCRA 576.
Rovels Enterprises, Inc. v. Ocampo, G.R. No. 136821, 17 October 2002, 391 SCRA 176;
14
Quezon Province v. Hon. Marte, 420 Phil. 177 (2001).
Development Bank of the Philippines v. Court of Appeals, G.R. No. 110203, 9 May 2001,
15
357 SCRA 626.
16
Sendon v. Ruiz, 415 Phil. 376 (2001).
17
Rollo, pp. 226-227, 229.
18
Heirs of Manuel A. Roxas v. Court of Appeals, 337 Phil. 41 (1997).
19
Development Bank of the Phils. v. CA, 387 Phil. 283 (2000).
20
382 Phil. 222, 255-256 (2000), citing Seveses v. Court of Appeals, 375 Phil. 64, 72 (1999).
Liu v. Loy, G.R. No. 145982, 3 July 2003, citing Toledo-Banaga v. Court of Appeals, G.R.
21
No. 127941, 28 January 1999, 302 SCRA 331.
Domingo v. Roces, G.R. No. 147468, 9 April 2003; Development Bank of the Phils. v. CA,
22
387 Phil. 283 (2000).
23
Rollo, pp. 32-33, 63.
24
17 C.J.S. Contempt 34 (1963).
25
In Ang Bagong Bayani-OFW Labor Party v. COMELEC (G.R. Nos. 147589 &. 147613, 18
February 2003), the Court found the COMELEC members guilty of contempt for (1) issuing
three Resolutions which are outside the jurisdiction of the COMELEC, (2) for degrading the
dignity of this Court, (3) for brazen disobedience to this Court's lawful directives, and (4) for
delaying the ultimate resolution of the many incidents of the party-list case, to the prejudice
of the litigants and of the country. The COMELEC Chairman and four COMELEC
Commissioners were each fined P20,000 while the two remaining Commissioners, whose
actions were less serious in degree than their colleagues, were each fined P5,000.
In Gamido v. New Bilibid Prison (G.R. No. 146783, 29 July 2002, 385 SCRA 325), the Court
sentenced the petitioner to pay a fine of P10,000 or suffer imprisonment for a period of one
month and one day, for appearing as counsel in the case without license to practice law. In In
Re: Published Alleged Threats Against Members of the Court in the Plunder Law Case
Hurled by Atty. Leonardo De Vera (A.M. No. 01-12-03-SC, 29 July 2002, 385 SCRA 285),
respondent lawyer was fined P20,000 for uttering statements aimed at influencing and
threatening the Court in deciding in favor of the constitutionality of the Plunder Law. In United
BF Homeowners v. Sandoval-Gutierrez (A.M. No. CA-99-30, 16 October 2000, 343 SCRA
162), the Court imposed a fine of P10,000 on one of the complainants whose scurrilous
attacks on the honor and integrity of two justices as well as that of the members of this Court,
undermined the Court's capacity to render justice.
United Special Watchman Agency v. Court of Appeals, G.R. No. 152476, 8 July
26
2003; Santos v. Commission on Elections (First Division), G.R. No. 155618, 26 March
2003; New Sampaguita Builders Construction, Inc. v. The Estate of Fermina Canoso, G.R.
No. 151447, 14 February 2003.
27
Rollo, p. 63.
28
See Request for Consolidation of Civil Case Nos. R-1169 & 3640, 416 Phil. 562 (2001).
29
17 Am. Jur. 2d Contempt 60 (1990).
30
Under Rule 71 of the Rules of Court, direct contempt may be punished summarily while
indirect contempt requires a written charge and due hearing. Thus, although Meycauayan
cannot be held guilty of indirect contempt because only the officers of Meycauayan were
included in the charge for indirect contempt, Meycauayan can still be held guilty for direct
contempt.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 153886 January 14, 2004

MEL V. VELARDE, petitioner,
vs.
LOPEZ, INC., respondent.
DECISION
CARPIO-MORALES, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court, which seeks to review the
decision1 and resolution2 of the Court of Appeals, raises the issue of whether the defendant in a
complaint for collection of sum of money can raise a counterclaim for retirement benefits, unpaid
salaries and incentives, and other benefits arising from services rendered by him in a subsidiary of
the plaintiff corporation.
On January 6, 1997, Eugenio Lopez Jr., then President of respondent Lopez, Inc., as LENDER, and
petitioner Mel Velarde, then General Manager of Sky Vision Corporation (Sky Vision), a subsidiary of
respondent, as BORROWER, forged a notarized loan agreement covering the amount of ten million
(P10,000,000.00) pesos. The agreement expressly provided for, among other things, the manner of
payment and the circumstances constituting default which would give the lender the right to declare
the loan together with accrued interest immediately due and payable. 3
Sec. 6 of the agreement detailed what constituted an "event of default" as follows:
Section 6
Each of the following events and occurrences shall constitute an Event of Default ("Event of
Default") under this Agreement:
a) the BORROWER fails to make payment when due and payable of any amount he
is obligated to pay under this Agreement;
b) the BORROWER fails to mortgage in favor of the LENDER real property sufficient
to cover the amount of the LOAN.4
As petitioner failed to pay the installments as they became due, respondent, apparently in answer to
a proposal of petitioner respecting the settlement of the loan, advised him by letter dated July 15,
1998 that he may use his retirement benefits in Sky Vision in partial settlement of his loan after he
settles his accountabilities to the latter and gives his written instructions to it (Sky Vision). 5
Petitioner protested the computation indicated in the July 15, 1998 letter, he asserting that the
imputed unliquidated advances from Sky Vision had already been properly liquidated. 6
On August 18, 1998, respondent filed a complaint for collection of sum of money with damages at
the Regional Trial Court (RTC) of Pasig City against petitioner, alleging that petitioner violated the
above-quoted Section 6 of the loan agreement as he failed to put up the needed collateral for the
loan and pay the installments as they became due, and that despite his receipt of letters of demand
dated December 1, 19977 and January 13, 1998,8he refused to pay.
In his answer, petitioner alleged that the loan agreement did not reflect his true agreement with
respondent, it being merely a "cover document" to evidence the reward to him of ten million pesos
(P10,000,000.00) for his loyalty and excellent performance as General Manager of Sky Vision and
that the payment, if any was expected, was in the form of continued service; and that it was when he
was compelled by respondent to retire that the form of payment agreed upon was rendered
impossible, prompting the late Eugenio Lopez, Jr. to agree that his retirement benefits from Sky
Vision would instead be applied to the loan.9
By way of compulsory counterclaim, petitioner claimed that he was entitled to retirement benefits
from Sky Vision in the amount of P98,280,000.00, unpaid salaries in the amount of P2,740,000.00,
unpaid incentives in the amount of P500,000, unpaid share from the "net income of Plaintiff
corporation," equity in his service vehicle in the amount of P1,500,000, reasonable return on the
stock ownership plan for services rendered as General Manager, and moral damages and attorneys
fees.10
Petitioner thus prayed for the dismissal of the complaint and the award of the following sums of
money in the form of compulsory counterclaims:
1. P103,020,000.00, PLUS the value of Defendants stock options and unpaid share from the
net income with Plaintiff corporation (to be computed) as actual damages;
2. P15,000,000.00, as moral damages; and
3. P1,500,000.00, as attorneys fees plus appearance fees and the costs of suit. 11
Respondent filed a manifestation and a motion to dismiss the counterclaim for want of jurisdiction,
which drew petitioner to assert in his comment and opposition thereto that the veil of corporate
fiction must be pierced to hold respondent liable for his counterclaims.
By Order of January 3, 2000, Branch 155 of the RTC of Pasig denied respondents motion to dismiss
the counterclaim on the following premises: A counterclaim being essentially a complaint, the
principle that a motion to dismiss hypothetically admits the allegations of the complaint is applicable;
the counterclaim is compulsory, hence, within its jurisdiction; and there is identity of interest between
respondent and Sky Vision to merit the piercing of the veil of corporate fiction. 12
Respondents motion for reconsideration of the trial courts Order of January 3, 2000 having been
denied, it filed a Petition for Certiorari at the Court of Appeals which held that respondent is not the
real party-in-interest on the counterclaim and that there was failure to show the presence of any of
the circumstances to justify the application of the principle of "piercing the veil of corporate fiction."
The Orders of the trial court were thus set aside and the counterclaims of petitioner were accordingly
dismissed.13
The Court of Appeals having denied petitioners motion for reconsideration, the instant Petition for
Review was filed which assigns the following errors:
I.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE RTC BRANCH 155
ALLEGEDLY ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING THE ORDERS DATED
JANUARY 3, 2000 AND OCTOBER 9, 2000 CONSIDERING THAT THE GROUNDS RAISED BY
RESPONDENT LOPEZ, INC. IN ITS PETITION FOR CERTIORARI INVOLVED MERE ERRORS OF
JUDGMENT AND NOT ERRORS OF JURISDICTION.
II.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT RESPONDENT LOPEZ, INC. IS
NOT THE REAL PARTY-IN-INTEREST AS PARTY-DEFENDANT ON THE COUNTERCLAIMS OF
PETITIONER VELARDE CONSIDERING THAT THE FILING OF RESPONDENT LOPEZ, INC.S
MANIFESTATION AND MOTION TO DISMISS COUNTERCLAIM HAD THE EFFECT OF
HYPOTHETICALLY ADMITTING THE TRUTH OF THE MATERIAL AVERMENTS OF THE
ANSWER, WHICH MATERIAL AVERMENTS SUFFICIENTLY ALLEGED THAT RESPONDENT
LOPEZ, INC. COMMITTED ACTS WHICH SHOW THAT ITS SUBSIDIARY, SKY VISION, WAS A
MERE BUSINESS CONDUIT OR ALTER EGO OF THE FORMER, THUS, JUSTIFYING THE
PIERCING OF THE VEIL OF CORPORATE FICTION.
III.
THE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE COUNTERCLAIMS OF

PETITIONER VELARDE ARE NOT COMPULSORY.14
While petitioner correctly invokes the ruling in Atienza v. Court of Appeals15 to postulate that not
every denial of a motion to dismiss can be corrected by certiorari under Rule 65 and that, as a
general rule, the remedy from such denial is to appeal in due course after a decision has been
rendered on the merits, there are exceptions thereto, as when the court in denying the motion to
dismiss acted without or in excess of jurisdiction or with patent grave abuse of discretion, 16 or when
the assailed interlocutory order is patently erroneous and the remedy of appeal would not afford
adequate and expeditious relief,17 or when the ground for the motion to dismiss is improper
venue,18 res judicata,19 or lack of jurisdiction20 as in the case at bar.
Early on, it bears noting, when the case was still with the trial court, respondent filed a motion to
dismiss the counterclaims to assail its jurisdiction, respondent asserting that the counterclaims,
being money claims arising from a labor relationship, are within the exclusive competence of the
National Labor Relations Commission.21 On the other hand, petitioner alleged that due to the
tortuous manner he was coerced into retirement, it is the Regional Trial Courts (RTCs) and not the
National Labor Relations Commission which has exclusive jurisdiction over his counterclaims.
In determining which has jurisdiction over a case, the averments of the complaint/counterclaim,
taken as a whole, are considered.22 In his counterclaim, petitioner alleged that:
xxx
29. It was only on July 15, 1998 that Lopez, Inc. submitted a computation of the retirement
benefit due to the Defendant. (Copy attached as ANNEX 4). Immediately after receiving this
computation, Defendant immediately informed Plaintiff of the erroneous figure used as salary
in the computation of benefits. This was done in a telephone conversation with a certain Atty.
Amina Amado of Lopez, Inc.
29.1 The Defendant also informed her that the so called "unliquidated advances amounting
to P422,922.87 since 1995" had all been properly liquidated as reflected in all the reports of
the company. The Defendant reminded Atty. Amado of
unpaid incentives and salaries for 1997.
29.2 Defendant likewise informed Plaintiff that the one month for every
year of service as a basis for the computation of the Defendants retirement benefit is
erroneous. This computation is even less than what the rank and file employees get. That
CEOs, COOs and senior executives of the level of ABS-CBN, Sky Vision, Benpres, Meralco
and other Lopez companies had and have received a lot more than the regular rank and file
employees. All these retired executives and records can be summoned for verification.
29.3 The circumstances of the retirement of the Defendant are not those for a simple and
ordinary rank and file employee. Mr. Lopez, III admitted that he and the Defendant have had
problems which accumulated through time and that they chose to part ways in a manner that
was dignified for both of them. Treating the Defendant as a rank and file employee is hardly
dignified not just to the Defendant but also to the Lopezes whose existing executives serving
them will draw lessons from the Defendants experience.
29.4 These circumstances hardly reflect a simple retirement. The Defendant, who is known
in the local and international media community, is hardly considered a rank and file
employee. Defendant was a stockholder of the Corporation and a duly-elected member of
the Board of Directors. Certain government officials can attest to the sensitivity of issues and
matters the Defendant had represented for the Lopezes that are hardly issues handled by a
simple rank and file employee. Respectable individuals in government and industry are
willing to testify to this regard.x x x23 (Underscoring and italics supplied).
At the heart of petitioners counterclaim is his alleged forced retirement which is also the basis of his
claim for, among other things, unpaid salaries, unpaid incentives, reasonable return on the stock
ownership plan, and other benefits from a subsidiary company of the respondent.
Section 5(c) of P.D. 902-A (as amended by R.A. 8799, the Securities Regulation Code) applies to a
corporate officers dismissal. For a corporate officers dismissal is always a corporate act and/or an
intra-corporate controversy and that its nature is not altered by the reason or wisdom which the
Board of Directors may have in taking such action.24
With regard to petitioners claim for unpaid salaries, unpaid share in net income, reasonable return
on the stock ownership plan and other benefits for services rendered to Sky Vision, jurisdiction
thereon pertains to the Securities Exchange Commission even if the complaint by a corporate officer
includes money claims since such claims are actually part of the prerequisite of his position and,
therefore, interlinked with his relations with the corporation.25 The question of remuneration involving
a person who is not a mere employee but a stockholder and officer of the corporation is not a simple
labor problem but a matter that comes within the area of corporate affairs and management, and is
in fact a corporate controversy in contemplation of the Corporation Code. 26
While petitioners counterclaims were filed on December 1, 1998, the second challenged order of the
trial court denying respondents motion for reconsideration of the denial of its motion to dismiss was
issued on October 9, 2000 at which time P.D. 902-A had been amended by R.A. 8799 (approved on
July 19, 2000) which mandated the transfer of jurisdiction over intra-corporate controversies, subject
of the counterclaims, to RTCs.
But even if the subject matter of the counterclaims is now cognizable by RTCs, the filing thereof
against respondent is improper, it not being the real party-in-interest, for it is petitioners employer
Sky Vision, respondents subsidiary.
It cannot be gainsaid that a subsidiary has an independent and separate juridical personality, distinct
from that of its parent company, hence, any claim or suit against the latter does not bind the former
and vice versa.
Petitioner argues nevertheless that jurisdiction over the subsidiary is justified by piercing the veil of
corporate fiction. Piercing the veil of corporate fiction is warranted, however, only in cases when the
separate legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
crime, such that in the case of two corporations, the law will regard the corporations as merged into
one.27 The rationale behind piercing a corporations identity is to remove the barrier between the
corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who
use the corporate personality as a shield for undertaking certain proscribed activities. 28
In applying the doctrine of piercing the veil of corporate fiction, the following requisites must be
established: (1) control, not merely majority or complete stock control; (2) such control must have
been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest acts in contravention of plaintiffs legal rights; and (3) the
aforesaid control and breach of duty must proximately cause the injury or unjust loss complained
of.29
Nowhere, however, in the pleadings and other records of the case can it be gathered that
respondent has complete control over Sky Vision, not only of finances but of policy and business
practice in respect to the transaction attacked, so that Sky Vision had at the time of the transaction
no separate mind, will or existence of its own. The existence of interlocking directors, corporate
officers and shareholders is not enough justification to pierce the veil of corporate fiction in the
absence of fraud or other public policy considerations.
This Court is thus not convinced that the real party-in-interest with regard to the counterclaim for
damages arising from the alleged tortuous manner by which petitioner was forced to retire as
General Manager of Sky Vision is respondent.
Petitioner muddles the issues by arguing that respondent fraudulently took advantage of the control
over the matter of compensation and benefits of an employee of Sky Vision to deceive petitioner into
signing the loan agreement on the misleading assurance that it was merely for the purpose of
documenting the reward to him of ten million pesos. This argument does not persuade. Petitioner,
being a lawyer, is presumed to know the legal and binding effects of loan agreements.
It bears emphasis that Sky Visions involvement in the transaction subject of the case sprang only
after a proposal was apparently proffered by petitioner that his retirement benefits from Sky Vision
be used in partial payment of his loan from respondent as gathered from the July 15, 1998 letter 30 of
Rommel Duran, Vice-President and General Manager of respondent, to petitioner reading:
Dear Mr. Velarde:
As requested, we have made computations on the outstanding amount of your loan with
Lopez, Inc. should your retirement benefits from Sky Vision Corporation/Central CATV, Inc.
""Sky/Central") be applied to the partial payment of your loan. Please note that in order to
effect the application of your retirement benefits to the partial payment of your
loan, you will need to give Sky/Central written instructions on the same in the soonest
possible time.
As you will see in the attached computation, the amount of P4,077,077.13 will be applied to
the payment of your loan to retroact on January 1, 1998. The amount of P422,922.87,
representing unliquidated advances made by Sky/Central to you (see attached listing), has
been deducted from your retirement pay of P4.5 million. Should you be able
to liquidate the advances as requested by Sky/Central, the said amount will be applied to the
partial payment of your loan and we shall adjust the amount of principal and interest due
from you accordingly. After the application of the amount of P4,077,077.13 to the partial
payment of your loan, the amount of P7,585,912.86 will be immediately due and
demandable. The amount of P7,585,912.86 represents the outstanding principal and interest
due as of July 15, 1998.
Without the application of your retirement benefits to the partial payment of your loan, the
amount of P11,850,000.00 is due as of July 15, 1998. We reiterate our demand for full
payment of your outstanding obligation immediately. (Underscoring supplied)
As for the trial courts ruling that the agreement to set-off is an amendment of the loan agreement
resulting to an identity of interest between respondent and Sky Vision and, therefore, sufficient to
pierce the veil of corporate fiction, it is untenable. The abovequoted letter is clear that, to effect a set-
off, it is a condition sine qua non that the approval thereof by "Sky/Central" must be obtained, and
that petitioner liquidate his advances from Sky Vision. These conditions hardly manifest that
respondent possessed that degree of control over Sky Vision as to make the latter its mere
instrumentality, agency or adjunct.
WHEREFORE, the instant petition for review on certiorari is hereby DENIED.
SO ORDERED.
Vitug, (Chairman), Sandoval-Gutierrez, and Corona, JJ., concur.
Footnotes
1
CA-G.R. SP No. 61706, dated December 21, 2001.
2
CA-G.R. SP No. 61706, dated May 13, 2002.
3
Rollo at 133 to 136.
4
Id. at 134.
5
Id. at 143.
6
Id. at 18.
7
Id. at 140.
8
Id. at 141.
9
Id. at 19.
10
Id. at 153.
11
Id. at 154.
12
Id. at 121-123.
13
Supra note 1.
14
Rollo at 26 and 27.
15
232 SCRA 737 (1994).
National Investment and Development Corporation v. Aquino, 163 SCRA 153 (1988); J.L.
16
Bernardo Construction v. Court of Appeals, 324 SCRA 24 (2000); Newsweek, Inc. v. IAC,
142 SCRA 171 (1986); Mendoza v. Court of Appeals, 201 SCRA 343 (1991).
17
J. L. Bernardo Construction v. Court of Appeals, 324 SCRA 24 (2000).
18
Enriquez vs. Macadaeg, 84 Phil. 674 (1949).
19
Manalo vs. Mariano, 69 SCRA 80 (1976).
20
De Jesus vs. Garcia, 19 SCRA 554 (1967).
21
Rollo at 165 and 167.
22
De Jesus v. Garcia, 19 SCRA 554 (1967).
23
Rollo at 149 and 150.
Ongkiko v. National Labor Relations Commission, 270 SCRA 613 (1997) citing Luzon v.
24
NLRC, 240 SCRA 1 (1995) and Espino v. NLRC, 240 SCRA 52 (1995).
25
Ongkiko v. National Labor Relations Commission, 270 SCRA 613 (1997).
26
Dy v. National Labor Relations Commission, 145 SCRA 211 (1986).
Tan Boon Bee & Co., Inc. v. Jarencio, 163 SCRA 205 (1988) and Yutivo Sons Hardware
27
Co. v. CTA, 1 SCRA 160 (1961).
28
Francisco Motors Corporation v. Court of Appeals, 309 SCRA 72 (1999).
29
Heirs of Ramon Durano Sr. v. Uy, 344 SCRA 238 (2000).
30
Rollo at 143.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 142616 July 31, 2001
PHILIPPINE NATIONAL BANK, petitioner,

vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL
MERCHANDISE,respondents.
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to
annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27,
2000, affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati,
Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's
motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine
law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General
Merchandise are domestic corporations, likewise, organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB,
organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents
in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels
of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in
September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997;
and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan
incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to
the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the
respondents of the foreclosure of all the real estate mortgages and that the properties subject
thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ
of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati.
The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining
order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati.
The trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary
injunction, petitioner was given a period of seven days to file its written opposition to the application.
On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction
to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the
grounds of failure to state a cause of action and the absence of any privity between the petitioner
and respondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ
of preliminary injunction, which writ was correspondingly issued on July 14, 1999. On October 4,
1999, the motion to dismiss was denied by the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of
preliminary injunction before the Court of Appeals. In the impugned decision, 1 the appellate court
dismissed the petition. Petitioner thus seeks recourse to this Court and raises the following errors:
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A

QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF
ACTION EXISTS AGAINST PETITIONER, WHICH IS NOT A REAL PARTY IN INTEREST
BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY
CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO

ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION
OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY
TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2
Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial
court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the
complaint in the instant case.3
In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are
two separate entities, petitioner is still the party-in-interest in the application for preliminary injunction
because it is tasked to commit acts of foreclosing respondents' properties. 4 Respondents maintain
that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality
of contracts.5 In addition, respondents justified the act of the court a quo in applying the doctrine of
"Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business
conduit of PNB-IFL.6
The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the
contract:
GROUNDS
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE

DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF
MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF

INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE
WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE
EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW
OR BY THE MONETARY BOARD.7
Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the
foreclosure and eventual sale of the property in order to protect their rights to said property by
reason of void credit facilities as bases for the real estate mortgage over the said property. 8
The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their
complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power
and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations
with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties
under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan
contracts entered into by respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal
and the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner
is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-
compute the rescheduling of the interest to be paid by them in accordance with the terms and
conditions in the documents evidencing the credit facilities, and crediting the amount previously paid
to PNB by herein respondents.9
Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set
forth in the contract. Respondents, therefore, do not have any cause of action against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly
owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit
against PNB-IFL.10In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs.
Yatco,11 reasoned that the corporate entity may be disregarded where a corporation is the mere alter
ego, or business conduit of a person or where the corporation is so organized and controlled and its
affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of
another corporation.12
We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct and separate from
its individual stockholders or members, and is not affected by the personal rights, obligations and
transactions of the latter.13The mere fact that a corporation owns all of the stocks of another
corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiary's separate existence may be respected, and the liability of the
parent corporation as well as the subsidiary will be confined to those arising in their respective
business. The courts may in the exercise of judicial discretion step in to prevent the abuses of
separate entity privilege and pierce the veil of corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this
Court disregarded the separate existence of the parent and the subsidiary on the ground that the
latter was formed merely for the purpose of evading the payment of higher taxes. In the case at bar,
respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL
should be disregarded.
While there exists no definite test of general application in determining when a subsidiary may be
treated as a mere instrumentality of the parent corporation, some factors have been identified that
will justify the application of the treatment of the doctrine of the piercing of the corporate veil. The
case of Garrett vs. Southern Railway Co.14is enlightening. The case involved a suit against the
Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he
sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway
Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works,
hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme
Court stated that as a general rule the stock ownership alone by one corporation of the stock of
another does not thereby render the dominant corporation liable for the torts of the subsidiary unless
the separate corporate existence of the subsidiary is a mere sham, or unless the control of the
subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said Court
then outlined the circumstances which may be useful in the determination of whether the subsidiary
is but a mere instrumentality of the parent-corporation:
The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to

catalogue the infinite variations of fact that can arise but there are certain common
circumstances which are important and which, if present in the proper combination, are
controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise
causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation or no
assets except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary
is described as a department or division of the parent corporation, or its business or financial
responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the interest of the
subsidiary but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most
of the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of
Lenoir. . . The complaint must be dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an
equitable doctrine developed to address situations where the separate corporate personality of a
corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made
as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.15
In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the
doctrine of piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of
its own.
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act
in contravention of plaintiffs legal rights; and,
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss
complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying
the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual defendant's relationship to the
operation.17
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing
of the indicative factors that the former corporation is a mere instrumentality of the latter are present.
Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of
piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil
based on the alter ego or instrumentality doctrine finds no application in the case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal
relationship involved in this case since the petitioner was not sued because it is the parent company
of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in
initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be
considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or
defended in the name of the real party-in-interest, unless otherwise authorized by law or these
Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom no final
determination can be had, an action shall be joined either as plaintiffs or defendants." 19 In the case at
bar, the injunction suit is directed only against the agent, not the principal.
Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional
remedy but adjunct to the main suit.20 A writ of preliminary injunction is an ancillary or preventive
remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for
no other purpose during the pendency of the principal action. The dismissal of the principal action
thus results in the denial of the prayer for the issuance of the writ. Further, there is no showing that
respondents are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil
Procedure provides:
SECTION 3. Grounds for issuance of preliminary injunction. A preliminary injunction may

be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or in
requiring the performance of an act or acts, either for a limited period or perpetually,
(b) That the commission, continuance or non-performance of the acts or acts complained of
during the litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.
Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid
injurious consequences which cannot be remedied under any standard
compensation.21 Respondents do not deny their indebtedness. Their properties are by their own
choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were
secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to
a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in the contract
only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove
that they have a right protected and that the acts against which the writ is to be directed are violative
of said right.22The Court is not unmindful of the findings of both the trial court and the appellate court
that there may be serious grounds to nullify the provisions of the loan agreement. However, as
earlier discussed, respondents committed the mistake of filing the case against the wrong party,
thus, they must suffer the consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the latter is not privy to
the contract the provisions of which respondents seek to declare void. Accordingly, the case before
the Regional Trial Court must be dismissed and the preliminary injunction issued in connection
therewith, must be lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the
Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of
the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED
and SET ASIDE and the complaint in said case DISMISSED.
SO ORDERED.
Puno, Pardo and Santiago, JJ ., concur.

Davide, Jr., C .J ., on official leave.
Footnotes
1
Decision, Court of Appeals, pp. 1-6; Rollo, pp. 37-42.
2
Petition, p. 10; Rollo, p. 20.
3
Id., at 24; Id., at 34.
4
Comment, pp. 12-13; Rollo, pp. 438-439.
5
Id., at 17-19; Id., at 443-445.
6
Id., at 20-24; Id., at 446-450.
7
Rollo, p. 266.
8
Id., at 270.
9
See Complaint, p. 15; Rollo, p. 64.
10
Rollo, p. 49.
11
77 Phil. 496 (1946).
12
Ibid.
13
Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 (1961).
14
173 F. Supp. 915, E.D. Tenn. (1959).
15
Umali v. Court of Appeals, 189 SCRA 529, 524 (1990).
16
257 SCRA 149 (1996).
17
Id., at 159.
18
See RULES OF COURT, Rule 3, sec. 2.
19
RULES OF COURT, Rule 3, sec. 7.
20
Philippine Airlines, Inc. vs. NLRC, 287 SCRA 672 (1998).
21
Union Bank of the Philippines v. Court of Appeals, 311 SCRA 795, 805-806 (1999).
22
China Banking Corporation v. Court of Appeals, 265 SCRA 327, 343 (1996).

SUPREME COURT
Manila
SECOND DIVISION
A.M. No. P-01-1464 March 13, 2001

(Formerly OCA IPI. No. 99-730-P)
SALVADOR O. BOOC, complainant,
vs.
MALAYO B. BANTUAS, SHERIFF IV, RTC, BRANCH 3, ILIGAN CITY, respondent.
RESOLUTION
DE LEON, JR., J.:
An affidavit-complaint dated August 31, 1999 was filed before the Office of the Court Administrator
(OCA) by Salvador Booc charging Malayo B. Bantuas, Sheriff IV of the Regional Trial Court (RTC),
Branch 3, Iligan City with Gross Ignorance of the Law and Grave Abuse of Authority relative to Civil
Case No. 1718 entitled, "Felipe G. Javier, Jr. vs. Rufino Booc."
Complainant is the President of Five Star Marketing Corporation. On August 22, 1994 herein
respondent Sheriff Malayo B. Bantuas, pursuant to a Writ of Execution issued in Civil Case No. 1718
filed a Notice of Levy with the Register of Deeds, Iligan City over a parcel of land covered by TCT
No. T-19209 and owned by Five Star Marketing Corporation. Complainant alleged that respondent
sheriff, at the instance of plaintiff, former Judge Felipe Javier, proceeded to file the Notice of Levy
despite respondent sheriff's knowledge that the property is owned by the corporation which was not
a party to the civil case.
On July 31, 1995, the corporation through the complainant reiterated to respondent sheriff that it was
the owner of the property and Rufino Booc had no share or interest in the corporation. Hence, the
corporation demanded that respondent sheriff cancel the notice of levy, otherwise the corporation
would take the appropriate legal steps to protect its interest.
Respondent sheriff, however, did not heed the corporation's demand inasmuch as on August 20,
1999 the corporation received a "Notice of Sale on Execution of Real Property," dated August 11,
1999, covering the subject property. Respondent sheriff scheduled the public auction on August 31,
1999. Consequently, the corporation, to protect its rights and interests, was compelled to file an
action for Quieting of Title with the RTC, Branch 4 of Iligan City.
Respondent sheriff, in his answer to the complaint filed against him before the OCA, said that he
filed a Notice of Levy with the Register of Deeds of Iligan City on the share, rights, interest and
participation of Rufino Booc in the parcel of land owned by Five Star Marketing Corporation.
Respondent sheriff claimed that Rufino Booc is the owner of around 200 shares of stock in said
corporation according to a document issued by the Securities and Exchange Commission.
Respondent sheriff stressed that the levy was made on the share, rights and/or interest and
participation which Rufino Booc, as President and stockholder, may have in the parcel of land owned
by Five Star Marketing Corporation. Claiming that he was only acting pursuant to his duties as
sheriff, respondent cited Section 15, Rule 39 of the Rules of Court which states that
x x x The officer must enforce an execution of a money judgment by levying on all the
property, real and personal of every name and nature whatsoever, and which may be
disposed of for value of the judgment debtor not exempt from execution.
Real property stocks, shares, debts, credits, and other personal property, or any interest in
either real or personal property, may be levied upon in like manner and with like effect as
under a writ of execution.
Respondent sheriff said that while complainant Salvador Booc made a demand for the cancellation
of levy made, the former deemed it wise to have the judgment satisfied in accordance with Section
39 of the Rules of Court Respondent sheriff added that the trial court where the case for Quieting of
Title filed by the corporation was pending ordered the auction sale of the shares of stock of Rufino
Booc. The corporation allegedly never questioned said order of the RTC.
Finally, respondent sheriff averred that the corporation is merely a dummy of Rufino Booc and his
brother Sheikding Booc. Respondent sheriff submitted as an exhibit an affidavit executed by
Sheikding Booc wherein the latter admitted that when Judge Felipe Javier won in the civil case
against Rufino Booc, the latter simulated a transfer of his shares of stock in Five Star Marketing
Corporation so that the property may not be levied upon. 1
Complainant, in his reply to respondent sheriffs comment belied the latter's allegation that the
corporation never questioned the auction sale. Complainant averred that contrary to the respondent
sheriff's assertion, the trial court in fact issued a restraining order which was withdrawn after
plaintiff's counsel manifested that the respondent sheriff would only auction Rufino Booc's shares of
stock in the corporation and not the subject property.
The OCA found respondent sheriff liable for the charges filed against him, stating that respondent
sheriff acted in bad faith when he auctioned the subject property inasmuch as Judge Mangotara had
already warned him that the public auction should pertain only to shares of stock owned by Rufino
Booc in Five Star Marketing Corporation. Respondent sheriff, however, in violation of the order
issued by Judge Mangotara and in disregard of the manifestation filed by plaintiffs counsel that the
sale should involve only the shares of stock, proceeded to auction the subject property. The OCA,
thus, made the recommendation that:
1) The instant case be RE-DOCKETED as a regular administrative matter; and
2) Respondent Sheriff Malayo B. Bantuas be FINED in the amount of Ten Thousand Pesos
(P10,000.00) for conducting the auction sale in violation of the terms of the order issued by
Acting Presiding Judge Mamindiara P. Mangotara with a STERN WARNING that a
commission of the same or similar acts in the future shall be dealt with more severely.
A careful scrutiny of the records shows that respondent sheriff, in filing a notice of levy on the subject
property as well as in the certificate of sale, did not fail to mention that what was being levied upon
and sold was whatever shares, rights, interests and participation Rufino Booc, as president and
stockholder in Five Star Marketing Corporation may have on subject property. Respondent sheriff,
however, overstepped his authority when he disregarded the distinct and separate personality of the
corporation from that of Rufino Booc as stockholder of the corporation by levying on the property of
the corporation. Respondent sheriff should not have made the levy based on mere conjecture that
since Rufino Booc is a stockholder and officer of the corporation, then he might have an interest or
share in the subject property.
It is settled that a corporation is clothed with a personality separate and distinct from that of its
stockholders. It may not be held liable for the personal indebtedness of its stockholders. In the case
of Del Rosario vs. Bascar, Jr,2 we imposed the fine of P5,000.00 on respondent sheriff Bascar for
"allocating unto himself the power of the court to 'pierce the veil of corporate entity' and improvidently
assuming that since complainant Esperanza del Rosario is the treasurer of Miradel Development
Corporation, they are one and the same." In the said case we reiterated the principle that the mere
fact that one is a president of the corporation does not render the property he owns or possesses the
property of the corporation since the president, as an individual, and the corporation are separate
entities.
Based on the foregoing, respondent Sheriff Bantuas has clearly acted beyond his authority when he
levied the property of Five Star Marketing Corporation. The fact, however, that respondent sheriff, in
levying said property, had stated in the notice of levy as well as in the certificate of sale that what
was being levied upon and sold was whatever rights, shares interest and/or participation Rufino
Booc, as stockholder and president in the corporation, may have on the subject property, shows that
respondent sheriff's conduct was impelled partly by ignorance of Corporation Law and partly by mere
overzealousness to comply with his duties and not by bad faith or blatant disregard of the trial court's
order. Hence, we deem that the penalty of a fine of Five Thousand Pesos (P5,000.00) to be imposed
on respondent sheriff would suffice.
WHEREFORE, respondent Malayo B. Bantuas, Sheriff IV of the RTC of Iligan City, Branch 3, is
hereby FINED in the sum of Five Thousand Pesos (P5,000.00) with the STERN WARNING that a
repetition of the same or similar acts in the future will be dealt with more severely.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.
Footnotes
1
Annex "D".
2
206 SCRA 678, 685 [1992].

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 130998 August 10, 2001

MARUBENI CORPORATION, RYOICHI TANAKA, RYOHEI KIMURA and SHOICHI
ONE, petitioners,
vs.
FELIX LIRAG, respondent.
PARDO, J.:
The case is an appeal via certiorari to annul and set aside the decision 1 of the Court of Appeals
finding petitioners Ryoichi Tanaka, Ryohei Kimura and Shoichi One, as officers of petitioner
Marubeni Corporation, jointly and severally liable with the corporation for the commission claimed by
respondent Felix Lirag in the amount of six million (P6,000,000.00) pesos arising from an oral
consultancy agreement.
Petitioner Marubeni Corporation (hereafter, Marubeni) is a foreign corporation organized and existing
under the laws of Japan. It was doing business in the Philippines through its duly licensed, wholly
owned subsidiary, Marubeni Philippines Corporation. Petitioners Ryoichi Tanaka, Ryohei Kimura and
Shoichi One were officers of Marubeni assigned to its Philippine branch. 2
On January 27, 1989, respondent Felix Lirag filed with the Regional Trial Court, Makati a
complaint3 for specific performance and damages claiming that petitioners owed him the sum of
P6,000,000.00 representing commission pursuant to an oral consultancy agreement with Marubeni.
Lirag claimed that on February 2, 1987, petitioner Ryohei Kimura hired his consultancy group for the
purpose of obtaining government contracts of various projects. Petitioner Kimura authorized him to
work on the following projects: (1) National Telephone Project, (2) Regional Telecommunications
Project; (3) Cargo Handling Equipment; (4) Maritime Communications; (5) Philippine National
Railways Depot; and (6) Bureau of Posts (Phase II). 4 Petitioners promised to pay him six percent
(6%) consultancy fee based on the total costs of the projects obtained.
The consultancy agreement was not reduced into writing because of the mutual trust between
Marubeni and the Lirag family.5 Their close business and personal relationship dates back to 1960,
when respondent's family was engaged in the textile fabric manufacturing business, in which
Marubeni supplied the needed machinery, equipment, spare parts and raw materials. 6
In compliance with the agreement, respondent Lirag made representations with various government
officials, arranged for meetings and conferences, relayed pertinent information as well as submitted
feasibility studies and project proposals, including pertinent documents required by petitioners. As
petitioners had been impressed with respondent's performance, six (6) additional projects were
given to his group under the same undertaking. 7
One of the projects handled by respondent Lirag, the Bureau of Post project, amounting to
P100,000,000.00 was awarded to the "Marubeni-Sanritsu tandem." 8 Despite respondent's repeated
formal verbal demands for payment of the agreed consultancy fee, petitioners did not pay. In
response to the first demand letter, petitioners promised to reply within fifteen (15) days, but they did
not do so.
Pursuant to the consultancy agreement, respondent claimed a commission of six percent (6%) of the
total contract price, or a total of P6,000,000.00, or in the alternative, that he be paid the same
amount by way of damages or as the reasonable value of the services he rendered to petitioners,
and further claimed twenty percent (20%) of the amount recoverable as attorney's fees and the costs
of suit.
In their answer, petitioners denied the consultancy agreement. Petitioner Ryohei Kimura did not
have the authority to enter into such agreement in behalf of Marubeni. Only Mr. Morihiko Maruyama,
the general manager, upon issuance of a special power of attorney by the principal office in Tokyo,
Japan, could enter into any contract in behalf of the corporation. Mr. Maruyama did not discuss with
respondent Lirag any of the matters alleged in the complaint, nor agreed to the payment of
commission. Moreover, Marubeni did not participate in the bidding for the Bureau of Post project, nor
benefited from the supposed project. Thus, petitioners moved for the dismissal of the complaint.
Petitioner Shoichi One submitted a separate answer raising similar arguments.
With regard to petitioner Ryohei Kimura, the trial court did not acquire jurisdiction over his person
because he was recalled to the principal office in Tokyo, Japan before the complaint and the
summons could be served on him.
During the pre-trial conferences held on September 18 and October 16, 1989 and on January 24,
March 15 and May 17, 1990, no amicable settlement was reached. Trial on the merits ensued.
On April 29, 1993, the trial court promulgated a decision and ruled that respondent is entitled to a
commission. Respondent was led to believe that there existed an oral consultancy agreement.
Hence, he performed his part of the agreement and helped petitioners get the project. The
dispositive portion of the decision reads:
"WHEREFORE, defendants are ordered, jointly and severally, to pay to the plaintiff: (1) the
amount of P6,000,000.00, with interest at the legal rate (12% per annum) from January 10,
1989 until fully paid; (2) 20% of this amount to serve as reimbursement of plaintiff's attorney's
fees; and (3) to pay the cost of the suit.
"SO ORDERED.
"Makati, Metro Manila, April 29, 1993.
"[Original Signed]
"SALVADOR P. DE GUZMAN, Jr.
"Pairing Judge"9
On May 26, 1993, petitioners interposed an appeal from the decision to the Court of Appeals. 10
After due proceedings, on October 9, 1997, the Court of Appeals promulgated a decision affirming
the decision of the trial court. The Court of Appeals ruled that preponderance of evidence favored
the existence of a consultancy agreement between the parties. It upheld the factual findings of the
trial court, thus:
"Plaintiff's evidence details the efforts he exerted after having been extended an appointment
by Marubeni as its consultant. He tendered a thanksgiving dinner for the defendants at the
Nandau Restaurant; he and Napoleon Rama visited Marubeni's Morihiko Maruyama in the
latter's office during which they discussed the BOP II project. He arranged several
conferences between the Marubeni officials and Postmaster General Angelito Banayo. In
one meeting which took place in the office of Mr. Banayo at Liwasang Bonifacio, a Mr. Ida,
the General Manager of Sanritsu, was conspicuously present. Mr. Banayo testified that Mr.
Ida told him that Sanritsu was representing Marubeni in the BOP II project (tsn., 6/11/90, pp.
15-17; 5/15/91, pp. 10-12). At least thirty (30) conferences between plaintiff and defendants
took place at the Marubeni offices, lasting at least two hours each meeting. Eventually, the
bid was awarded by the Bureau of Post to Sanritsu. Aware that Sanritsu represented
Marubeni, and in fact Marubeni assigned Sanritsu to enter its bid, plaintiff sent his bill for his
services to the defendants in a letter dated April 20, 1988. This was followed by a letter dated
September 26, 1990 of plaintiff's counsel. This time Mr. Tanaka asked for 15 days within
which to contact their Head Office to seek instructions."11
The Court of Appeals relied on the doctrine of admission by silence 12 in upholding the existence of a
consultancy agreement, noting that petitioner Tanaka's reaction to respondent's September 26, 1988
demand letter was not consistent with their claim that there was no consultancy agreement. On the
contrary, it lent credence to respondent's claim that they had an existing consultancy agreement.
Petitioner Tanaka's response dated October 13, 1988 to the demand letter of September 26, 1988
reads:
"Referring to your letter dated September 26, 1988, we are pleased to inform you that the
issue is currently being reviewed by us and we would like to reply to you within fifteen (15)
days."13
The Court of Appeals observed that if indeed there were no consultancy agreement, it would have
been easy for petitioners to simply deny respondent's claim. Yet, they did not do so. The
conglomeration of these circumstances bolstered the existence of the oral consultancy agreement.
The dispositive portion of the decision reads:
"WHEREFORE, the decision appealed from is hereby AFFIRMED."14
Hence, this appeal.15
In this appeal, petitioners raise the following issues: (1) whether or not there was a consultancy
agreement between petitioners and respondent; and corollary to this, (2) whether or not respondent
is entitled to receive a commission if there was, in fact, a consultancy agreement. 16
We find the appeal meritorious.
In deciding this appeal, we rely on the rule that a party who has the burden of proof in a civil case
must establish his case by a preponderance of evidence. 17 When the evidence of the parties is in
equipoise, or when there is a doubt as to where the preponderance of evidence lies, the party with
the burden of proof fails and the petition must thus be denied.18
As a general rule, factual findings of the Court of Appeals are conclusive on the parties and are not
reviewed by the Supreme Court and they carry even more weight when the Court of Appeals
affirmed the factual findings of the trial court. It is not the function of the Supreme Court to weigh
anew the evidence passed upon by the Court of Appeals.19 Moreover, only questions of law may be
raised before the Supreme Court in a petition for review under Rule 45 of the Revised Rules of
Court.20
However, the rule is subject to exceptions,21 such as when the conclusion is grounded on
speculation, surmises, or conjectures,22 as in the instant case.
An assiduous scrutiny of the testimonial and documentary evidence extant leads us to the
conclusion that the evidence could not support a solid conclusion that a consultancy agreement, oral
or written, was agreed between petitioners and respondent. Respondent attempted to fortify his own
testimony by presenting several corroborative witnesses. However, what was apparent in the
testimonies of these witnesses was the fact that they learned about the existence of the consultancy
agreement only because that was what respondent told them. 23
In civil cases, he who alleges a fact has the burden of proving it; a mere allegation is not
evidence.24 He must establish his cause by a preponderance of evidence,25 which respondent failed
to establish in the instant case.
Assuming for the sake of argument that an oral consultancy agreement has been perfected between
the parties, respondent Lirag could not still claim fees on the project that has not been awarded to
Marubeni.
If respondent's contentions were to be taken as truth, he would be entitled to 6% consulting fee

based on the total cost of the projects obtained,26 or on success basis.27 However, even respondent
admitted that the Bureau of Post project was not awarded to Marubeni, but to Sanritsu. 28 Marubeni
did not even join the bidding for the Bureau of Post project.
Respondent could not claim from Sanritsu because of the absence of any agreement between him
and the latter. When asked to clarify whether he has an existing consultancy agreement with
Sanritsu, respondent answered in the negative, thus:
"COURT:
One clarificatory question
Do you have any consultancy service contract with Marubeni/San Ritsu do you
have?
A: No, sir. I have only Consultancy Agreement on verbal basis with Marubeni." 29
Hence, how could he be entitled to the 6% commission, when it was not his client who won in the
bidding?
Respondent tried to justify his commission of roughly about P6,000,000.00 in the guise that
Marubeni and Sanritsu are sister corporations, thereby implying the need to pierce the veil of
corporate fiction. Respondent claimed that Marubeni as the supplier and real contractor of the
project hired and sub-contracted the project to Sanritsu.
We believe that this line of reasoning is too far-fetched. Not because two foreign companies came
from the same country and closely worked together on certain projects would the conclusion arise
that one was the conduit of the other, thus piercing the veil of corporate fiction.
To disregard the separate juridical personality of a corporation, the wrongdoing must be clearly and
convincingly established. It cannot be presumed. The separate personality of the corporation may be
disregarded only when the corporation is used as a cloak or cover for fraud or illegality, or to work
injustice, or where necessary for the protection of creditors.30 We could not just rely on respondent's
testimony regarding the existence of the "Marubeni-Sanritsu tandem" to justify his claim for payment
of commission. This conclusion is too conjectural to be believed.
Aside from the self-serving testimony of respondent regarding the existence of a close working
relationship between Marubeni and Sanritsu, there was nothing that would support the conclusion
that Sanritsu was an agent of Marubeni. Mr. Lito Banayo, whom respondent presented to
corroborate his testimony on this particular issue said, thus:
"ATTY. VALERO
My question is do you know for a fact whether the impression you have about
Japanese Trading Firm working through Agents was the relationship between
Marubeni and San Ritsu when Mr. Ida said that they were working together?
"A: I did not know for a fact because I did not see any contract between Marubeni and
San Ritsu presented to me."31
Contrary to the trial court's finding that petitioners led respondent to believe that they hired
respondent's services as consultant, the evidence proved otherwise. Petitioner Shoichi One, one of
the officers of Marubeni Phils., testified that at the onset, Marubeni Phils. informed respondent that it
had no authority to commit to anything, as it all depended on the decision of the principal
headquarters in Tokyo, Japan. However, respondent Lirag insisted on providing assistance to
Marubeni to get coveted government contracts because Marubeni might encounter difficulties due to
discrimination from the government.32 Despite such knowledge, respondent said that "it's alright" with
him as he "believes Marubeni was an old time friend so he wanted to work for those
projects."33Hence, how could petitioners be guilty of misleading respondent on the acceptance of the
latter's offer of consultancy service?
With regard to the Court of Appeal's ratiocination that petitioner Tanaka's response dated October
13, 1988 to the demand letter of September 26, 1988, amounted to an implied admission of the
consultancy agreement, the records showed that, to the contrary, this fact strengthened petitioners'
allegation that Marubeni Phils. lacked the requisite authority to enter into any binding agreement.
As explained by petitioner Shoichi One, Marubeni Phils. could enter into a consultancy agreement
only after submitting a recommendation to the principal headquarters in Tokyo, Japan. If the office in
Tokyo, Japan agrees to hire consultants, it would then give a power of attorney to its general
manager in Manila authorizing the latter to enter into such agreement.
In the instant case, the parties did not reach the second stage as the headquarters in Tokyo, Japan
did not see it fit to hire a consultant as they decided not to participate in the bidding. Hence, no
consultancy agreement was perfected, whether oral or written. There was no absolute acceptance of
respondent's offer of consultancy services.
Assuming arguendo that the petitioner accepted respondent's offer of consultancy services, we
could not give legal imprimatur to the agreement. The service rendered by respondent contemplated
the exploitation of personal influence and solicitation on a public officer.
Respondent said that petitioners sought out his services because they "needed somebody who can
help them 'penetrate' and establish goodwill" with the government. 34 Petitioners found it difficult to
arrange a meeting with Postmaster General Angelito Banayo because of petitioners' reputation of
engaging in questionable transactions.35 Suddenly, through the intervention of respondent, the
postmaster general became accessible to petitioners. This became possible because of
respondent's close personal relationship with the postmaster general, his trusted and long-time
friend.36 Respondent testified, to wit:
"Q: In other words you are saying that Marubeni and San Ritsu representatives had a
conference with the Post Master General Banayo in connection with this Project?
"A: Yes and I was the one who made the arrangement."37
In another instance, respondent said, thus:
"WITNESS:
What we have done by that . . . first, Mr. Banayo went to Tokyo and when he was in
Tokyo we were able to arrange the Marubeni representative in Tokyo to meet and talk
with Mr. Banayo in Tokyo . . .
"COURT:
Mr. . . . ?
"A. . . . Banayo, the Post Master General and representatives of Marubeni in Tokyo
this was done because of my intervention."38
Any agreement entered into because of the actual or supposed influence which the party has,
engaging him to influence executive officials in the discharge of their duties, which contemplates the
use of personal influence and solicitation rather than an appeal to the judgment of the official on the
merits of the object sought is contrary to public policy.39 Consequently, the agreement, assuming that
the parties agreed to the consultancy, is null and void as against public policy. 40 Therefore, it is
unenforceable before a court of justice.41
In light of the foregoing, we rule that the preponderance of evidence established no consultancy
agreement between petitioners and respondent from which the latter could anchor his claim for a six
percent (6%) consultancy fee on a project that was not awarded to petitioners.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals 42 is hereby SET
ASIDE. Civil Case No. 89-3037 filed before the Regional Trial Court, Branch 143, Makati City is
hereby DISMISSED.
No costs.
SO ORDERED.
Davide Jr., C .J ., Puno, Kapunan and Ynares-Santiago, JJ ., concur.
Footnotes
1
In CA-G.R. CV No. 45873, promulgated on October 9, 1997, Verzola, J., ponente, Ibay-
Somera and Demetria, JJ., concurring.; Rollo, pp. 30-39.
2
Now closed.
3
Docketed as Civil Case No. 89-3037; Petition for Review, Annex "D", Rollo, pp. 46-51.
4
Complaint, Regional Trial Court Records, pp. 1-6, at p. 2.
5
TSN, May 21, 1990, p. 38.
6
Ibid., pp. 24-29.
7
The additional projects were as follows: (A) JICA PROJECTS (1) Soil Research
Laboratory; (2) Learning Resource Center, (3) Provincial Hospitals; and (4) Hydrographic &
Oceanographic Slip; (B) OECF PROJECTS (1) Metro Manila Pumping Station/Flood
Control; and (2) Metro Manila Traffic.; Complaint, Regional Trial Court Records, at p. 3;
Rollo, p. 48.
8
TSN, May 21, 1990, p. 42.
9
Rollo, p. 118.
10
Rollo, p. 119.
11
Court of Appeals Decision, Rollo, pp. 34-35.
12
Rule 130, Section 23. Admission by silence. Any act or declaration made in the
presence and within the observation of a party who does or says nothing when the act or
declaration is such as naturally to call for action or comment if not true, may be given in
evidence against him.
13
Court of Appeals Decision, Rollo, p. 36.
14
TSN, May 21, 1990, p. 61; Court of Appeals Decision, Rollo, p. 38.
Petitioner's Memorandum, Rollo, pp. 310-332, at pp. 312-313; On October 21, 1998, the
15
Court gave due course to the petition, Rollo, p. 274.
16
Petition for Review, filed on December 1, 1997, Rollo, pp. 8-24.
17
Rivera v. Court of Appeals, 348 Phil. 734, 742 [1998].
18
Ibid., p. 743.
19
Gold Loop Properties, Inc. v. Court of Appeals, 306 SCRA 639, 652 [1999].
20
Tinio v. Manzano, 307 SCRA 460, 469 [1999].
21
In Sta. Maria v. Court of Appeals, 285 SCRA 351 [1998], the Court enumerated some of
the instances when the factual findings of the Court of Appeals are not deemed conclusive,
to wit: (1) when the findings are grounded entirely on speculation, surmises, or conjectures;
(2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply
briefs are not disputed by the respondent; and (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence on record.
22
Castilex Industrial Corporation v. Vasquez, Jr., 321 SCRA 393, 403 [1999].
23
TSN, May 28, 1990, p. 125; TSN, June 4, 1990, p. 7; TSN, June 11, 1990, pp. 202-203.
24
Luxuria Homes, Inc. v. Court of Appeals, 302 SCRA 315, 325 [1999].
25
Ceremonia v. Court of Appeals, 314 SCRA 731, 736 [1999].
26
Complaint, Regional Trial Records, p. 2.
27
TSN, July 6, 1990, p. 290.
28
TSN, May 21, 1990, p. 64.
29
TSN, May 21, 1990, pp. 45-46.
30
Luxuria Homes, Inc. v. Court of Appeals, Supra, Note 22, 328-329 [1999].
31
TSN, June 11, 1990, p. 209.
32
TSN, July 6, 1990, p. 279.
33
TSN, July 6, 1990, p. 281.
34
Annex "F," Petition for Review, p. 62.
35
36
37
TSN, May 21, 1990, pp. 67-68.
38
TSN, May 21, 1990, p. 33.
39
International Harvester Macleod, Inc. v. Court of Appeals, 90 SCRA 512, 522 [1979].
40
Tee v. Tacloban Electric and Ice Plant Co., Inc., 105 Phil. 168 [1959].
41
International Harvester Macleod, Inc. v. Court of Appeals, supra, Note 37, at p. 523.
42
In CA-G.R. CV No. 45873.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 141617 August 14, 2001
ADALIA B. FRANCISCO and MERRYLAND DEVELOPMENT CORPORATION, petitioners,

vs.
RITA C. MEJIA, as Executrix of Testate Estate of ANDREA CORDOVA VDA. DE
GUTERREZ, respondent.
GONZAGA-REYES,J.:
In this petition for review by certiorari, petitioners pray for the setting aside of the Decision of the
Court Appeals promulgated on 13 April 1999 and its 15 December 1999 Resolution in CA-G.R. CV
No. 19281.
As culled from the decisions of the lower courts and the pleadings of the parties, the factual
background of this case is as set out herein:
Andrea Cordova Vda. de Gutierrez (Gutierrez) was the registered owner of a parcel of land in
Camarin, Caloocan City known as Lot 861 of the Tala Estate. The land had an aggregate area of
twenty-five (25) hectares and was covered by Transfer Certificate of Title (TCT) No. 5779 of the
Registry of Deeds of Caloocan City. The property was later subdivided into five lots with an area of
five hectares each and pursuant thereto, TCT No. 5779 was cancelled and five new transfer
certificates of title were issued in the name of Gutierrez, namely TCT No. 7123 covering Lot 861-A,
TCT No. 7124 covering Lot 861-B, TCT No. 7125 covering Lot 861-C, TCT No. 7126 covering Lot
861-D and TCT No. 7127 covering Lot 861-E.
On 21 December 1964, Gutierrez and Cardale Financing and Realty Corporation (Cardale) executed
a Deed of Sale with Mortgage relating to the lots covered by TCT Nos. 7124, 7125, 7126 and 7127,
for the consideration of P800,000.00. Upon the execution of the deed, Cardale paid Gutierrez
P171,000.00. It was agreed that the balance of P629,000.00 would be paid in several installments
within five years from the date of the deed, at an interest of nine percent per annum "based on the
successive unpaid principal balances." Thereafter, the titles of Gutierrez were cancelled and in lieu
thereof TCT Nos. 7531 to 7534 were issued in favor of Cardale.
To secure payment of the balance of the purchase price, Cardale constituted a mortgage on three of
the four parcels of land covered by TCT Nos. 7531, 7532 and 7533, encompassing fifteen hectares
of land.1 The encumbrance was annotated upon the certificates of title and the owner's duplicate
certificates. The owner's duplicates were retained by Gutierrez.
On 26 August 1968, owing to Cardale's failure to settle its mortgage obligation, Gutierrez filed a
complaint for rescission of the contract with the Quezon City Regional Trial Court (RTC), which was
docketed as Civil Case No. Q-12366.2 On 20 October 1969, during the pendency of the rescission
case, Gutierrez died and was substituted by her executrix, respondent Rita C. Mejia (Mejia). In 1971,
plaintiff's presentation of evidence was terminated. However, Cardale, which was represented by
petitioner Adalia B. Francisco (Francisco) in her capacity as Vice-President and Treasurer of
Cardale, lost interest in proceeding with the presentation of its evidence and the case lapsed into
inactive status for a period of about fourteen years.
In the meantime, the mortgaged parcels of land covered by TCT Nos. 7532 and 7533 became
delinquent in the payment of real estate taxes in the amount of P102,300.00, while the other
mortgaged property covered by TCT No. 7531 became delinquent in the amount of P89,231.37,
which culminated in their levy and auction sale on 1 and 12 September 1983, in satisfaction of the
tax arrears. The highest bidder for the three parcels of land was petitioner Merryland Development
Corporation (Merryland), whose President and majority stockholder is Francisco. A memorandum
based upon the certificate of sale was then made upon the original copies of TCT Nos. 7531 to
7533.
On 13 August 1984, before the expiration of the one year redemption period, Mejia filed a Motion for
Decision with the trial court. The hearing of said motion was deferred, however, due to a Motion for
Postponement filed by Cardale through Francisco, who signed the motion in her capacity as "officer-
in-charge," claiming that Cardale needed time to hire new counsel. However, Francisco did not
mention the tax delinquencies and sale in favor of Merryland. Subsequently, the redemption period
expired and Merryland, acting through Francisco, filed petitions for consolidation of title, 3 which
culminated in the issuance of certain orders4 decreeing the cancellation of Cardales' TCT Nos. 7531
to 7533 and the issuance of new transfer certificates of title "free from any encumbrance or third-
party claim whatsoever" in favor of Merryland. Pursuant to such orders, the Register of Deeds of
Caloocan City issued new transfer certificates of title in the name of Merryland which did not bear a
memorandum of the mortgage liens in favor of Gutierrez.
Thereafter, sometime in June 1985, Francisco filed in Civil Case No. Q-12366 an undated
Manifestation to the effect that the properties subject of the mortgage and covered by TCT Nos.
7531 to 7533 had been levied upon by the local government of Caloocan City and sold at a tax
delinquency sale. Francisco further claimed that the delinquency sale had rendered the issues in
Civil Case No. Q-12366 moot and academic. Agreeing with Francisco, the trial court dismissed the
case, explaining that since the properties mortgaged to Cardale had been transferred to Merryland
which was not a party to the case for rescission, it would be more appropriate for the parties to
resolve their controversy in another action.
On 14 January 1987, Mejia, in her capacity as executrix of the Estate of Gutierrez, filed with the RTC
of Quezon City a complaint for damages with prayer for preliminary attachment against Francisco,
Merryland and the Register of Deeds of Caloocan City. The case was docketed as Civil Case No. Q-
49766. On 15 April 1988, the trial court rendered a decision5 in favor of the defendants, dismissing
the complaint for damages filed by Mejia. It was held that plaintiff Mejia, as executrix of Gutierrez's
estate, failed to establish by clear and convincing evidence her allegations that Francisco controlled
Cardale and Merryland and that she had employed fraud by intentionally causing Cardale to default
in its payment of real property taxes on the mortgaged properties so that Merryland could purchase
the same by means of a tax delinquency sale. Moreover, according to the trial court, the failure to
recover the property subject of the Deed of Sale with Mortgage was due to Mejia's failure to actively
pursue the action for rescission (Civil Case No. 12366), allowing the case to drag on for eighteen
years. Thus, it ruled that
xxx xxx xxx
The act of not paying or failing to pay taxes due the government by the defendant Adalia B.
Francisco, as treasurer of Cardale Financing and Realty Corporation do not, per se,
constitute perpetration of fraud or an illegal act. It do [sic] not also constitute an act of
evasion of an existing obligation (to plaintiff) if there is no clear showing that such an act of
non-payment of taxes was deliberately made despite its (Cardale's) solvency and capability
to pay. There is no evidence showing that Cardale Financing and Realty Corporation was
financially capable of paying said taxes at the time.
"There are times when the corporate fiction will be disregarded: (1) where all the members or
stockholders commit illegal act; (2) where the corporation is used as dummy to commit fraud
or wrong; (3) where the corporation is an agency for a parent corporation; and (4) where the
stock of a corporation is owned by one person." (I, Fletcher, 58, 59, 61 and 63). None of the
foregoing reasons can be applied to the incidents in this case: (1) there appears no illegal
act committed by the stockholders of defendant Merryland Development Corporation and
Cardale Financing and Realty Corporation; (2) the incidents proven by evidence of the
plaintiff as well as that of the defendants do not show that either or both corporations were
used as dummies by defendant Adalia B. Francisco to commit fraud or wrong. To be used as
[a] dummy, there has to be a showing that the dummy corporation is controlled by the person
using it. The evidence of plaintiff failed to prove that defendant Adalia B. Francisco has
controlling interest in either or both corporations. On the other hand, the evidence of
defendants clearly show that defendant Francisco has no control over either of the two
corporations; (3) none of the two corporations appears to be an agency for a parent (the
other) corporation; and (4) the stock of either of the two corporation [sic] is not owned by one
person (defendant Adalia B. Francisco). Except for defendant Adalia B. Francisco, the
incorporators and stockholders of one corporation are different from the other.
xxx xxx xxx
The said case (Civil Case No. 12366) remained pending for almost 18 years before the then
Court of First Instance, now the Regional Trial Court. Even if the trial of the said case
became protracted on account of the retirement and/or promotion of the presiding judge, as
well as the transfer of the case from one sala to another, and as claimed by the plaintiff "that
the defendant lost interest", (which allegation is unusual, so to speak), the court believe [sic]
that it would not have taken that long to dispose [of] said case had plaintiff not slept on her
rights, and her duty and obligation to see to it that the case is always set for hearing so that it
may be adjudicated [at] the earliest possible time. This duty pertains to both parties, but
plaintiff should have been more assertive, as it was her obligation, similar to the obligation of
plaintiff relative to the service of summons in other cases. The fact that Cardale Financing
and Realty Corporation did not perform its obligation as provided in the said "Deed of Sale
with Mortgage" (Exhibit"A") is very clear. Likewise, the fact that Andrea Cordova, the
contracting party, represented by the plaintiff in this case, did not also perform her duties
and/or obligation provided in the said contract is also clear. This could have been the reason
why the plaintiff in said case (Exhibit "E") slept on her rights and allowed the same to remain
pending for almost 18 years. However, and irrespective of any other reason behind the
same, the court believes that plaintiff, indeed, is the one to blame for the failure of the testate
estate of the late Andrea Cordova Vda. de Gutierrez to recover the money or property due it
on the basis of Exhibit "A".
xxx xxx xxx
. . . Had the plaintiff not slept on her rights and had it not been for her failure to perform her
commensurate duty to pursue vigorously her case against Cardale Financing and Realty
Corporation in said Civil Case No. 12366, she could have easily known said non-payment of
realty taxes on the said properties by said Cardale Financing and Realty Corporation, or, at
least the auction sales that followed, and from which she could have redeemed said
properties within the one year period provided by law, or, have availed of remedies at the
time to protect the interest of the testate estate of the late Andrea Cordova Vda. de
Gutierrez.
xxx xxx xxx

The dispositive portion of the trial court's decision states
WHEREFORE, in view of all the foregoing consideration, the court hereby renders judgment
in favor of the defendants Register of Deeds of Caloocan City, Merryland Development
Corporation and Adalia B. Francisco, and against plaintiff Rita C. Mejia, as Executrix of the
Testate Estate of Andrea Cordova Vda. De Gutierrez, and hereby orders:
1. That this case for damages be dismissed, at the same time, plaintiffs motion for
reconsideration dated September 23, 1987 is denied;
2. Plaintiff pay the defendants Merryland Development Corporation and the Register of
Deeds the sum of P20,000.00, and another sum of P20,000.00 to the defendant Adalia B.
Francisco, as and for attorney's fees and litigation expenses, and pay the costs of the
proceedings.
SO ORDERED.
The Court of Appeals,6 in its decision7 promulgated on 13 April 1999, reversed the trial court, holding
that the corporate veil of Cardale and Merryland must be pierced in order to hold Francisco and
Merryland solidarily liable since these two corporations were used as dummies by Francisco, who
employed fraud in allowing Cardale to default on the realty taxes for the properties mortgaged to
Gutierrez so that Merryland could acquire the same free from all liens and encumbrances in the tax
delinquency sale and, as a consequence thereof, frustrating Gutierrez's rights as a mortgagee over
the subject properties. Thus, the Court of Appeals premised its findings of fraud on the following
circumstances
xxx xxx xxx
. . . Appellee Francisco knew that Cardale of which she was vice-president and treasurer had
an outstanding obligation to Gutierrez for the unpaid balance of the real properties covered
by TCT Nos. 7531 to 7533, which Cardale purchased from Gutierrez which account, as of
December 1988, already amounted to P4,414,271.43 (Exh. K, pp. 39-44, record); she also
knew that Gutierrez had a mortgage lien on the said properties to secure payment of the
aforesaid obligation; she likewise knew that the said mortgaged properties were under
litigation in Civil Case No. Q-12366 which was an action filed by Gutierrez against Cardale
for rescission of the sale and/or recovery of said properties (Exh. E). Despite such
knowledge, appellee Francisco did not inform Gutierrez's Estate or the Executrix (herein
appellant) as well as the trial court that the mortgaged properties had incurred tax
delinquencies, and that Final Notices dated July 9, 1982 had been sent by the City Treasurer
of Caloocan demanding payment of such tax arrears within ten (10) days from receipt thereof
(Exhs. J & J-1, pp. 37-38, record). Both notices which were addressed to
Cardale Financing & Realty Corporation c/o Merryland Development Corporation
and sent to appellee Francisco's address at 83 Katipunan Road, White Plains, Quezon City, gave
warning that if the taxes were not paid within the aforesaid period, the properties would be sold at
public auction to satisfy the tax delinquencies.
To reiterate, notwithstanding receipt of the aforesaid notices, appellee Francisco did not inform the
Estate of Gutierrez or her executrix about the tax delinquencies and of the impending auction sale of
the said properties. Even a modicum of good faith and fair play should have encouraged appellee
Francisco to at least advise Gutierrez's Estate through her executrix (herein appellant) and the trial
court which was hearing the complaint for rescission and recovery of said properties of such fact, so
that the Estate of Gutierrez, which had a real interest on the properties as mortgagee and as plaintiff
in the rescission and recovery suit, could at least take steps to forestall the auction sale and thereby
preserve the properties and protect its interests thereon. And not only did appellee Francisco allow
the auction sale to take place, but she used her other corporation (Merryland) in participating in the
auction sale and in acquiring the very properties which her first corporation (Cardale) had mortgaged
to Gutierrez. Again, appellee Francisco did not thereafter inform the Estate of Gutierrez or its
executrix (herein appellant) about the auction sale, thus precluding the Estate from exercising its
right of redemption. And it was only after the expiration of the redemption period that appellee
Francisco filed a Manifestation in Civil Case No. Q-12366 (Exh. 1, p. 36, record), in which she
disclosed for the first time to the trial court and appellant that the properties subject of the case and
on which Gutierrez or her Estate had a mortgage lien, had been sold in a tax delinquency sale. And
in order to further conceal her deceptive maneuver, appellee Francisco did not divulge in her
aforesaid Manifestation that it was her other corporation (Merryland) that acquired the properties in
the auction sale.
We are not impressed by appellee's submission that no evidence was adduced to prove that
Cardale had the capacity to pay the tax arrears and therefore she or Cardale may not be
faulted for the tax delinquency sale of the properties in question. Appellee Francisco's bad
faith or deception did not necessarily lie in Cardale's or her failure to settle the tax
deliquencies in question, but in not disclosing to Gutierrez's estate or its executrix (herein
appellant) which had a mortgage lien on said properties the tax delinquencies and the
impending auction sale of the encumbered properties.
Appellee Francisco's deception is further shown by her concealment of the tax delinquency
sale of the properties from the estate or its executrix, thus preventing the latter from availing
of the right of redemption of said properties. That appellee Francisco divulged the auction
sale of the properties only after such redemption period had lapsed clearly betrays her
intention to keep Gutierrez's Estate or its Executrix from availing of such right. And as the
evidence would further show, appellee Francisco had a hand in securing for Merryland
consolidation of its ownership of the properties and in seeing to it that Merryland's torrens
certificates for the properties were free from liens and encumbrances. All these appellee
Francisco did even as she was fully aware that Gutierrez or her estate had a valid and
subsisting mortgage lien on the said properties.
It is likewise worthy of note that early on appellee Francisco had testified in the action for
rescission of sale and recovery of possession and ownership of the properties which
Gutierrez filed against Cardale (Civil Case No. Q-12366) in her capacity as defendant
Cardale's vice-president and treasurer. But then, for no plausible reason whatsoever, she
lost interest in continuing with the presentation of evidence for defendant Cardale. And then,
when appellant Mejia as executrix of Gutierrez's Estate filed on August 13, 1984 a Motion for
Decision in the aforesaid case, appellee Francisco moved to defer consideration of
appellant's Motion on the pretext that defendant Cardale needed time to employ another
counsel. Significantly, in her aforesaid Motion for Postponement dated August 16, 1984
which appellee Francisco personally signed as Officer-in-Charge of Cardale, she also did not
disclose the fact that the properties subject matter of the case had long been sold at a tax
delinquency sale and acquired by her other corporation Merryland.
And as if what she had already accomplished were not enough fraudulence, appellee
Francisco, acting in behalf of Merryland, caused the issuance of new transfer certificates of
title in the name of Merryland, which did not anymore bear the mortgage lien in favor of
Gutierrez. In the meantime, to further avoid payment of the mortgage indebtedness owing to
Gutierrez's estate, Cardale corporation was dissolved. Finally, to put the properties beyond
the reach of the mortgagee, Gutierrez's estate, Merryland caused the subdivision of such
properties, which were subsequently sold on installment basis.
In its petition for certiorari, petitioners argue that there is no law requiring the mortgagor to inform the
mortgagee of the tax delinquencies, if any, of the mortgaged properties. Moreover, petitioners claim
that Cardale's failure to pay the realty taxes, per se, does not constitute fraud since it was not proven
that Cardale was capable of paying the taxes' Petitioners also contend that if Mejia, as executrix of
Gutierrez's estate, was not remiss in her duty to pursue Civil Case No. 12366, she could have easily
learned of the non-payment of realty taxes on the subject properties and of the auction sale that
followed and thus, have redeemed the properties or availed of some other remedy to conserve the
estate of Gutierrez. In addition, Mejia could have annotated a notice oflis pendens on the titles of the
mortgaged properties, but she failed to do so. It is the stand of petitioners that respondent has not
adduced any proof that Francisco controlled both Cardale and Merryland and that she used these
two corporations to perpetuate a fraud upon Gutierrez or her estate. Petitioners maintain that the
"evidence shows that, apart form the meager share of petitioner Francisco, the stockholdings of both
corporations comprise other shareholders, and the stockholders of either of them, aside from
petitioner Francisco, are composed of different persons." As to Civil Case No. 12366, petitioners
insist that the decision of the trial court in that case constitutesres judicata to the instant case.8
It is dicta in corporation law that a corporation is a juridical person with a separate and distinct
personality from mat of the stockholders or members who compose it 9 However, when the legal
fiction of the separate corporate personality is abused, such as when the same is used for fraudulent
or wrongful ends, the courts have not hesitated to pierce the corporate veil. One of the earliest
formulations of this doctrine of piercing the corporate veil was made in the American case ofUnited
States v. Milwaukee Refrigerator Transit Co.10
If any general rule can be laid down, in the present state of authority, it is that a corporation
will be looked upon as a legal entity as a general rule, and until sufficient reason to the
contrary appears; but, when the notion of legal entity is used to defeat public convenience,
justify wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons.
Since then a good number of cases have firmly implanted this doctrine in Philippine
jurisprudence.11 One such case isUmali v. Court of Appeals12 wherein the Court declared that
Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist,
the legal fiction that a corporation is an entity with a juridical personality separate and distinct
from its members or stockholders may be disregarded. In such cases, the corporation will be
considered as a mere association of persons. The members or stockholders of the
corporation will be considered as the corporation, that is, liability will attach directly to the
officers and stockholders. The doctrine applies when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the merealter ego or
business conduit of a person, or where the corporation is so organized and controlled and its
affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct
of another corporation.
With specific regard to corporate officers, the general rule is that the officer cannot be held
personally liable with the corporation, whether civilly or otherwise, for the consequences of his acts,
if he acted for and in behalf of the corporation, within the scope of his authority and in good faith. In
such cases, the officer's acts are properly attributed to the corporation. 13 However, if it is proven that
the officer has used the corporate fiction to defraud a third party, 14 or that he has acted negligently,
maliciously or in bad faith,15 then the corporate veil shall be lifted and he shall be held personally
liable for the particular corporate obligation involved.
The Court, after an assiduous study of this case, is convinced that the totality of the circumstances
appertaining conduce to the inevitable conclusion that petitioner Francisco acted in bad faith. The
events leading up to the loss by the Gutierrez estate of its mortgage security attest to this. It has
been established that Cardale failed to comply with its obligation to pay the balance of the purchase
price for the four parcels of land it bought from Gutierrez covered by TCT Nos. 7531 to 7534, which
obligation was secured by a mortgage upon the lands covered by TCT Nos. 7531, 7532 and 7533.
This prompted Gutierrez to file an action for rescission of the Deed of Sale with Mortgage (Civil Case
No. Q-12366), but the case dragged on for about fourteen years when Cardale, as represented by
Francisco, who was Vice-President and Treasurer of the same, 16 lost interest in completing its
presentation of evidence.
Even before 1984 when Mejia, in her capacity as executrix of Gutierrez's estate, filed a Motion for
Decision with the trial court, there is no question that Francisco knew that the properties subject of
the mortgage had become tax delinquent. In fact, as treasurer of Cardale, Francisco herself was the
officer charged with the responsibility of paying the realty taxes on the corporation's properties. This
was admitted by the trial court in its decision.17 In addition, notices dated 9 July 1982 from the City
Treasurer of Caloocan demanding payment of the tax arrears on the subject properties and giving
warning that if the realty taxes were not paid within the given period then such properties would be
sold at public auction to satisfy the tax delinquencies were sent directly to Francisco's address in
White Plains, Quezon City.18 Thus, as early as 1982, Francisco could have informed the Gutierrez
estate or the trial court in Civil Case No. Q-12366 of the tax arrears and of the notice from the City
Treasurer so that the estate could have taken the necessary steps to prevent the auction sale and to
protect its interests in the mortgaged properties, but she did no such thing. Finally, in 1983, the
properties were levied upon and sold at public auction wherein Merryland a corporation where
Francisco is a stockholder19 and concurrently acts as President and director20 was the highest
bidder.
When Mejia filed the Motion for Decision in Civil Case No. Q-12366,21 the period for redeeming the
properties subject of the tax sale had not yet expired. 22 Under the Realty Property Tax
Code,23 pursuant to which the tax levy and sale were prosecuted,24 both the delinquent taxpayer and
in his absence, any person holding a lien or claim over the property shall have the right to redeem
the property within one year from the date of registration of the sale. 25 However, if these persons fail
to redeem the property within the time provided, then the purchaser acquires the property "free from
any encumbrance or third party claim whatsoever."26 Cardale made no attempts to redeem the
mortgaged property during this time. Moreover, instead of informing Mejia or the trial court in Q-
12366 about the tax sale, the records show that Francisco filed a Motion for Postponement 27 in
behalf of Cardale even signing the motion in her capacity as "officer-in-charge" which worked
to defer the hearing of Mejia's Motion for Decision. No mention was made by Francisco of the tax
sale in the motion for postponement. Only after the redemption period had expired did Francisco
decide to reveal what had transpired by filing a Manifestation stating that the properties subject of
the mortgage in favor of Gutierrez had been sold at a tax delinquency sale; however, Francisco
failed to mention that it was Merryland that acquired the properties since she was probably afraid
that if she did so the court would see behind her fraudulent scheme. In this regard, it is also
significant to note that it was Francisco herself who filed the petitions for consolidation of title and
who helped secure for Merryland titles over the subject properties "free from any encumbrance or
third-party claim whatsoever."
It is exceedingly apparent to the Court that the totality of Francisco's actions clearly betray an
intention to conceal the tax delinquencies, levy and public auction of the subject properties from the
estate of Gutierrez and the trial court in Civil Case No. Q-12366 until after the expiration of the
redemption period when the remotest possibility for the recovery of the properties would be
extinguished.28 Consequently, Francisco had effectively deprived the estate of Gutierrez of its rights
as mortgagee over the three parcels of land which were sold to Cardale. If Francisco was acting in
good faith, then she should have disclosed the status of the mortgaged properties to the trial court in
Civil Case No. Q-12366 especially after Mejia had filed a Motion for Decision, in response to which
she filed a motion for postponement wherein she could easily have mentioned the tax sale since
this action directly affected such properties which were the subject of both the sale and mortgage.
That Merryland acquired the property at the public auction only serves to shed more light upon
Francisco's fraudulent purposes. Based on the findings of the Court of Appeals, Francisco is the
controlling stockholder and President of Merryland. 29 Thus, aside from the instrumental role she
played as an officer of Cardale, in evading that corporation's legitimate obligations to Gutierrez, it
appears that Francisco's actions were also oriented towards securing advantages for another
corporation in which she had a substantial interest. We cannot agree, however, with the Court of
Appeals' decision to hold Merryland solidarily liable with Francisco. The only act imputable to
Merryland in relation to the mortgaged properties is that it purchased the same and this by itself is
not a fraudulent or wrongful act. No evidence has been adduced to establish that Merryland was a
mere alter ego or business conduit of Francisco. Time and again it has been reiterated that mere
ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of
a corporation is not of itself sufficient ground for disregarding the separate corporate
personality.30 Neither has it been alleged or proven that Merryland is so organized and controlled and
its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of
Cardale.31 Even assuming that the businesses of Cardale and Merryland are interrelated, this alone
is not justification for disregarding their separate personalities, absent any showing that Merryland
was purposely used as a shield to defraud creditors and third persons of their rights. 32 Thus,
Merryland's separate juridical personality must be upheld.
Based on a statement of account submitted by Mejia, the Court of Appeals awarded P4,314,271.43
in favor of the estate of Gutierrez which represents the unpaid balance of the purchase price in the
amount of P629,000.00 with an interest rate of nine percent (9% ) per annum, in accordance with the
agreement of the parties under the Deed of Sale with Mortgage,33 as of December 1988.34 Therefore,
in addition to the amount awarded by the appellate court, Francisco should pay the estate of
Gutierrez interest on the unpaid balance of the purchase price (in the amount of P629,000.00) at the
rate of nine percent (9%) per annum computed from January, 1989 until fully satisfied.
Finally, contrary to petitioner's assertions, we agree with the Court of Appeals that the decision of the
trial court in Civil Case No. Q-12366 does not constituteres judicata insofar as the present case is
concerned because the decision in the first case was not a judgment on the merits. Rather, it was
merely based upon the premise that since Cardale had been dissolved and the property acquired by
another corporation, the action for rescission would not prosper. As a matter of fact, it was even
expressly stated by the trial court that the parties should ventilate their issues in another action.
WHEREFORE, the 13 April 1999 Decision of the Court of Appeals is hereby accordingly MODIFIED
so as to hold ADALIA FRANCISCO solely liable to the estate of Gutierrez for the amount of
P4,314,271.43 and for interest on the unpaid balance of the purchase price (in the amount of
P629,000.00) at the rate of nine percent (9%) per annum computed from January, 1989 until fully
satisfied. MERRYLAND is hereby absolved from all liability.
SO ORDERED.
Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ.,concur.
Footnotes
1
Referred to as TCT Nos. 7125, 7126 and 7127 in the Deed of Sale with Mortgage.
2
Entitled "Andrea Cordova Vda. de Gutierrez v. Cardale Financing and Realty Corporation."
3
LCR Reg. Case No. 8563 and LRC Reg. Case No. C-2640.
4
The Orders were issued on 7 November 1983, 14 November 1983, 28 November 1983 and
the Decision was promulgated on 12 November 1984.
5
Records, 592-605.
6
Seventeenth Division, composed of Justices Godardo A. Jacinto,ponente, Roberto A.
Barrios, and Renato C. Dacudao.
7
Rollo, 32-48.
8
Ibid., 306-321.
9
Traders Royal Bank v. Court of Appeals, 177 SCRA 789 (1989); Cruz v. Dalisay, 152 SCRA
487 (1987).
10
142 Fed. 247 (1905).
11
Commissioner of Internal Revenue v. Norton and Harrison, 11 SCRA 714 (1954); Namarco
v. Associated Finance Co., 19 SCRA 962 (1967); Diatagon Labor Federation Local 110 of the
ULGWP v. Ople, 101 SCRA 534 (1980); Umali v. Court of Appeals, 189 SCRA 529 (1990);
Indophil Textile Mill Workers Union v. Calica, 205 SCRA 697 (1992); Uichico v. NLRC, 273
SCRA 35 (1997); San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296
SCRA 631 (1998); Luxuria Homes, Inc. v. Court of Appeals, 302 SCRA 315 (1999);
Francisco Motors Corporation v. Court of Appeals, 309 SCRA 72 (1999); Vlason Enterprises
Corporation v. Court of Appeals, 310 SCRA 26 (1999); Complex Electronics Employees
Association v. NLRC, 310 SCRA 403 (1999); Compania Maritima, Inc. v. Court of Appeals,
318 SCRA 169 (1999).
12
189 SCRA 529 (1990).
13
Benguet Electric Cooperative, Inc. v. NLRC, 209 SCRA 55 (1992); Pabalan v. NLRC, 184
SCRA 495 (1990); Mindanao Motor Line, Inc. v. Court of Industrial Relations, 6 SCRA 710
(1962).
14
Palay, Inc. v. Clave, 124 SCRA 638 (1983).
ARB Construction Co., Inc. v. Court of Appeals, 332 SCRA 427 (2000); Santos v. NLRC,
15
254 SCRA 673 (1996); Mindanao Motor Line, Inc. v. Court of Industrial Relations, 6 SCRA
710 (1962).
16
CA Decision, 11.
17
Trial Court Decision in Civil Case No. Q49766, promulgated on 15 April 1988, 7.
18
CA Decision, 12-13.
19
Petitioners' Memorandum, 11.
20
CA Decision, 11.
21
Motion for Decision was filed on 13 August 1984.
22
Public auction of the subject properties took place on 1 and 12 September 1983.
23
Presidential Decree No. 464 (PD 464).
24
Trial Court Decision in Civil Case No. Q-49766, promulgated on 15 April 1988, 9.
25
PD 464, Sec. 78.
26
Id., Sec. 80.
27
Dated 16 August 1984.
28
As earlier explained, under Section 80 of the Real Property Tax Code, if the delinquent
Taxpayer or any person holding a lien or claim over the property fails to redeem the same,
then the purchaser acquires the property "free from any encumbrance or third party claim
whatsoever."
29
CA Decision, 11.
30
Pabalan v. NLRC, 184 SCRA 495 (1990); Palay, Inc. v. Cave, 124 SCRA 638
(1983),citing Liddel & Co. v. Collector of Internal Revenue, 2 SCRA 632 (1961).
31
Umali v. Court of Appeals, 189 SCRA 529 (1990).
32
Diatagon Labor Federation Local 110 of the ULGWP v. Ople, 101 SCRA 534 (1980).See
also Complex Electronics Employees Association v. NLRC, 310 SCRA 403 (1999); San Juan
Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631 (1998).
33
Rollo, 47-48.
34
Ibid., 338.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 127181 September 4, 2001
LAND BANK OF THE PHILIPPINES, petitioner,

vs.
THE COURT OF APPEALS, ECO MANAGEMENT CORPORATION and EMMANUEL C.
OATE, respondents.
QUISUMBING, J.:
This petition for review on certiorari seeks to reverse and set aside the decision 1 promulgated on
June 17, 1996 in CA-GR No. CV-43239 of public respondent and its resolution 2 dated November 29,
1996 denying petitioners motion for reconsideration. 3
The facts of this case as found by the Court of Appeals and which we find supported by the records
are as follows:
On various dates in September, October, and November, 1980, appellant Land Bank of the
Philippines (LBP) extended a series of credit accommodations to appellee ECO, using the
trust funds of the Philippine Virginia Tobacco Administration (PVTA) in the aggregate amount
of P26,109,000.00. The proceeds of the credit accommodations were received on behalf of
ECO by appellee Oate.
On the respective maturity dates of the loans, ECO failed to pay the same. Oral and written
demands were made, but ECO was unable to pay. ECO claims that the company was in
financial difficulty for it was unable to collect its investments with companies which were
affected by the financial crisis brought about by the Dewey Dee scandal.
xxx
On October 20, 1981, ECO proposed and submitted to LBP a "Plan of Payment" whereby
the former would set up a financing company which would absorb the loan obligations. It was
proposed that LBP would participate in the scheme through the conversion of P9,000,000.00
which was part of the total loan, into equity.
On March 4, 1982, LBP informed ECO of the action taken by the formers Trust Committee
concerning the "Plan of Payment" which reads in part, as follows:
xxx
Please be informed that the Banks Trust Committee has deliberated on the plan of
payment during its meetings on November 6, 1981 and February 23, 1982. The
Committee arrived at a decision that you may proceed with your Plan of Payment
provided Land Bank shall not participate in the undertaking in any manner
whatsoever.
In view thereof, may we advise you to make necessary revision in the proposed Plan
of Payment and submit the same to us as soon as possible. (Records, p. 428)
On May 5, 1982, ECO submitted to LBP a "Revised Plan of Payment" deleting the latters
participation in the proposed financing company. The Trust Committee deliberated on the
"Revised Plan of Payment" and resolved to reject it. LBP then sent a letter to the PVTA for
the latters comments. The letter stated that if LBP did not hear from PVTA within five (5)
days from the latters receipt of the letter, such silence would be construed to be an approval
of LBPs intention to file suit against ECO and its corporate officers. PVTA did not respond to
the letter.
On June 28, 1982, Landbank filed a complaint for Collection of Sum of Money against ECO
and Emmanuel C. Oate before the Regional Trial Court of Manila, Branch 50.
After trial on the merits, a judgment was rendered in favor of LBP; however, appellee Oate
was absolved from personal liability for insufficiency of evidence.
Dissatisfied, both parties filed their respective Motions for Reconsideration. LBP claimed that
there was an error in computation in the amounts to be paid. LBP also questioned the
dismissal of the case with regard to Oate.
On the other hand, ECO questioned its being held liable for the amount of the loan. Upon
order of the court, both parties submitted Supplemental Motions for Reconsideration and
their respective Oppositions to each others Motions.
On February 3, 1993, the trial court rendered an Amended Decision, the dispositive portion
of which reads as follows:
ACCORDINGLY, the Decision, dated December 3, 1990, is hereby modified to read

as follows:
WHEREFORE, judgment is rendered ordering defendant Eco Management

Corporation to pay plaintiff Land Bank of the Philippines:
A. The sum of P26,109,000.00 representing the total amount of the ten (10) loan
accommodations plus 16% interest per annum computed from the dates of their
respective maturities until fully paid, broken down as follows:
1. the principal amount of P4,000,000.00 with interest at 16% computed from

September 18, 1981;

September 21, 1981;
3. the principal amount of P1,000,000.00 with interest rate at 16% computed
from September 28, 1981;

October 5, 1981;
5. the principal amount of P2,000,000.00 with interest rate at of 16%

computed from October 8, 1981;
6. the principal amount of P2,000,000.00 with interest rate at of 16% from

October 23, 1981;
7. the principal amount of P814,000.00 with interest rate at of 16% computed

from November 1, 1981;

computed from November 6, 1981;

computed from November 7, 1981;
10. the principal amount of P5,000,000.00 with interest rate at 16% computed
from November 9, 1981;
B. The sum of P260,000.00 as attorneys fees; and
C. The costs of the suit.
The case as against defendant Emmanuel Oate is dismissed for insufficiency of

evidence.
SO ORDERED. (Records, p. 608)4
The Court of Appeals affirmed in toto the amended decision of the trial court.5
On June 9, 1996, petitioner filed a motion for reconsideration, which was denied in a resolution
dated November 29, 1996. Hence, this present petition, assigning the following errors allegedly
committed by the Court of Appeals:
THE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT BASED ON THE
FACTS AS ESTABLISHED BY EVIDENCE, THERE EXISTS A SUBSTANTIAL AND
JUSTIFIABLE GROUND UPON WHICH THE LEGAL NOTION OF THE CORPORATE
FICTION OF RESPONDENT ECO MANAGEMENT CORPORATION MAY BE PIERCED.
THE COURT OF APPEALS GRAVELY ERRED IN NOT A[T]TACHING LIABILITY TO

RESPONDENT EMMANUEL C. OATE JOINTLY AND SEVERALLY WITH RESPONDENT
ECO MANAGEMENT CORPORATION FOR THE PRINCIPAL SUM OF P26 M PLUS
INTEREST THEREON.
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE

LOWER COURT THE SAME NOT BEING SUPPORTED BY THE EVIDENCE AND
APPLICABLE LAWS AND JURISPRUDENCE.6
The primary issues for resolution here are (1) whether or not the corporate veil of ECO Management
Corporation should be pierced; and (2) whether or not Emmanuel C. Oate should be held jointly
and severally liable with ECO Management Corporation for the loans incurred from Land Bank.
Petitioner contends that the personalities of Emmanuel Oate and of ECO Management Corporation
should be treated as one, for the particular purpose of holding respondent Oate liable for the loans
incurred by corporate respondent ECO from Land Bank. According to petitioner, the said corporation
was formed ostensibly to allow Oate to acquire loans from Land Bank which he used for his
personal advantage.
Petitioner submits the following arguments to support its stand: (1) Respondent Oate owns the
majority of the interest holdings in respondent corporation, specifically during the crucial time when
appellees applied for and obtained the loan from LANDBANK, sometime in September to November,
1980. (2) The acronym ECO stands for the initials of Emmanuel C. Oate, which is the logical,
sensible and concrete explanation for the name ECO, in the absence of evidence to the contrary. (3)
Respondent Oate has always referred to himself as the debtor, not merely as an officer or a
representative of respondent corporation. (4) Respondent Oate personally paid P1 Million taken
from trust accounts in his name. (5) Respondent Oate made a personal offering to pay his personal
obligation. (6) Respondent Oate controlled respondent corporation by simultaneously holding two
(2) corporate positions, viz., as Chairman and as treasurer, beginning from the time of respondent
corporations incorporation and continuously thereafter without benefit of election. (7) Respondent
corporation had not held any meeting of the stockholders or of the Board of Directors, as shown by
the fact that no proceeding of such corporate activities was filed with or borne by the record of the
Securities and Exchange Commission (SEC). The only corporate records respondent corporation
filed with the SEC were the following: Articles of Incorporation, Treasurers Affidavit, Undertaking to
Change Corporate Name, Statement of Assets and Liabilities.7
Private respondents, in turn, contend that Oates only participation in the transaction between
petitioner and respondent ECO was his execution of the loan agreements and promissory notes as
Chairman of the corporations Board of Directors. There was nothing in the loan agreement nor in
the promissory notes which would indicate that Oate was binding himself jointly and severally with
ECO. Respondents likewise deny that ECO stands for Emmanuel C. Oate. Respondents also note
that Oate is no longer a majority stockholder of ECO and that the payment by a third person of the
debt of another is allowed under the Civil Code. They also alleged that there was no fraud and/or
bad faith in the transactions between them and Land Bank. Hence, private respondents conclude,
there is no legal ground to pierce the veil of respondent corporations personality. 8
At the outset, we find the matters raised by petitioner in his argumentation are mainly questions of
fact which are not proper in a petition of this nature.9 Petitioner is basically questioning the evaluation
made by the Court of Appeals of the evidence submitted at the trial. The Court of Appeals had found
that petitioners evidence was not sufficient to justify the piercing of ECOs corporate
personality.10 Petitioner contended otherwise. It is basic that where what is being questioned is the
sufficiency of evidence, it is a question of fact.11 Nevertheless, even if we regard these matters as
tendering an issue of law, we still find no reason to reverse the findings of the Court of Appeals.
A corporation, upon coming into existence, is invested by law with a personality separate and distinct
from those persons composing it as well as from any other legal entity to which it may be
related.12 By this attribute, a stockholder may not, generally, be made to answer for acts or liabilities
of the said corporation, and vice versa.13This separate and distinct personality is, however, merely a
fiction created by law for convenience and to promote the ends of justice. 14 For this reason, it may
not be used or invoked for ends subversive to the policy and purpose behind its creation 15 or which
could not have been intended by law to which it owes its being.16 This is particularly true when the
fiction is used to defeat public convenience, justify wrong, protect fraud, defend crime, 17 confuse
legitimate legal or judicial issues,18 perpetrate deception or otherwise circumvent the law. 19 This is
likewise true where the corporate entity is being used as an alter ego, adjunct, or business conduit
for the sole benefit of the stockholders or of another corporate entity.20 In all these cases, the notion
of corporate entity will be pierced or disregarded with reference to the particular transaction
involved.21
The burden is on petitioner to prove that the corporation and its stockholders are, in fact, using the
personality of the corporation as a means to perpetrate fraud and/or escape a liability and
responsibility demanded by law. In order to disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. 22 In the absence of any
malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for
corporate liabilities.23
The mere fact that Oate owned the majority of the shares of ECO is not a ground to conclude that
Oate and ECO is one and the same. Mere ownership by a single stockholder of all or nearly all of
the capital stock of a corporation is not by itself sufficient reason for disregarding the fiction of
separate corporate personalities.24Neither is the fact that the name "ECO" represents the first three
letters of Oates name sufficient reason to pierce the veil. Even if it did, it does not mean that the
said corporation is merely a dummy of Oate. A corporation may assume any name provided it is
lawful. There is nothing illegal in a corporation acquiring the name or as in this case, the initials of
one of its shareholders.
That respondent corporation in this case was being used as a mere alter ego of Oate to obtain the
loans had not been shown. Bad faith or fraud on the part of ECO and Oate was not also shown. As
the Court of Appeals observed, if shareholders of ECO meant to defraud petitioner, then they could
have just easily absconded instead of going out of their way to propose "Plans of
Payment."25 Likewise, Oate volunteered to pay a portion of the corporations debt. 26 This offer
demonstrated good faith on his part to ease the debt of the corporation of which he was a part. It is
understandable that a shareholder would want to help his corporation and in the process, assure
that his stakes in the said corporation are secured. In this case, it was established that the P1 Million
did not come solely from Oate. It was taken from a trust account which was owned by Oate and
other investors.27It was likewise proved that the P1 Million was a loan granted by Oate and his co-
depositors to alleviate the plight of ECO.28 This circumstance should not be construed as an
admission that he was really the debtor and not ECO.
In sum, we agree with the Court of Appeals conclusion that the evidence presented by the petitioner
does not suffice to hold respondent Oate personally liable for the debt of co-respondent ECO. No
reversible error could be attributed to respondent courts decision and resolution which petitioner
assails.
WHEREFORE, the petition is DENIED for lack of merit. The decision and resolution of the Court of
Appeals in CA-G.R. CV No. 43239 are AFFIRMED. Costs against petitioner.
SO ORDERED.
Bellosillo, Mendoza, Buena, and De Leon, Jr., JJ., concur.
Footnotes
1
CA Rollo, pp. 163-170.
2
Id. at 198.
3
Id. at 172-186.
4
Id. at 163-166.
5
Id. at 170.
6
Rollo, p. 25.
7
Id. at 26-28.
8
Id. at 197-204.
9
Herrera, Remedial Law, Volume VII, pp. 520-521, citing FNCB Finance vs. Estavillo, G.R.
No. 93394, 192 SCRA 514, 517 (1990); and Universal Motors vs. Court of Appeals, G.R. No.
47432, 205 SCRA 448, 455 (1992).
10
CA Rollo, p. 167.
Herrera, Id. at 521, citing 2 Moran p. 473 1979 ed; Cheeseman vs. IAC, G.R. No. 74833,
11
193 SCRA 93, 100-101 (1991); Paterno vs. Paterno, G.R. No. 63680, 183 SCRA 630, 636-
637 (1990).
12
Yutivo Sons Hardware Company vs. Court of Tax Appeals, 1 SCRA 160, 165
(1961); Francisco Motors Corporation vs. CA, 309 SCRA 72, 82 (1999).
13
NAMARCO vs. Associated Finance Company, 19 SCRA 962, 965 (1967)
14
Azcor Manufacturing, Inc. vs. NLRC, 303 SCRA 26, 35 (1999).
15
Emilio Cano Enterprises Inc., vs. CIR, 121 Phil. 276, 278-279 (1965).
16
McConnel vs. Court of Appeals, 1 SCRA 722, 725 (1961).
17
Supra, note 10 at 165.
18
R.F. Sugay & Co. vs. Reyes, 120 Phil. 1497, 1502 (1964).
19
Gregorio Araneta, Inc. vs. Paz Tuason de Paterno, 49 O.G. 45, 56 (1953).
20
Comm. Internal Revenue vs. Norton Harrison Corp., 120 Phil. 684, 690-691 (1964).
21
Koppel, Inc. vs. Yatco, 77 Phil. 496, 505 (1946).
Complex Electronics Employees Association vs. National Labor Relations Commission,

22
310 SCRA 403, 418 (1999).
23
Id. at 421.
24
Traders Royal Bank vs. Court of Appeals, 269 SCRA 15, 29-30 (1997).
25
CA decision, p. 7; Rollo, p. 52.
26
One million pesos.
27
TSN, April 3, 1984, pp. 61-62; Records, pp. 206-207.
28
Records, p. 454, Exhibit "K".
SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 142936 April 17, 2002
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT

CORPORATION, petitioners,
vs.
ANDRADA ELECTRIC & ENGINEERING COMPANY, respondent.
PANGANIBAN, J.:
Basic is the rule that a corporation has a legal personality distinct and separate from the persons
and entities owning it. The corporate veil may be lifted only if it has been used to shield fraud, defend
crime, justify a wrong, defeat public convenience, insulate bad faith or perpetuate injustice. Thus, the
mere fact that the Philippine National Bank (PNB) acquired ownership or management of some
assets of the Pampanga Sugar Mill (PASUMIL), which had earlier been foreclosed and purchased at
the resulting public auction by the Development Bank of the Philippines (DBP), will not make PNB
liable for the PASUMILs contractual debts to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision1 of the Court of Appeals (CA)
in CA-GR CV No. 57610. The decretal portion of the challenged Decision reads as follows:
"WHEREFORE, the judgment appealed from is hereby AFFIRMED." 2
The Facts
The factual antecedents of the case are summarized by the Court of Appeals as follows:
"In its complaint, the plaintiff [herein respondent] alleged that it is a partnership duly
organized, existing, and operating under the laws of the Philippines, with office and principal
place of business at Nos. 794-812 Del Monte [A]venue, Quezon City, while the defendant
[herein petitioner] Philippine National Bank (herein referred to as PNB), is a semi-
government corporation duly organized, existing and operating under the laws of the
Philippines, with office and principal place of business at Escolta Street, Sta. Cruz, Manila;
whereas, the other defendant, the National Sugar Development Corporation (NASUDECO in
brief), is also a semi-government corporation and the sugar arm of the PNB, with office and
principal place of business at the 2nd Floor, Sampaguita Building, Cubao, Quezon City; and
the defendant Pampanga Sugar Mills (PASUMIL in short), is a corporation organized,
existing and operating under the 1975 laws of the Philippines, and had its business office
before 1975 at Del Carmen, Floridablanca, Pampanga; that the plaintiff is engaged in the
business of general construction for the repairs and/or construction of different kinds of
machineries and buildings; that on August 26, 1975, the defendant PNB acquired the assets
of the defendant PASUMIL that were earlier foreclosed by the Development Bank of the
Philippines (DBP) under LOI No. 311; that the defendant PNB organized the defendant
NASUDECO in September, 1975, to take ownership and possession of the assets and
ultimately to nationalize and consolidate its interest in other PNB controlled sugar mills; that
prior to October 29, 1971, the defendant PASUMIL engaged the services of plaintiff for
electrical rewinding and repair, most of which were partially paid by the defendant PASUMIL,
leaving several unpaid accounts with the plaintiff; that finally, on October 29, 1971, the
plaintiff and the defendant PASUMIL entered into a contract for the plaintiff to perform the
following, to wit
(a) Construction of one (1) power house building;
(b) Construction of three (3) reinforced concrete foundation for three (3) units 350
KW diesel engine generating set[s];
(c) Construction of three (3) reinforced concrete foundation for the 5,000 KW and
1,250 KW turbo generator sets;
(d) Complete overhauling and reconditioning tests sum for three (3) 350 KW diesel
engine generating set[s];
(e) Installation of turbine and diesel generating sets including transformer,

switchboard, electrical wirings and pipe provided those stated units are completely
supplied with their accessories;
(f) Relocating of 2,400 V transmission line, demolition of all existing concrete

foundation and drainage canals, excavation, and earth fillings all for the total
amount of P543,500.00 as evidenced by a contract, [a] xerox copy of which is hereto
attached as Annex A and made an integral part of this complaint;
that aside from the work contract mentioned-above, the defendant PASUMIL required the
plaintiff to perform extra work, and provide electrical equipment and spare parts, such as:
(a) Supply of electrical devices;
(b) Extra mechanical works;
(c) Extra fabrication works;
(d) Supply of materials and consumable items;
(e) Electrical shop repair;
(f) Supply of parts and related works for turbine generator;
(g) Supply of electrical equipment for machinery;

(h) Supply of diesel engine parts and other related works including fabrication of
parts.
that out of the total obligation of P777,263.80, the defendant PASUMIL had paid only
P250,000.00, leaving an unpaid balance, as of June 27, 1973, amounting to P527,263.80, as
shown in the Certification of the chief accountant of the PNB, a machine copy of which is
appended as Annex C of the complaint; that out of said unpaid balance of P527,263.80, the
defendant PASUMIL made a partial payment to the plaintiff of P14,000.00, in broken
amounts, covering the period from January 5, 1974 up to May 23, 1974, leaving an unpaid
balance of P513,263.80; that the defendant PASUMIL and the defendant PNB, and now the
defendant NASUDECO, failed and refused to pay the plaintiff their just, valid and
demandable obligation; that the President of the NASUDECO is also the Vice-President of
the PNB, and this official holds office at the 10th Floor of the PNB, Escolta, Manila, and
plaintiff besought this official to pay the outstanding obligation of the defendant PASUMIL,
inasmuch as the defendant PNB and NASUDECO now owned and possessed the assets of
the defendant PASUMIL, and these defendants all benefited from the works, and the
electrical, as well as the engineering and repairs, performed by the plaintiff; that because of
the failure and refusal of the defendants to pay their just, valid, and demandable obligations,
plaintiff suffered actual damages in the total amount of P513,263.80; and that in order to
recover these sums, the plaintiff was compelled to engage the professional services of
counsel, to whom the plaintiff agreed to pay a sum equivalent to 25% of the amount of the
obligation due by way of attorneys fees. Accordingly, the plaintiff prayed that judgment be
rendered against the defendants PNB, NASUDECO, and PASUMIL, jointly and severally to
wit:
(1) Sentencing the defendants to pay the plaintiffs the sum of P513,263.80, with
annual interest of 14% from the time the obligation falls due and demandable;
(2) Condemning the defendants to pay attorneys fees amounting to 25% of the
amount claim;
(3) Ordering the defendants to pay the costs of the suit.
"The defendants PNB and NASUDECO filed a joint motion to dismiss the complaint chiefly
on the ground that the complaint failed to state sufficient allegations to establish a cause of
action against both defendants, inasmuch as there is lack or want of privity of contract
between the plaintiff and the two defendants, the PNB and NASUDECO, said defendants
citing Article 1311 of the New Civil Code, and the case law ruling in Salonga v. Warner
Barnes & Co., 88 Phil. 125; and Manila Port Service, et al. v. Court of Appeals, et al., 20
SCRA 1214.
"The motion to dismiss was by the court a quo denied in its Order of November 27, 1980; in
the same order, that court directed the defendants to file their answer to the complaint within
15 days.
"In their answer, the defendant NASUDECO reiterated the grounds of its motion to dismiss,
to wit:
That the complaint does not state a sufficient cause of action against the defendant
NASUDECO because: (a) NASUDECO is not x x x privy to the various electrical
construction jobs being sued upon by the plaintiff under the present complaint; (b)
the taking over by NASUDECO of the assets of defendant PASUMIL was solely for
the purpose of reconditioning the sugar central of defendant PASUMIL pursuant to
martial law powers of the President under the Constitution; (c) nothing in the LOI No.
189-A (as well as in LOI No. 311) authorized or commanded the PNB or its
subsidiary corporation, the NASUDECO, to assume the corporate obligations of
PASUMIL as that being involved in the present case; and, (d) all that was mentioned
by the said letter of instruction insofar as the PASUMIL liabilities [were] concerned
[was] for the PNB, or its subsidiary corporation the NASUDECO, to make a study of,
and submit [a] recommendation on the problems concerning the same.
"By way of counterclaim, the NASUDECO averred that by reason of the filing by the plaintiff
of the present suit, which it [labeled] as unfounded or baseless, the defendant NASUDECO
was constrained to litigate and incur litigation expenses in the amount of P50,000.00, which
plaintiff should be sentenced to pay. Accordingly, NASUDECO prayed that the complaint be
dismissed and on its counterclaim, that the plaintiff be condemned to pay P50,000.00 in
concept of attorneys fees as well as exemplary damages.
"In its answer, the defendant PNB likewise reiterated the grounds of its motion to dismiss,
namely: (1) the complaint states no cause of action against the defendant PNB; (2) that PNB
is not a party to the contract alleged in par. 6 of the complaint and that the alleged services
rendered by the plaintiff to the defendant PASUMIL upon which plaintiffs suit is erected, was
rendered long before PNB took possession of the assets of the defendant PASUMIL under
LOI No. 189-A; (3) that the PNB take-over of the assets of the defendant PASUMIL under
LOI 189-A was solely for the purpose of reconditioning the sugar central so that PASUMIL
may resume its operations in time for the 1974-75 milling season, and that nothing in the
said LOI No. 189-A, as well as in LOI No. 311, authorized or directed PNB to assume the
corporate obligation/s of PASUMIL, let alone that for which the present action is brought; (4)
that PNBs management and operation under LOI No. 311 did not refer to any asset of
PASUMIL which the PNB had to acquire and thereafter [manage], but only to those which
were foreclosed by the DBP and were in turn redeemed by the PNB from the DBP; (5) that
conformably to LOI No. 311, on August 15, 1975, the PNB and the Development Bank of the
Philippines (DBP) entered into a Redemption Agreement whereby DBP sold, transferred
and conveyed in favor of the PNB, by way of redemption, all its (DBP) rights and interest in
and over the foreclosed real and/or personal properties of PASUMIL, as shown in Annex C
which is made an integral part of the answer; (6) that again, conformably with LOI No. 311,
PNB pursuant to a Deed of Assignment dated October 21, 1975, conveyed, transferred, and
assigned for valuable consideration, in favor of NASUDECO, a distinct and independent
corporation, all its (PNB) rights and interest in and under the above Redemption Agreement.
This is shown in Annex D which is also made an integral part of the answer; [7] that as a
consequence of the said Deed of Assignment, PNB on October 21, 1975 ceased to
managed and operate the above-mentioned assets of PASUMIL, which function was now
actually transferred to NASUDECO. In other words, so asserted PNB, the complaint as to
PNB, had become moot and academic because of the execution of the said Deed of
Assignment; [8] that moreover, LOI No. 311 did not authorize or direct PNB to assume the
corporate obligations of PASUMIL, including the alleged obligation upon which this present
suit was brought; and [9] that, at most, what was granted to PNB in this respect was the
authority to make a study of and submit recommendation on the problems concerning the
claims of PASUMIL creditors, under sub-par. 5 LOI No. 311.
"In its counterclaim, the PNB averred that it was unnecessarily constrained to litigate and to
incur expenses in this case, hence it is entitled to claim attorneys fees in the amount of at
least P50,000.00. Accordingly, PNB prayed that the complaint be dismissed; and that on its
counterclaim, that the plaintiff be sentenced to pay defendant PNB the sum of P50,000.00 as
attorneys fees, aside from exemplary damages in such amount that the court may seem just
and equitable in the premises.
"Summons by publication was made via the Philippines Daily Express, a newspaper with
editorial office at 371 Bonifacio Drive, Port Area, Manila, against the defendant PASUMIL,
which was thereafter declared in default as shown in the August 7, 1981 Order issued by the
Trial Court.
"After due proceedings, the Trial Court rendered judgment, the decretal portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the

defendant Corporation, Philippine National Bank (PNB) NATIONAL SUGAR
DEVELOPMENT CORPORATION (NASUDECO) and PAMPANGA SUGAR MILLS
(PASUMIL), ordering the latter to pay jointly and severally the former the following:
1. The sum of P513,623.80 plus interest thereon at the rate of 14% per
annum as claimed from September 25, 1980 until fully paid;
2. The sum of P102,724.76 as attorneys fees; and,
3. Costs.
SO ORDERED.
Manila, Philippines, September 4, 1986.
'(SGD) ERNESTO S. TENGCO

Judge"3
Affirming the trial court, the CA held that it was offensive to the basic tenets of justice and equity for a
corporation to take over and operate the business of another corporation, while disavowing or
repudiating any responsibility, obligation or liability arising therefrom.4
Hence, this Petition.5
Issues
In their Memorandum, petitioners raise the following errors for the Courts consideration:
"I
The Court of Appeals gravely erred in law in holding the herein petitioners liable for the
unpaid corporate debts of PASUMIL, a corporation whose corporate existence has not been
legally extinguished or terminated, simply because of petitioners[] take-over of the
management and operation of PASUMIL pursuant to the mandates of LOI No. 189-A, as
amended by LOI No. 311.
"II
The Court of Appeals gravely erred in law in not applying [to] the case at bench the ruling
enunciated in Edward J. Nell Co. v. Pacific Farms, 15 SCRA 415."6
Succinctly put, the aforesaid errors boil down to the principal issue of whether PNB is liable for the
unpaid debts of PASUMIL to respondent.
This Courts Ruling
The Petition is meritorious.
Main Issue:
Liability for Corporate Debts
As a general rule, questions of fact may not be raised in a petition for review under Rule 45 of the
Rules of Court.7 To this rule, however, there are some exceptions enumerated in Fuentes v. Court of
Appeals.8 After a careful scrutiny of the records and the pleadings submitted by the parties, we find
that the lower courts misappreciated the evidence presented. 9 Overlooked by the CA were certain
relevant facts that would justify a conclusion different from that reached in the assailed Decision. 10
Petitioners posit that they should not be held liable for the corporate debts of PASUMIL, because
their takeover of the latters foreclosed assets did not make them assignees. On the other hand,
respondent asserts that petitioners and PASUMIL should be treated as one entity and, as such,
jointly and severally held liable for PASUMILs unpaid obligation. 1wphi1.nt
As a rule, a corporation that purchases the assets of another will not be liable for the debts of the
selling corporation, provided the former acted in good faith and paid adequate consideration for such
assets, except when any of the following circumstances is present: (1) where the purchaser
expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a
consolidation or merger of the corporations, (3) where the purchasing corporation is merely a
continuation of the selling corporation, and (4) where the transaction is fraudulently entered into in
order to escape liability for those debts.11
Piercing the Corporate
Veil Not Warranted
A corporation is an artificial being created by operation of law. It possesses the right of succession
and such powers, attributes, and properties expressly authorized by law or incident to its
existence.12 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 related.13 This is basic.
Equally well-settled is the principle that the corporate mask may be removed or the corporate veil
pierced when the corporation is just an alter ego of a person or of another corporation. 14 For reasons
of public policy and in the interest of justice, the corporate veil will justifiably be impaled 15 only when
it becomes a shield for fraud, illegality or inequity committed against third persons. 16
Hence, any application of the doctrine of piercing the corporate veil should be done with caution. 17 A
court should be mindful of the milieu where it is to be applied.18 It must be certain that the corporate
fiction was misused to such an extent that injustice, fraud, or crime was committed against another,
in disregard of its rights.19 The wrongdoing must be clearly and convincingly established; it cannot be
presumed.20 Otherwise, an injustice that was never unintended may result from an erroneous
application.21
This Court has pierced the corporate veil to ward off a judgment credit,22 to avoid inclusion of
corporate assets as part of the estate of the decedent, 23 to escape liability arising from a debt,24 or to
perpetuate fraud and/or confuse legitimate issues25 either to promote or to shield unfair
objectives26 or to cover up an otherwise blatant violation of the prohibition against forum-
shopping.27 Only in these and similar instances may the veil be pierced and disregarded. 28
The question of whether a corporation is a mere alter ego is one of fact. 29 Piercing the veil of
corporate fiction may be allowed only if the following elements concur: (1) control -- not mere stock
control, but complete domination -- not only of finances, but of policy and business practice in
respect to the transaction attacked, must have been such that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own; (2) such control must have
been used by the defendant to commit a fraud or a wrong to perpetuate the violation of a statutory or
other positive legal duty, or a dishonest and an unjust act in contravention of plaintiffs legal right;
and (3) the said control and breach of duty must have proximately caused the injury or unjust loss
complained of.30
We believe that the absence of the foregoing elements in the present case precludes the piercing of
the corporate veil. First, other than the fact that petitioners acquired the assets of PASUMIL, there is
no showing that their control over it warrants the disregard of corporate personalities. 31 Second,
there is no evidence that their juridical personality was used to commit a fraud or to do a wrong; or
that the separate corporate entity was farcically used as a mere alter ego, business conduit or
instrumentality of another entity or person.32 Third, respondent was not defrauded or injured when
petitioners acquired the assets of PASUMIL.33
Being the party that asked for the piercing of the corporate veil, respondent had the burden of
presenting clear and convincing evidence to justify the setting aside of the separate corporate
personality rule.34 However, it utterly failed to discharge this burden; 35 it failed to establish by
competent evidence that petitioners separate corporate veil had been used to conceal fraud,
illegality or inequity.36
While we agree with respondents claim that the assets of the National Sugar Development
Corporation (NASUDECO) can be easily traced to PASUMIL, 37 we are not convinced that the transfer
of the latters assets to petitioners was fraudulently entered into in order to escape liability for its debt
to respondent.38
A careful review of the records reveals that DBP foreclosed the mortgage executed by PASUMIL and
acquired the assets as the highest bidder at the public auction conducted. 39 The bank was justified in
foreclosing the mortgage, because the PASUMIL account had incurred arrearages of more than 20
percent of the total outstanding obligation.40 Thus, DBP had not only a right, but also a duty under the
law to foreclose the subject properties.41
Pursuant to LOI No. 189-A42 as amended by LOI No. 311,43 PNB acquired PASUMILs assets that
DBP had foreclosed and purchased in the normal course. Petitioner bank was likewise tasked to
manage temporarily the operation of such assets either by itself or through a subsidiary
corporation.44
PNB, as the second mortgagee, redeemed from DBP the foreclosed PASUMIL assets pursuant to
Section 6 of Act No. 3135.45 These assets were later conveyed to PNB for a consideration, the terms
of which were embodied in the Redemption Agreement. 46 PNB, as successor-in-interest, stepped
into the shoes of DBP as PASUMILs creditor.47 By way of a Deed of Assignment,48 PNB then
transferred to NASUDECO all its rights under the Redemption Agreement.
In Development Bank of the Philippines v. Court of Appeals,49 we had the occasion to resolve a
similar issue. We ruled that PNB, DBP and their transferees were not liable for Marinduque Minings
unpaid obligations to Remington Industrial Sales Corporation (Remington) after the two banks had
foreclosed the assets of Marinduque Mining. We likewise held that Remington failed to discharge its
burden of proving bad faith on the part of Marinduque Mining to justify the piercing of the corporate
veil.
In the instant case, the CA erred in affirming the trial courts lifting of the corporate mask. 50 The CA
did not point to any fact evidencing bad faith on the part of PNB and its transferee. 51 The corporate
fiction was not used to defeat public convenience, justify a wrong, protect fraud or defend
crime.52 None of the foregoing exceptions was shown to exist in the present case. 53 On the contrary,
the lifting of the corporate veil would result in manifest injustice. This we cannot allow.
No Merger or Consolidation
Respondent further claims that petitioners should be held liable for the unpaid obligations of
PASUMIL by virtue of LOI Nos. 189-A and 311, which expressly authorized PASUMIL and PNB to
merge or consolidate. On the other hand, petitioners contend that their takeover of the operations of
PASUMIL did not involve any corporate merger or consolidation, because the latter had never lost its
separate identity as a corporation.
A consolidation is the union of two or more existing entities to form a new entity called the
consolidated corporation. A merger, on the other hand, is a union whereby one or more existing
corporations are absorbed by another corporation that survives and continues the combined
business.54
The merger, however, does not become effective upon the mere agreement of the constituent
corporations.55Since a merger or consolidation involves fundamental changes in the corporation, as
well as in the rights of stockholders and creditors, there must be an express provision of law
authorizing them.56 For a valid merger or consolidation, the approval by the Securities and Exchange
Commission (SEC) of the articles of merger or consolidation is required.57 These articles must
likewise be duly approved by a majority of the respective stockholders of the constituent
corporations.58
In the case at bar, we hold that there is no merger or consolidation with respect to PASUMIL and
PNB. The procedure prescribed under Title IX of the Corporation Code59 was not followed.
In fact, PASUMILs corporate existence, as correctly found by the CA, had not been legally
extinguished or terminated.60 Further, prior to PNBs acquisition of the foreclosed assets, PASUMIL
had previously made partial payments to respondent for the formers obligation in the amount of
P777,263.80. As of June 27, 1973, PASUMIL had paid P250,000 to respondent and, from January 5,
1974 to May 23, 1974, another P14,000.
Neither did petitioner expressly or impliedly agree to assume the debt of PASUMIL to
respondent.61 LOI No. 11 explicitly provides that PNB shall study and submit recommendations on
the claims of PASUMILs creditors.62Clearly, the corporate separateness between PASUMIL and PNB
remains, despite respondents insistence to the contrary. 63
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No
pronouncement as to costs.
SO ORDERED.
Vitug, Sandoval-Gutierrez, and Carpio, JJ., concur.

Melo, J., Abroad, on official leave.
Footnotes
1
Rollo, pp. 30-39. Penned by Justice Renato C. Dacudao, with the concurrence of Justices
Quirino D. Abad Santos Jr. (Division chairman) and B. A. Adefuin de la Cruz (member).
2
Assailed Decision, p. 11; rollo, p. 39.
3
Ibid., pp. 1-7; ibid., pp. 30-35.
4
Id., p. 9; id., p. 37.
5
The case was deemed submitted for decision on February 12, 2001, upon this Courts
receipt of petitioners Memorandum, signed by Atty. Salvador A. Luy. Respondents
Memorandum, which was filed on February 9, 2001, was signed by Atty. Renecio R. Espiritu.
6
Petitioners Memorandum, pp. 7-8; rollo, pp. 73-74. Original in upper case and italicized.
7
Cordial v. Miranda, 348 SCRA 158, December 14, 2000.
8
268 SCRA 703, February 26, 1997.
9
Baricuatro Jr. v. Court of Appeals, 325 SCRA 137, February 9, 2000.
10
Ibid.
Jose C. Campos Jr. and Maria Clara Lopez-Campos, The Corporation Code: Comments,
11
Notes and Selected Cases, Vol. 2, 1990 ed., p. 465, citing Edward J. Nell Company v.
Pacific Farms, Inc., 15 SCRA 415, November 29, 1965; West Texas Refining & Dev. Co. v.
Comm. of Int. Rev., 68 F. 2d 77.
12
2, Corporation Code.
13
Yu v. National Labor Relations Commission, 245 SCRA 134, June 16, 1995.
14
Lim v. Court of Appeals, 323 SCRA 102, January 24, 2000.
15
Francisco Motors Corporation v. Court of Appeals, 309 SCRA 72, June 25, 1999.
San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631,
16
September 29, 1998.
17
Reynoso IV v. Court of Appeals, 345 SCRA 335, November 22, 2000.
18
Francisco Motors Corporation v. Court of Appeals, supra.
19
Traders Royal Bank v. Court of Appeals, 269 SCRA 15, March 3, 1997.
Matuguina Integrated Wood Products, Inc. v. Court of Appeals, 263 SCRA 491, October
20
24, 1996.
21
22
Sibagat Timber Corp. v. Garcia, 216 SCRA 470, December 11, 1992.
23
Cease v. Court of Appeals, 93 SCRA 483, October 18, 1979.
24
Arcilla v. Court of Appeals, 215 SCRA 120, October 23, 1992.
25
Jacinto v. Court of Appeals, 198 SCRA 211, June 6, 1991.
26
Villanueva v. Adre, 172 SCRA 876, April 27, 1989
27
First Philippine International Bank v. Court of Appeals, 252 SCRA 259, January 24, 1996.
28
ARB Construction Co., Inc. v. Court of Appeals, 332 SCRA 427, May 31, 2000.
29
Heirs of Ramon Durano Sr. v. Uy, 344 SCRA 238, October 24, 2000.
30
Lim v. Court of Appeals, supra.
31
Traders Royal Bank, v. Court of Appeals, supra.
32
Umali v. Court of Appeals, 189 SCRA 529, September 13, 1990.
33
34
Republic v. Sandiganbayan, 346 SCRA 760, December 4, 2000.
35
Lim v. Court of Appeals, supra.
36
San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, supra.
37
Respondents Memorandum, p. 6; rollo, p. 60.
38
Edward J. Nell Company v. Pacific Farms Inc., supra, p. 417, per Concepcion, J.
39
See Redemption Agreement, Annex "C"; records, p. 56.
40
Presidential Decree No. 385 (The Law on Mandatory Foreclosure) provides:
"Section 1. It shall be mandatory for government financial institutions, after the lapse of sixty
(60) days from the issuance of this Decree, to foreclose the collaterals and/or securities for
any loan, credit, accommodation, and/or guarantees granted by them whenever the
arrearages on such account, including accrued interest and other charges, amount to at
least twenty percent (20%) of the total outstanding obligations, including interest and other
charges, as appearing in the books of account and/or related records of the financial
institution concerned. This shall be without prejudice to the exercise by the government
financial institutions of such rights and/or remedies available to them under their respective
contracts with their debtors, including the right to foreclosure on loans, credits,
accommodations and/or guarantees on which the arrearages are less than twenty percent
(20%)."
41
Development Bank of the Philippines v. Court of Appeals, supra.
42
Annex "A"; records, p. 50.
43
Annex "B"; ibid., p. 52.
44
Ibid.; id., p. 53.
45
This article provides:
"Sec. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his successor in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on the property subsequent to
the mortgage or deed of trust under which the property is sold, may redeem the same at any
time within the term of one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and sixty-four to four hundred
and sixty six, inclusive, of the Code of Civil Procedure (now Rule 39, Section 28 of the 1997
Revised Rules of Civil Procedure), in so far as these are not inconsistent with the provisions
of this Act."
46
See Redemption Agreement Annex "C"; records, p. 56.
47
Litonjua v. L &R Corporation, 320 SCRA 405, December 9, 1999.
48
Annex PNB-2; records, p. 61.
49
GR No. 126200, August 16, 2001.
50
51
Development Bank of the Philippines v. Court of Appeals, supra.
52
Union Bank of the Philippines v. Court of Appeals, 290 SCRA 198, May 19, 1998.
53
Vlason Enterprises Corporation v. Court of Appeals, 310 SCRA 26, July 6, 1999.
Campos Jr. and Lopez-Campos, The Corporation Code: Comments, Notes and Selected
54
Cases, supra, pp. 440-441.
55
Associated Bank v. Court of Appeals, 291 SCRA 511, June 29, 1998.
Campos Jr. and Lopez-Campos, The Corporation Code: Comments, Notes and Selected
56
Cases, supra, p. 441.
57
79 Corporation Code.
58
77 Corporation Code.
59
"Title IX MERGER AND CONSOLIDATION
"SEC. 76. Plan of merger or consolidation. Two or more corporations may merge into a
single corporation which shall be one of the constituent corporations or may consolidate into
a new single corporation which shall be the consolidated corporation.
"The board of directors or trustees of each corporation, party to the merger or consolidation,
shall approve a plan of merger or consolidation setting forth the following:
1. The names of the corporations proposing to merge or consolidate,

hereinafter referred to as the constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying the
same into effect;
3. A statement of the changes, if any, in the articles of incorporation of the

surviving corporation in case of merger; and, with respect to the consolidated
corporation in case of consolidation, all the statements required to be set
forth in the articles of incorporation for corporations organized under this
Code; and
4. Such other provisions with respect to the proposed merger or

consolidation as are deemed necessary or desirable.
"SEC. 77. Stockholders or members approval. Upon approval by majority vote of each of
the board of directors or trustees of the constituent corporations of the plan of merger or
consolidation, the same shall be submitted for approval by the stockholders or members of
each of such corporations at separate corporate meetings duly called for the purpose. Notice
of such meetings shall be given to all stockholders or members of the respective
corporations, at least two (2) weeks prior to the date of the meeting, either personally or by
registered mail. Said notice shall state the purpose of the meeting and shall include a copy
or a summary of the plan of merger or consolidation. The affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in
the case of stock corporations or at least two-thirds (2/3) of the members in the case of non-
stock corporations shall be necessary for the approval of such plan. Any dissenting
stockholder in stock corporations may exercise his appraisal right in accordance with the
Code: Provided, That if after the approval by the stockholders of such plan, the board of
directors decides to abandon the plan, the appraisal right shall be extinguished.
"Any amendment to the plan of merger or consolidation may be made, provided such
amendment is approved by majority vote of the respective boards of directors or trustees of
all the constituent corporations and ratified by the affirmative vote of stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of two thirds (2/3) of
the members of each of the constituent corporations. Such plan, together with any
amendment, shall be considered as the agreement of merger or consolidation. 1wphi1.nt
"SEC. 78. Articles of merger or consolidation. - After the approval by the stockholders or
members as required by the preceding section, articles of merger or articles of consolidation
shall be executed by each of the constituent corporations, to be signed by the president or
vice-president and certified by the secretary or assistant secretary of each corporation
setting forth:
1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares outstanding, or in the case

of non-stock corporations, the number of members, and
3. As to each corporation, the number of shares or members voting for and

against such plan, respectively.
"SEC. 79. Effectivity of merger or consolidation. - The articles of merger or of consolidation,

signed and certified as herein above required, shall be submitted to the Securities and
Exchange Commission in quadruplicate for its approval: Provided, That in the case of merger
or consolidation of banks or banking institutions, building and loan associations, trust
companies, insurance companies, public utilities, educational institutions and other special
corporations governed by special laws, the favorable recommendation of the appropriate
government agency shall first be obtained. If the Commission is satisfied that the merger or
consolidation of the corporations concerned is not inconsistent with the provisions of this
Code and existing laws, it shall issue a certificate of merger or of consolidation, at which time
the merger or consolidation shall be effective.
"If, upon investigation, the Securities and Exchange Commission has reason to believe that
the proposed merger or consolidation is contrary to or inconsistent with the provisions of this
Code or existing laws, it shall set a hearing to give the corporations concerned the
opportunity to be heard. Written notice of the date, time and place of hearing shall be given
to each constituent corporation at least two (2) weeks before said hearing. The Commission
shall thereafter proceed as provided in this Code.
"SEC. 80. Effects of merger or consolidation. - The merger or consolidation shall have the
following effects:
1. The constituent corporations shall become a single corporation which, in case of

merger, shall be the surviving corporation designated in the plan of merger; and, in
case of consolidation, shall be the consolidated corporation designated in the plan of
consolidation;
2. The separate existence of the constituent corporations shall cease, except that of
the surviving or the consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights,
privileges, immunities and powers and shall be subject to all the duties and liabilities
of a corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter

possess all the rights, privileges, immunities and franchises of each of the constituent
corporations; and all property, real or personal, and all receivables due on whatever
account, including subscriptions to shares and other choses in action, and all and
every other interest of, or belonging to, or due to each constituent corporation, shall
be deemed transferred to and vested in such surviving or consolidated corporation
without further act or deed; and
5. The surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations in the same manner
as if such surviving or consolidated corporation had itself incurred such liabilities or
obligations; and any pending claim, action or proceeding brought by or against any of
such constituent corporations may be prosecuted by or against the surviving or
consolidated corporation. The right of creditors or liens upon the property of any of
such constituent corporations shall not be impaired by such merger or
consolidation."
60
Associated Bank v. Court of Appeals, supra.
61
Edward J. Nell Company v. Pacific Farms, Inc., supra.
62
Annex "B"; records, p. 53.
63
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 117963 February 11, 1999
AZCOR MANUFACTURING INC., FILIPINAS PASO and/or ARTURO

ZULUAGA/Owner, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) AND CANDIDO CAPULSO, respondents.
BELLOSILLO, J.:
AZCOR MANUFACTURING, INC., Filipinas Paso and Arturo Zuluaga instituted this petition
for certiorari under Rule 65 of the Rules of Court to assail, for having been rendered with grave
abuse of discretion amounting to lack or excess of jurisdiction, the Decision of the National Labor
Relations Commission which reversed the decision of the Labor Arbiter dismissing the complaint of
respondent Candido Capulso against petitioners. 1
Candido Capuslo file with the Labor Arbiter a complaint for constructive illegal dismissal and illegal
deduction of P50.00 per day for the period April to September 1989. Petitioners Azcor
Manufacturing, Inc. (AZCOR) and Arturo Zuluaga who were respondents before the Labor Arbiter
(Filipinas Paso was not yet a party then in that case) moved to dismiss the complaint on the ground
that there was no employer-employee relationship between AZCOR and herein respondent Capulso;
.that the latter became an employee of Filipinas Paso effective 1 March 1996 but voluntarily resigned
there from a year after, Capulso later amended his complaint by impleading Filipinas Paso as
additional respondent before the Labor Arbiter.
On 14 January 1592, Labor Arbiter Felipe T. Garduque II denied the motion to dismiss holding that
the allegation of lack of employer-employee relationship between Capulso and AZCOR was not
clearly established. Thereafter, the Labor Arbiter ordered that hearings be conducted for the
presentation of evidence by both parties.
The evidence presented by Capulso showed that he worked for AZCOR as ceramics worker for
more than two (2) years starting from 3 April 1989 to 1 June 1991 receiving a daily wage of P118.00
plus other benefits such as vacation and sick leaves. From April to September 1989 the amount of
P50.00 was deducted from his salary without informing him of the reason therefor.
In the second week of February 1991, upon his doctor's recommendation, Capulso verbally
requested to go on sick leave due to bronchial asthma. It appeared that his illness was, directly
caused by his job as ceramics worker where, for lack of the prescribed occupational safety gadgets,
he inhaled and absorbed harmful ceramic dusts. His supervisor, Ms. Emily Apolinaria, approved his
request. Later, on 1 June 1991, Capulso went back to petitioner AZCOR to resume his work after
recuperating from his illness. He was not allowed to do so by his supervisors who informed him that
only the owner, Arturo Zuluaga, could allow him to continue in his job. He returned five (5) times to
AZCOR but when it became apparent that he would not be reinstated, he immediately filed the
instant complaint for illegal dismissal. 2
Capulso presented the following documentary evidence in support of his claim: (a) His affidavit and
testimony to prove that he was terminated without just cause and without due process; 3 (b)
Identification card issued by AZCOR which he continued to use even after his supposed employment by
Filipinas Paso; 4 (c) Certification of SSS premium payments; 5 (d) SSS Member Assistance Form wherein
he stated that he worked with AZCOR from March 1989 to April 1991; 6 (e) Certification of Employee
Contribution with SSS; 7 and, (f) Payslips issued by AZCOR. 8
On the other hand, petitioners alleged that Capulso was a former employee of AZCOR who resigned
on 28 February 1990 as evidenced by a letter of resignation and joined Filipinas Paso on 1 March
1990 as shown by a contract of employment; in February 1991 Capulso allegedly informed his
supervisor, Ms. Emilia Apolinaria, that he intended to go on terminal leave because he was not
feeling well; on 1 March 1991 he submitted a letter of resignation addressed to the President of
Filipinas Paso, Manuel Montilla; and, in the early part of June 1991 Capulso tried to apply for work
again with Filipinas Paso but there was no vacancy.
Petitioners submitted the following documentary evidence: (a) Sworn Statement of Ms. Emilia
Apolinaria and her actual testimony to prove that respondent indeed resigned voluntarily from
AZCOR to transfer to Filipinas Paso, and thereafter, from Filipinas Paso hug to failing health; 9 (b)
Contract of Employment between Filipinas Paso and respondent which took effect 1 March 1991; 10 (c)
Letter of resignation of respondent from AZCOR dated 28 February 1990, to take effect on the same
date; 11 (d) Undated letter of resignation of respondent addressed to Filipinas Paso to take effect 1 March
1991; 12 (e) BIR Form No. W-4 filed 6 June 1990; 13 (f) Individual Income Tax Return of respondent for
1990; 14and, (g) BIR Form 1701-B which was an alphabetical list of employees of Filipinas Paso for the
year ending 31 December 1990. 15
On 29 December 1992 the Labor Arbiter rendered a decision dismissing the complaint for illegal
dismissal for lack of merit, but ordered AZCOR and/or Arturo Zuluaga to refund to Capulso the sum
of P200.00 representing the amount illegally deducted from his salary.
On appeal by Capulso, docketed as NLRC CA No. 004476-93 (NLRC NCR 00-09-05271-91),

"Capulso v. Azcor Manufacturing Inc., Filipinas Paso and/or Arturo Zuluaga/owner," the NLRC
modified the Labor Arbiter's decision by: (a) declaring the dismissal of Capulso as illegal for lack of
just and valid cause; (b) ordering petitioners to reinstate Capulso to his former or equivalent position
without loss of Seniority rights and without diminution of benefits, and, (c) ordering petitioners to
jointly and solidarily pay Capulso his backwages computed from the time of his dismissal up to the
date of his actual reinstatement. The NLRC held in part-
. . . . the contract of employment (Exh. 2, p. 187, Rollo) issued to complainant

indicates that the work to be done during the period was contracted with Filipinas
Paso. The said contract was signed by, the Personnel Officer of Ascor Manufacturing
Inc. Likewise, the contract period is for six (6) months, which establishes a
presumption that the said contract could pass either as to cover the probationary
period, or job contracting, the completion of which automatically terminates
employment, whichever will work to respondent's advantage should the case be filed.
However, appellant continued working with respondent after the lapse of the contract
and until the alleged termination of employment of appellant.
Secondly, the two resignation letters allegedly executed by appellant are exactly
worded, which only shows that the same work were prepared by respondents-
appellees plus after the fact that complainant denied having executed and signed the
same.
. . . . the letter of resignation (Exh. "3", p. 188, Rollo) supposed to have been
executed by complainant-appellant shows that he resigned from Ascor Mfg., Inc. on
February 28, 1990 while Exhibit "2", page 187, Rollo, which was the contract of
Employment issued to Candido Capulso by the personnel officer of Ascor Mfg., Inc.
shows that appellant was being hired from March 1, 1990 to August 31, 1990 by
respondent Ascor Mfg., Inc. to do jobs for Filipinas Paso; A run-around of events and
dates.
The events that transpired clearly show that there was no interruption in the service
of complainant with Ascor Mfg., Inc. from April 13 1989 up to June 1, 1991 when
complainant was unceremoniously dismissed.
Considering that Ascor Mfg., Inc. and Filipinas Paso orchestrated the events that
appeared to be in order with the alleged execution of resignation letters which was
disputed by complainant and confirmed spurious as explained above, likewise
overwhelmingly show the bad faith of respondents in the treatment of their
employees.
Petitioners' motion for reconsideration was denied by the NLRC through its Resolution of 14 October
1994; hence, the instant-petition. Meanwhile, during the pendency of the case before this Court,
Capulso succumbed to asthma and heart disease.
The issue to be resolved is whether the NLRC committed grave abuse of discretion in declaring that
private respondent Capulso was illegally dismissed and in holding petitioners jointly and solidarily
liable to Capulso for back wages.
As a rule the original and exclusive jurisdiction to review a decision or resolution of respondent
NLRC in a petition for certiorari under Rule 65 of the Rules of Court does not include a correction of
its evaluation of the evidence but is confined to issues of jurisdiction or grave abuse of discretion.
The NLRC factual findings, if supported by substantial evidence, are entitled to great respect and
even finality, unless petitioner is able to show that it simply and arbitrarily disregarded the evidence
before it or had misappreciated the evidence to such an extent as to compel a contrary conclusion if
such evidence had been properly appreciated. 16 We find no cogent reason to disturb the findings of the
NLCR.
Petitioners insist that Capulso was not really dismissed but he voluntarily resigned from AZCOR and
Filipinas Paso, and that there was nothing illegal or unusual in the letters of resignation he executed.
We disagree. To constitute a resignation, it must be unconditional and with the intent to operate as
such. There must be an intention to relinquish a portion of the term of office accompanied by an act
of relinquishment. 17 In the instant case, the fact that Capulso signified his desire to resume his work
when he went back to petitioner AZCOR after recuperating from his illness, and actively pursued his case
for illegal dismissal before the labor courts when he was refused admission by his employer, negated any
intention on his part to relinquish his job at AZCOR.
Moreover, a closer look at the subject resignation letters readily reveals the following: (a) the
resignation letter allegedly tendered by Capulso to Filipinas Paso was identically worded with that
supposedly addressed by him to AZCOR; (b) both were pre-drafted with blank spaces filled up with
the purported dates of effectivity of his resignation; and, (c) it was written in English, a language
which Capulso was not conversant with considering his low level of education. No other plausible
explanation can be drawn from these circumstances than that the subject letters of resignation were
prepared by a person or persons other than Capulso. And the fact that he categorically disowned the
signatures therein and denied having executed them clearly indicates that the resignation letters
were drafted, without his consent and participation.
Even assuming for the sake of argument that the signatures were, genuine, we still cannot give
credence to those letters in the absence of any showing that Capulso was aware that what he was
signing then were in fact resignation letters or that he fully understood the contents thereof. Having
introduced those resignation letters in evidence, it was incumbent upon petitioners to prove clearly
and convincingly their genuineness and due execution, especially considering the serious doubts an
their authenticity. Petitioners miserably failed in this respect.
The Labor Arbiter held that Capulso's repudiation of the signatures affixed in the letters of
resignation was weakened by the fact that he filed the case only after almost four (4) months from
the date of his dismissal. But it should be noted that private respondent still wanted his job and thus,
understandably, refrained from filing the illegal dismissal case against his employer so as not to
jeopardize his chances of continuing with his employment. True enough, when it became apparent
that he was no longer welcome at AZCOR he immediately instituted the instant case.
In addition, an action for reinstatement by reason of illegal dismissal is one based on an injury which
may be brought within four (4) years from the time of dismissal pursuant to Art. 1146 of the Civil
Code. Hence, Capulso's case which was filed after a measly delay of four (4) months should not be
treated with skepticism or cynicism. By law and settled jurisprudence, he has four (4) years to file his
complaint for illegal dismissal. A delay of merely four (4) months in instituting an illegal dismissal
case is more than sufficient compliance with the prescriptive period. It may betray an unlettered
man's lack of awareness of his rights as a lowly worker but, certainly, he must not be penalized for
his tarrying.
In illegal dismissal cases like the present one, the onus of proving that the dismissal of the employee
was for a valid and authorized cause rests on the employer 18 and failure to discharge the same would
mean that the dismissal is not justified and therefore illegal. 19 Petitioners failed in this regard.
Petitioners also contend that they could not be held jointly and severally liable to Capulso for back
wages since AZCOR and Filipinas Paso are separate and distinct corporations with different
corporate personalities; and, the mere fact that the businesses of these corporations are interrelated
and both owned and controlled by a single stockholder are not sufficient grounds to disregard their
separate corporate entities.
We are not persuaded. The doctrine that a corporation is a legal entity or a person in law distinct
from the persons composing it is merely a legal fiction for purposes of convenience and to subserve
the ends of justice. This fiction cannot be extended to a point beyond its reason and policy. 20 Where,
as in this case, the corporate fiction was used as a means to perpetrate a social injustice or as a vehicle
to evade obligations or confuse the legitimate issues, it would be discarded and the two (2) corporations
would be merged as one, the first being merely considered as the instrumentality, agency, conduit or
adjunct of the other. 21
In this particular case, there was much confusion as to the identity of Capulso's employer - whether it
was AZCOR or Filipinas Paso; but, for sure, it was petitioners' own making, as shown by the
following: First, Capulso had no knowledge that he was already working under petitioner Filipinas
Paso since he contained to retain his AZCOR Identification card; Second, his payslips contained the
name of AZCOR giving the impression that AZCOR was paying his salary; Third, he was paid the
same salary and he performed the same kind of job, in the same work area, in the same location,
using the same tools and under the same supervisor; Fourth, there was no gap in his employment
as he continued to work from the time he was hired up to the last day of his work; Fifth, the casting
department of AZCOR where Capulso was working was abolished when he, together with six (6)
others, transferred to Filipinas Paso; and Sixth, the employment contract was signed by an AZCOR
personnel officer, which showed that Capulso was being hired from 1 March 1990 to 31 August 1990
by AZCOR to do jobs for Filipinas Paso. The employment contract provided in part:
The contract is for a specific job contract only and shall be effective for the period
covered, unless sooner terminated when the job contract is completed earlier or
withdrawn by client, or when the employee is dismissed for just and lawful causes
provided by law and the company's rules and regulations, in which case the
employment contract will automatically terminate.
As correctly observed by the NLRC, the contract was only for six (6) months, which could pass either
as a probationary period or a job contracting, the completion of which automatically terminated the
employment. Observe further, however, that respondent continued working even after the lapse of
the period in the contract - for whom it was not clear. It may be asked: Was the six (6)-month period
probationary in nature, in which case, after the lapse of the period he became a regular employee of
Filipinas Paso? Or was the period job-contracting in character, in which case, after the period he was
deemed to have come back to AZCOR?
Interestingly, petitioners likewise argue that it was grave abuse of discretion for the NLRC to hold
them solidarily, liable to Capulso when the latter himself testified that he was not even an employee
of Filipinas Paso. 22 After causing much confusion, petitioners have the temerity to use as evidence the
ignorance of Capulso in identifying his true employer. It is evident from the foregoing discussion that
Capulso was led into believing that while he was working with Filipinas Paso, his real employer was
AZCOR. Petitioners never dealt with him openly and in good faith, nor was he informed of the
developments within the company, i.e., his alleged transfer to Filipinas Paso and the closure of AZCOR's
manufacturing operations beginning 1 March 1990. 23 Understandably, he sued AZCOR alone and was
constrained to implead Filipinas Paso as additional respondent only when it became apparent that the
latter also appeared to be his employer.
In fine, we see in the totality of the evidence a veiled attempt by petitioners to deprive Capulso of
what he had earned through hard labor by taking advantage of his low level of education and
confusing. him as to who really was his true employer - such a callous and despicable treatment of a
worker who had rendered faithful service to their company.
However, considering that private respondent died during the pendency of the case before this
Court, reinstatement is no longer feasible. In lieu thereof, separation pay shall be awarded. With
respect to the amount of back wages, it shall be computed from the time of private respondent's
illegal dismissal up to the time of his death.
WHEREFORE, the petition is DISMISSED. The NLRC Decision of 12 September 1994 is
MODIFIED. Petitioners AZCOR MANUFACTURING, INC., FILIPINAS PASO and ARTURO
ZULUAGA are ORDERED to pay, jointly and solidarily, the heirs of private respondent Candido
Capulso the amounts representing his back wages, inclusive of allowances and other benefits, and
separation pay to, be computed in accordance with law.
SO ORDERED.
Puno, Mendoza, Quisumbing and Buena, JJ., concur.
Footnotes
1 Decision penned by Commissioner Rogelio I. Rayala, concurred in by Commissioner

Victoriano R. Calaycay.
2 TSN, 5 June 1992, p. 35 Records, p. 89;
3 Exh. "A;" Records, pp. 108-109.
4 Exh. "B;" id., p. 111.
5 Exh. "C;" id., p. 172.
6 Exh. "D;" id., p. 173.
7 Exh. "E;" id., p. 174.
8 Exh. "F," "G" and "H;" id., pp. 173, 176-177.
9 Exh. "11;" id., pp. 183-185.
1O Exh. "2;" id., p.188.
11 Exh. "3;" id., p.188.
12 Exh. "4;" id., p.188.
13 Exh. "5;" id., p. 190.
14 Exh. "6;" id., p. 191
15 Exh. "7;" id., p. 192.
16 Loadstar Shipping Co., Inc. v. Gallo, G.R. No. 102485, 4 February 1994, 229 SCRA 659.
17 Words and Phrases, Vol. 37, State v. Huff, 87 N.E. 141, 144.
18 Art. 277, Labor Code, as amended.
19 Agoy v. NLRC, G.R. No. 112096, 30 January 1996, 252 SCRA 588, 594-595.
20 13 Am. Jur. 2d 559.
21 See Pabalan v. National Labor Relations Commission, G.R. No. 89879, 20 April 1990,
184 SCRA 495, 500.
22 Rollo, p. 7.
23 AZCOR manifested for the first time before this Court that it had already ceased it
business operations.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30822 July 31, 1975
EDUARDO CLAPAROLS, ROMULO AGSAM and/or CLAPAROLS STEEL AND NAIL

PLANT, petitioners,
vs.
COURT OF INDUSTRIAL RELATIONS, ALLIED WORKERS' ASSOCIATION and/or DEMETRIO
GARLITOS, ALFREDO ONGSUCO, JORGE SEMILLANO, SALVADOR DOROTEO, ROSENDO
ESPINOSA, LUDOVICO BALOPENOS, ASER AMANCIO, MAXIMO QUIOYO, GAUDENCIO
QUIOYO, and IGNACIO QUIOYO,respondents.
Ruben G. Bala for petitioners.
Rolando N. Medalla for private respondents.
MAKASIAR, J.:
A petition for certiorari to set aside the order of respondent Court of Industrial Relations dated May
30, 1969 directing petitioners to pay back wages and bonuses to private respondents as well as its
resolution of July 5, 1969 denying the motion for reconsideration of said order in Case No. 32-ULP-
Iloilo entitled "Allied Workers' Association, et. al., versus Eduardo Claparols, et. al.."
It appears that on August 6, 1957, a complaint for unfair labor practice was filed by herein private
respondent Allied Workers' Association, respondent Demetrio Garlitos and ten (10) respondent
workers against herein petitioners on account of the dismissal of respondent workers from petitioner
Claparols Steel and Nail Plant.
On September 16, 1963, respondent Court rendered its decision finding "Mr. Claparols guilty of
union busting and" of having "dismissed said complainants because of their union activities," and
ordering respondents "(1) To cease and desist from committing unfair labor practices against their
employees and laborers; (2) To reinstate said complainants to their former or equivalent jobs, as
soon as possible, with back wages from the date of their dismissal up to their actual reinstatement"
(p. 12, Decision; p. 27, rec.).
A motion to reconsider the above decision was filed by herein petitioners, which respondent Court,
sitting en banc, denied in a resolution dated January 27, 1964.
On March 30, 1964, counsel for herein respondent workers (complainants in the ULP case) filed a
motion for execution of respondent Court's September 16, 1963 decision.
On May 14, 1964, respondent Court, in its order of September 16, 1963, granted execution and
directed herein petitioners
to reinstate the above complainants to their former or equivalent jobs within five (5)
days after receipt of a copy of this order. In order to implement the award of back
wages, the Chief of the Examining Division or any of his assistants is hereby directed
to proceed to the office of the respondents at Matab-ang, Talisay, Negros Occidental,
and examine its payrolls and other pertinent records and compute the back wages of
the complainants in accordance with the decision dated September 16, 1963, and,
upon termination, to submit his report as soon as possible for further disposition (p.
7, Brief for Respondents, p. 113, rec.).
which was reiterated by respondent Court in a subsequent order dated November 10, 1964 (pp. 7-8,
Brief for Respondents, p. 113, rec.).
On December 14, 1964, respondent workers were accompanied by the Chief of Police of Talisay,
Negros Occidental to the compound of herein petitioner company to report for reinstatement per
order of the court. Respondent workers were, however, refused reinstatement by company
accountant Francisco Cusi for he had no order from plant owner Eduardo Claparols nor from his
lawyer Atty. Plaridel Katalbas, to reinstate respondent workers.
Again, on December 15, 1964, respondent workers were accompanied by a police officer to the
company compound, but then, they were again refused reinstatement by Cusi on the same ground.
On January 15, 1965, the CIR Chief Examiner Submitted his report containing three computations,
to wit:
The first computation covers the period February 1, 1957 to October 31, 1964. The
second is up to and including December 7, 1962, when the corporation stopped
operations, while the third is only up to June 30, 1957 when the Claparols Steel and
Nail Plant ceased to operate (Annex B, Petition for Review on Certiorari, p. 14, Brief
for appellees, p. 113, rec.).
with the explanation that:
6. Since the records of the Claparols Steel Corporation show that it was established
on July 1, 1957 succeeding the Claparols Steel and Nail Plant which ceased
operations on June 30, 1957, and that the Claparols Steel Corporation stopped
operations on December 7, 1962, three (3) computations are presented herein for
the consideration of this Honorable Court (p. 2, Report of Examiner, p. 29, rec.).
On January 23, 1965, petitioners filed an opposition alleging that under the circumstances presently
engulfing the company, petitioner Claparols could not personally reinstate respondent workers; that
assuming the workers are entitled to back wages, the same should only be limited to three months
pursuant to the court ruling in the case of Sta. Cecilia Sawmills vs. CIR (L-19273-74, February 20,
1964); and that since Claparols Steel Corporation ceased to operate on December 7, 1962, re-
employment of respondent workers cannot go beyond December 7, 1962.
A reply to petitioner's opposition was filed by respondent workers, alleging among others, that
Claparols Steel and Nail Plant and Claparols Steel and Nail Corporation are one and the same
corporation controlled by petitioner Claparols, with the latter corporation succeeding the former.
On November 28, 1966, after conducting a series of hearings on the report of the examiner,
respondent Court issued an order, the dispositive portion of which reads:
WHEREFORE, the Report of the. Examiner filed on January 15, 1965, is hereby
approved subject to the foregoing findings and dispositions. Consequently, the
Corporation Auditing Examiner is directed to recompute the back wages of
complainants Demetrio Garlitos and Alfredo Ongsuco on the basis of P200.00 and
P270.00 a month, respectively; to compute those of complainant Ignacio Quioyo as
aforesaid; to compute the deductible earnings of complainants Ongsuco, Jorge
Semillano and Garlitos, as found in the body of this order; and to compute the
bonuses of each and every complainant, except Honorato Quioyo. Thereafter, as
soon as possible, the Examiner should submit a report in compliance herewith of the
Court's further disposition (p. 24, Brief for Respondents, p. 113, rec.).
On December 7, 1966, a motion for reconsideration was filed by petitioner, assailing respondent
Court's ruling that (1) the ruling in the case of Sta. Cecilia Sawmills Inc. CIR, et. al, does not apply in
the case at bar; and (2) that bonus should be included in the recoverable wages.
On December 14, 1966, a counter-opposition was filed by private respondents alleging that
petitioners' motion for reconsideration was pro forma, it not making express reference to the
testimony or documentary evidence or to the provision of law alleged to be contrary to such findings
or conclusions of respondent Court.
On February 8, 1967, respondent Court of Industrial Relations dismissed petitioners' motion for
reconsideration for being pro forma.
Whereupon, petitioners filed a petition for certiorari with this COURT in G.R. No. L-27272 to set
aside the November 28, 1966 order of respondent Court, as well as its February 8, 1967 resolution.
Petitioners assigned therein as errors of law the very same assignment of errors it raises in the
present case, to wit:
THE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF

DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN HOLDING IN THE
ORDER UNDER REVIEW THAT BONUSES SHOULD BE PAID TO THE
RESPONDENT WORKERS DESPITE THE FACT THAT THE SAME WAS NOT
ADJUDICATED IN ITS ORIGINAL DECISION.
II
THE RESPONDENT COURT ERRED AND/OR ACTED WITH GRAVE ABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN NOT APPLYING THE
DOCTRINE LAID DOWN BY THIS HONORABLE TRIBUNAL IN THE CASE OF
"STA. CECILIA SAWMILLS, INC. VS. C.I.R., ET. AL.," G.R. No.
L-19273-74, PROMULGATED ON FEBRUARY 29, 1964 (pp. 10-11, rec.).
On April 27, 1967, the Supreme Court denied petitioners' petition for certiorari (p. 77, rec. of L-
27272), which was reiterated on May 19, 1967 (p. 27, Respondent's Brief, p. 113, rec.; p. 81, rec. of
L-27272).
On May 3, 1967, private respondents moved to have the workers' back wages properly recomputed.
A motion to the same end was reiterated by private respondents on June 14, 1967.
On July 13, 1967, respondent Court directed a recomputation of the back wages of respondent
workers in accordance with its order dated November 28, 1966. The said order in part reads:
WHEREFORE, the Chief Auditing Examiner of the Court or any of his assistants, is
hereby directed to recompute the back wages of the workers involved in this case in
accordance with the Order of November 28, 1966 within 20 days from receipt of a
copy of this Order (p. 28, Brief for Respondents, p. 113, rec.).
Then on March 21, 1968, the Chief Examiner came out with his report, the disputed portion of which
(regarding bonuses) reads:
xxx xxx xxx
4. The yearly bonuses of the employees and laborers of respondent corporation are
given on the following basis:
Basic Additional:
a. For every dependent 1% of monthly salary
b. For every dependent in elementary grade 2% of monthly salary
c. For every dependent in high school 3% of monthly salary
d. For every dependent in college 5% of monthly salary
xxx xxx xxx
7. The computed ... bonuses after deducting the earnings elsewhere of Messrs.
Ongsuco, Garlitos and Semillano are as follows:
Name x x x Bonuses x x x
1. Alfredo Ongsuco P1,620.00

2. Demetrio Garlitos 1,200.00
3. Ignacio Quioyo 455.23
4. Aser Abancio 461.00
5. Ludovico Belopeos 752.05
6. Salvador Doroteo 714.70
7. Rosendo Espinosa 1,075.40
8. Gaudencio Quioyo 1,167.92
9. Jorge Semillano 1,212.08
10. Maximo Quioyo 449.41
Total P9,107.79
(Pp. 30-31, Respondent's Brief, p. 113, rec.)
On April 16, 1968, petitioners filed their opposition to the report of the Examiner dated March 21,
1968 on grounds already rejected by respondent Court in its order dated November 28, 1966, and
by the Supreme Court also in its ruling in G.R. No. L-27272.
On May 4, 1968, a rejoinder to petitioners' opposition was filed by private respondents, alleging
among others "that the grounds of petitioners' opposition were the same grounds raised by them
before and passed upon by respondent Court and this Honorable Tribunal; that this order of
November 28, 1966 which passed upon these issues became final and executory on June 3, 1967
from the Honorable Supreme Court. (Order of respondent Court dated July 13, 1967). [p. 32, Brief
for Respondents, p. 113, rec.].
On July 26, 1968, private respondents filed their motion for approval of the Report of the Examiner
submitted on March 21, 1968, alleging, among others, that petitioners, in their opposition, did not
actually dispute the data elicited by the Chief Examiner but rather harped on grounds which, as
already stated, had already been turned down by the Supreme Court.
On October 19, 1968, herein private respondents filed their "Constancia", submitting the case for
resolution of respondent Court of Industrial Relations.
On May 30, 1969, respondent Court issued an order, subject of the present appeal, the dispositive
portion of which reads:
WHEREFORE, there being no proof offered to substantiate respondent Eduardo

Claparols' opposition, the Examiner's Report should be, and it is hereby,
APPROVED. Consequently, pursuant to the decision dated September 16, 1963,
respondent ... (petitioners herein) are hereby directed to pay the respective back
wages and bonuses of the complainants (respondents herein) ... (p. 35, Brief for
Respondents; p. 113, rec.; emphasis supplied). 1wph1.t
On June 7, 1969, petitioners filed a motion for reconsideration on practically the same grounds
previously raised by them.
On June 30, 1969, respondents filed an opposition to petitioners' motion for reconsideration, with the
following allegations:
1. The issues raised, namely, whether bonuses should be included in the award for
back wages had already been resolved by respondent court in its orders dated
November 28, 1966, and December 7, 1966, and in the Resolution of the Honorable
Supreme Court in G.R. No. L-27272 dated April 26, 1967 and May 19, 1967, and the
same is already a settled and final issue.
2. Petitioners' motion for reconsideration is merely a rehash of previous arguments,
effete and unrejuvenated, pro forma, and intended merely to delay the proceedings.
As correctly contended by private respondents, the present petition is barred by Our resolutions of
April 26, 1967 and May 19, 1967 in G.R. No. L-27272 (Eduardo Claparols, et. al. vs. CIR, et. al.) [pp.
77-83, rec. of L- 27272], dismissing said case, wherein said petitioners invoked the applicability of
the doctrine in Sta. Cecilia Sawmills, Inc. vs. CIR, et. al. (L-19273-74, Feb. 29, 1964, 10 SCRA 433)
and impugned the illegality of the order of respondent Court dated November 28, 1966 directing the
computation and payment of the bonuses, aside from back wages on the ground that these bonuses
were not included in the decision of September 16, 1963, which had long become final.
The aforesaid resolutions in G.R. No. L-27272 constitute the law of the instant case, wherein herein
petitioners raised again practically the same issues invoked in the abovementioned case. The denial
of the petition in G.R. No. L-27272 suffices to warrant the denial of the present petition; and We need
not go any further.
However, without lending a sympathetic ear to the obvious desire of herein petitioners of this Court
to re-examine which would be an exercise in futility the final ruling in G.R. No. L-27272, which
as above-stated is the law of the instant case, but solely to remind herein petitioners, We reiterate
the governing principles.
WE uniformly held that "a bonus is not a demandable and enforceable obligation, except when it is a
part of the wage or salary compensation" (Philippine Education Co. vs. CIR and the Union of
Philippine Co. Employees [NLU], 92 Phil. 381; Ansay, et. al. vs. National Development Co., et. al.,
107 Phil. 998, 999; Emphasis supplied).
In Atok Big Wedge Mining Co. vs. Atok Big Wedge Mutual Benefit Association (92 Phil. 754), this
Court, thru Justice Labrador, held:
Whether or not bonus forms part of wages depends upon the condition or
circumstance for its payment. If it is an additional compensation WHICH THE
EMPLOYER PROMISED AND AGREED to give without any condition imposed for its
payment ... then it is part of the wage. (Emphasis supplied). 1wph1.t
In Altomonte vs. Philippine American Drug Co. (106 Phil. 137), the Supreme Court held that an
employee is not entitled to bonus where there is no showing that it had been granted by the
employer to its employees periodically or regularly as to become part of their wages or salaries. The
clear implication is that bonus is recoverable as part of the wage or salary where the employer
regularly or periodically gives it to employees.
American jurisprudence equally regards bonuses as part of compensation or recoverable wages.
Thus, it was held that "... it follows that in determining the regular rate of pay, a bonus which in fact
constitutes PART OF AN EMPLOYEE'S compensation, rather than a true gift or gratuity, has to be
taken into consideration." (48 Am. Jur. 2d, Labor and Labor Relations, No. 1555, citing the cases of
Triple "AAA" Co. vs. Wirtz and Haber vs. Americana Corporation; Emphasis supplied). It was further
held that "... the regular rate includes incentive bonuses paid to the employees in addition to the
guaranteed base rates regardless of any contract provision to the contrary and even though such
bonuses could not be determined or paid until such time after the pay day" (48 Am. Jur. 2d, Labor
and Labor Relations, No. 1555, citing the case of Walling vs. Harnischfeger Corp., 325 US 427, 89 L
Ed 1711, 65 S Ct. 1246; Emphasis supplied). 1wph1.t
Petitioners in the present case do not dispute that as a matter of tradition, the company has been
doling out bonuses to employees. In fact, the company balance sheets for the years 1956 to 1962
contained bonus and pension computations which were never repudiated or questioned by
petitioners. As such, bonus for a given year earmarked as a matter of tradition for distribution to
employees has formed part of their recoverable wages from the company. Moreover, with greater
reason, should recovery of bonuses as part of back wages be observed in the present case since
the company, in the light of the very admission of company accountant Francisco Cusi, distributes
bonuses to its employees even if the company has suffered losses. Specifically, petitioner company
has done this in 1962 (t.s.n., p. 149, Sept. 20, 1965).
Since bonuses are part of back wages of private respondents, the order of May 30, 1969, directing
the payment of their bonuses, did not amend the decision of September 16, 1963 of respondent
Court directing payment of their wages, which has long become final and executory, in the same way
that the previous order of May 14, 1964 granting execution of said decision of September 16, 1963
also directed the computation of the wages to be paid to private respondents as decreed by the
decision of September 16, 1963. All the orders of May 30, 1969, November 28, 1966 and May 14,
1964 merely implement the already final and executory decision of September 16, 1963.
Petitioners insist that We adopt the ruling in the Sta. Cecilia Sawmills case wherein the recoverable
back wages were limited to only three (3) months; because as in the Sta. Cecilia Sawmills case, the
Claparols Steel and Nail Plant ceased operations due to enormous business reverses.
Respondent Court's findings that indeed the Claparols Steel and Nail Plant, which ceased operation
of June 30, 1957, was SUCCEEDED by the Claparols Steel Corporation effective the next day, July
1, 1957 up to December 7, 1962, when the latter finally ceased to operate, were not disputed by
petitioners. It is very clear that the latter corporation was a continuation and successor of the first
entity, and its emergence was skillfully timed to avoid the financial liability that already attached to its
predecessor, the Claparols Steel and Nail Plant. Both predecessors and successor were owned and
controlled by the petitioner Eduardo Claparols and there was no break in the succession and
continuity of the same business. This "avoiding-the-liability" scheme is very patent, considering that
90% of the subscribed shares of stocks of the Claparols Steel Corporation (the second corporation)
was owned by respondent (herein petitioner) Claparols himself, and all the assets of the dissolved
Claparols Steel and Nail Plant were turned over to the emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a corporate fiction whose
veil in the present case could, and should, be pierced as it was deliberately and maliciously
designed to evade its financial obligation to its employees.
It is well remembering that in Yutivo & Sons Hardware Company vs. Court of Tax Appeals (L-13203,
Jan. 28, 1961, 1 SCRA 160), We held that when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an
association or persons, or, in the case of two corporations, will merge them into one.
In Liddel & Company, Inc. vs. Collector of Internal Revenue (L-9687, June 30, 1961, 2 SCRA 632),
this Court likewise held that where a corporation is a dummy and serves no business purpose and is
intended only as a blind, the corporate fiction may be ignored.
In Commissioner of Internal Revenue vs. Norton and Harrison Company (L-17618, Aug. 31, 1964, 11
SCRA 714), We ruled that where a corporation is merely an adjunct, business conduit or alter ego of
another corporation, the fiction of separate and distinct corporate entities should be disregarded.
To the same uniform effect are the decisions in the cases of Republic vs. Razon (L-17462, May 29,
1967, 20 SCRA 234) and A.D. Santos, Inc. vs. Vasquez (L-23586, March 20, 1968, 22 SCRA 1156).
WE agree with respondent Court of Industrial Relations, therefore, that the amount of back wages
recoverable by respondent workers from petitioners should be the amount accruing up to December
7, 1962 when the Claparols Steel Corporation ceased operations.
WHEREFORE, PETITION IS HEREBY DENIED WITH TREBLE COSTS AGAINST PETITIONERS

TO BE PAID BY THEIR COUNSEL.
Castro (Chairman), Esguerra, Muoz Palma and Martin, JJ., concur.
Teehankee, J., is on leave.

SUPREME COURT
Manila
EN BANC
G.R. No. L-17618 August 31, 1964
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
NORTON and HARRISON COMPANY, respondent.
Office of the Solicitor General for petitioner.

Pio Joven for respondent.
PAREDES, J.:
This is an appeal interposed by the Commissioner of Internal Revenue against the following
judgment of the Court of Tax Appeals:
IN VIEW OF THE FOREGOING, we find no legal basis to support the assessment in

question against petitioner. If at all, the assessment should have been directed against
JACKBILT, the manufacturer. Accordingly, the decision appealed from is reversed, and the
surety bond filed to guarantee payment of said assessment is ordered cancelled. No
pronouncement as to costs.
Norton and Harrison is a corporation organized in 1911, (1) to buy and sell at wholesale and retail,
all kinds of goods, wares, and merchandise; (2) to act as agents of manufacturers in the United
States and foreign countries; and (3) to carry on and conduct a general wholesale and retail
mercantile establishment in the Philippines. Jackbilt is, likewise, a corporation organized on
February 16, 1948 primarily for the purpose of making, producing and manufacturing concrete
blocks. Under date of July 27, 1948. Norton and Jackbilt entered into an agreement whereby Norton
was made the sole and exclusive distributor of concrete blocks manufactured by Jackbilt. Pursuant
to this agreement, whenever an order for concrete blocks was received by the Norton & Harrison Co.
from a customer, the order was transmitted to Jackbilt which delivered the merchandise direct to the
customer. Payment for the goods is, however, made to Norton, which in turn pays Jackbilt the
amount charged the customer less a certain amount, as its compensation or profit. To exemplify the
sales procedures adopted by the Norton and Jackbilt, the following may be cited. In the case of the
sale of 420 pieces of concrete blocks to the American Builders on April 1, 1952, the purchaser paid
to Norton the sum of P189.00 the purchase price. Out of this amount Norton paid Jackbilt P168.00,
the difference obviously being its compensation. As per records of Jackbilt, the transaction was
considered a sale to Norton. It was under this procedure that the sale of concrete blocks
manufactured by Jackbilt was conducted until May 1, 1953, when the agency agreement was
terminated and a management agreement between the parties was entered into. The management
agreement provided that Norton would sell concrete blocks for Jackbilt, for a fixed monthly fee of
P2,000.00, which was later increased to P5,000.00.
During the existence of the distribution or agency agreement, or on June 10, 1949, Norton &
Harrison acquired by purchase all the outstanding shares of stock of Jackbilt. Apparently, due to this
transaction, the Commissioner of Internal Revenue, after conducting an investigation, assessed the
respondent Norton & Harrison for deficiency sales tax and surcharges in the amount of P32,662.90,
making as basis thereof the sales of Norton to the Public. In other words, the Commissioner
considered the sale of Norton to the public as the original sale and not the transaction from Jackbilt.
The period covered by the assessment was from July 1, 1949 to May 31, 1953. As Norton and
Harrison did not conform with the assessment, the matter was brought to the Court of Tax Appeals.
The Commissioner of Internal Revenue contends that since Jackbilt was owned and controlled by
Norton & Harrison, the corporate personality of the former (Jackbilt) should be disregarded for sales
tax purposes, and the sale of Jackbilt blocks by petitioner to the public must be considered as
the original sales from which the sales tax should be computed. The Norton & Harrison Company
contended otherwise that is, the transaction subject to tax is the sale from Jackbilt to Norton.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts.
1wph1.t
The majority of the Tax Court, in relieving Norton & Harrison of liability under the assessment, made
the following observations:
The law applicable to the case is Section 186 of the National Internal Revenue Code which
imposes a percentage tax of 7% on every original sale of goods, wares or merchandise,
such tax to be based on the gross selling price of such goods, wares or merchandise. The
term "original sale" has been defined as the first sale by every manufacturer, producer or
importer. (Sec. 5, Com. Act No. 503.) Subsequent sales by persons other than the
manufacturer, producer or importer are not subject to the sales tax.
If JACKBILT actually sold concrete blocks manufactured by it to petitioner under the

distributorship or agency agreement of July 27, 1948, such sales constituted the original
sales which are taxable under Section 186 of the Revenue Code, while the sales made to
the public by petitioner are subsequent sales which are not taxable. But it appears to us that
there was no such sale by JACKBILT to petitioner. Petitioner merely acted as agent for
JACKBILT in the marketing of its products. This is shown by the fact that petitioner merely
accepted orders from the public for the purchase of JACKBILT blocks. The purchase orders
were transmitted to JACKBILT which delivered the blocks to the purchaser directly. There
was no instance in which the blocks ordered by the purchasers were delivered to the
petitioner. Petitioner never purchased concrete blocks from JACKBILT so that it never
acquired ownership of such concrete blocks. This being so, petitioner could not have sold
JACKBILT blocks for its own account. It did so merely as agent of JACKBILT. The
distributorship agreement of July 27, 1948, is denominated by the parties themselves as an
"agency for marketing" JACKBILT products. ... .
xxx xxx xxx
Therefore, the taxable selling price of JACKBILT blocks under the aforesaid agreement is the
price charged to the public and not the amount billed by JACKBILT to petitioner. The
deficiency sales tax should have been assessed against JACKBILT and not against
petitioner which merely acted as the former's agent.
xxx xxx xxx
Presiding Judge Nable of the same Court expressed a partial dissent, stating:
Upon the aforestated circumstances, which disclose Norton's control over and direction of
Jackbilt's affairs, the corporate personality of Jackbilt should be disregarded, and the
transactions between these two corporations relative to the concrete blocks should be
ignored in determining the percentage tax for which Norton is liable. Consequently, the
percentage tax should be computed on the basis of the sales of Jackbilt blocks to the public.
The majority opinion is now before Us on appeal by the Commissioner of Internal Revenue, on four
(4) assigned errors, all of which pose the following propositions: (1) whether the acquisition of all the
stocks of the Jackbilt by the Norton & Harrison Co., merged the two corporations into a single
corporation; (2) whether the basis of the computation of the deficiency sales tax should be the sale
of the blocks to the public and not to Norton.
It has been settled that the ownership of all the stocks of a corporation by another corporation does
not necessarily breed an identity of corporate interest between the two companies and be
considered as a sufficient ground for disregarding the distinct personalities (Liddell & Co., Inc. v. Coll.
of Int. Rev. L-9687, June 30, 1961). However, in the case at bar, we find sufficient grounds to support
the theory that the separate identities of the two companies should be disregarded. Among these
circumstances, which we find not successfully refuted by appellee Norton are: (a) Norton and
Harrison owned all the outstanding stocks of Jackbilt; of the 15,000 authorized shares of Jackbilt on
March 31, 1958, 14,993 shares belonged to Norton and Harrison and one each to seven others; (b)
Norton constituted Jackbilt's board of directors in such a way as to enable it to actually direct and
manage the other's affairs by making the same officers of the board for both companies. For
instance, James E. Norton is the President, Treasurer, Director and Stockholder of Norton. He also
occupies the same positions in Jackbilt corporation, the only change being, in the Jackbilt, he is
merely a nominal stockholder. The same is true with Mr. Jordan, F. M. Domingo, Mr. Mantaring,
Gilbert Golden and Gerardo Garcia, while they are merely employees of the North they are Directors
and nominal stockholders of the Jackbilt (c) Norton financed the operations of the Jackbilt, and this
is shown by the fact that the loans obtained from the RFC and Bank of America were used in the
expansion program of Jackbilt, to pay advances for the purchase of equipment, materials rations and
salaries of employees of Jackbilt and other sundry expenses. There was no limit to the advances
given to Jackbilt so much so that as of May 31, 1956, the unpaid advances amounted to
P757,652.45, which were not paid in cash by Jackbilt, but was offset by shares of stock issued to
Norton, the absolute and sole owner of Jackbilt; (d) Norton treats Jackbilt employees as its own.
Evidence shows that Norton paid the salaries of Jackbilt employees and gave the same privileges as
Norton employees, an indication that Jackbilt employees were also Norton's employees.
Furthermore service rendered in any one of the two companies were taken into account for purposes
of promotion; (e) Compensation given to board members of Jackbilt, indicate that Jackbilt is merely a
department of Norton. The income tax return of Norton for 1954 shows that as President and
Treasurer of Norton and Jackbilt, he received from Norton P56,929.95, but received from Jackbilt the
measly amount of P150.00, a circumstance which points out that remuneration of purported officials
of Jackbilt are deemed included in the salaries they received from Norton. The same is true in the
case of Eduardo Garcia, an employee of Norton but a member of the Board of Jackbilt. His Income
tax return for 1956 reveals that he received from Norton in salaries and bonuses P4,220.00, but
received from Jackbilt, by way of entertainment, representation, travelling and transportation
allowances P3,000.00. However, in the withholding statement (Exh. 28-A), it was shown that the
total of P4,200.00 and P3,000.00 (P7,220.00) was received by Garcia from Norton, thus portraying
the oneness of the two companies. The Income Tax Returns of Albert Golden and Dioscoro Ramos
both employees of Norton but board members of Jackbilt, also disclose the game method of
payment of compensation and allowances. The offices of Norton and Jackbilt are located in the
same compound. Payments were effected by Norton of accounts for Jackbilt and vice versa.
Payments were also made to Norton of accounts due or payable to Jackbilt and vice versa.
Norton and Harrison, while not denying the presence of the set up stated above, tried to explain that
the control over the affairs of Jackbilt was not made in order to evade payment of taxes; that the
loans obtained by it which were given to Jackbilt, were necessary for the expansion of its business in
the manufacture of concrete blocks, which would ultimately benefit both corporations; that the
transactions and practices just mentioned, are not unusual and extraordinary, but pursued in the
regular course of business and trade; that there could be no confusion in the present set up of the
two corporations, because they have separate Boards, their cash assets are entirely and strictly
separate; cashiers and official receipts and bank accounts are distinct and different; they have
separate income tax returns, separate balance sheets and profit and loss statements. These
explanations notwithstanding an over-all appraisal of the circumstances presented by the facts of the
case, yields to the conclusion that the Jackbilt is merely an adjunct, business conduit or alter ego, of
Norton and Harrison and that the fiction of corporate entities, separate and distinct from each, should
be disregarded. This is a case where the doctrine of piercing the veil of corporate fiction, should be
made to apply. In the case of Liddell & Co. Inc. v. Coll. of Int. Rev., supra, it was held:
There are quite a series of conspicuous circumstances that militates against the separate
and distinct personality of Liddell Motors Inc., from Liddell & Co. We notice that the bulk of
the business of Liddell & Co. was channel Red through Liddell Motors, Inc. On the other
hand, Liddell Motors Inc. pursued no activities except to secure cars, trucks, and spare parts
from Liddell & Co., Inc. and then sell them to the general public. These sales of vehicles by
Liddell & Co, to Liddell Motors. Inc. for the most part were shown to have taken place on the
same day that Liddell Motors, Inc. sold such vehicles to the public. We may even say that the
cars and trucks merely touched the hands of Liddell Motors, Inc. as a matter of formality.
xxx xxx xxx
Accordingly, the mere fact that Liddell & Co. and Liddell Motors, Inc. are corporations owned
and controlled by Frank Liddell directly or indirectly is not by itself sufficient to justify the
disregard of the separate corporate identity of one from the other. There is however, in this
instant case, a peculiar sequence of the organization and activities of Liddell Motors, Inc.
As opined in the case of Gregory v. Helvering "the legal right of a tax payer to decrease the
amount of what otherwise would be his taxes, or altogether avoid them, by means which the
law permits, cannot be doubted". But as held in another case, "where a corporation is a
dummy, is unreal or a sham and serves no business purpose and is intended only as a blind,
the corporate form may be ignored for the law cannot countenance a form that is bald and a
mischievous fictions".
... a taxpayer may gain advantage of doing business thru a corporation if he pleases, but the
revenue officers in proper cases, may disregard the separate corporate entity where it serves
but as a shield for tax evasion and treat the person who actually may take benefits of the
transactions as the person accordingly taxable.
... to allow a taxpayer to deny tax liability on the ground that the sales were made through
another and distinct corporation when it is proved that the latter is virtually owned by the
former or that they are practically one and the same is to sanction a circumvention of our tax
laws. (and cases cited therein.)
In the case of Yutivo Sons Hardware Co. v. Court of Tax Appeals, L-13203, Jan. 28, 1961, this Court
made a similar ruling where the circumstances of unity of corporate identities have been shown and
which are identical to those obtaining in the case under consideration. Therein, this Court said:
We are, however, inclined to agree with the court below that SM was actually owned and
controlled by petitioner as to make it a mere subsidiary or branch of the latter created for the
purpose of selling the vehicles at retail (here concrete blocks) ... .
It may not be amiss to state in this connection, the advantages to Norton in maintaining a semblance
of separate entities. If the income of Norton should be considered separate from the income of
Jackbilt, then each would declare such earning separately for income tax purposes and thus pay
lesser income tax. The combined taxable Norton-Jackbilt income would subject Norton to a higher
tax. Based upon the 1954-1955 income tax return of Norton and Jackbilt (Exhs. 7 & 8), and
assuming that both of them are operating on the same fiscal basis and their returns are accurate, we
would have the following result: Jackbilt declared a taxable net income of P161,202.31 in which the
income tax due was computed at P37,137.00 (Exh. 8); whereas Norton declared as taxable, a net
income of P120,101.59, on which the income tax due was computed at P25,628.00. The total of
these liabilities is P50,764.84. On the other hand, if the net taxable earnings of both corporations are
combined, during the same taxable year, the tax due on their total which is P281,303.90 would be
P70,764.00. So that, even on the question of income tax alone, it would be to the advantages of
Norton that the corporations should be regarded as separate entities.
WHEREFORE, the decision appealed from should be as it is hereby reversed and another entered
making the appellee Norton & Harrison liable for the deficiency sales taxes assessed against it by
the appellant Commissioner of Internal Revenue, plus 25% surcharge thereon. Costs against
appellee Norton & Harrison.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes J.B.L., Regala and Makalintal, JJ., concur.
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 108734 May 29, 1996
CONCEPT BUILDERS, INC., petitioner,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, (First Division); and Norberto Marabe;
Rodolfo Raquel, Cristobal Riego, Manuel Gillego, Palcronio Giducos, Pedro Aboigar, Norberto
Comendador, Rogelio Salut, Emilio Garcia, Jr., Mariano Rio, Paulina Basea, Alfredo Albera,
Paquito Salut, Domingo Guarino, Romeo Galve, Dominador Sabina, Felipe Radiana, Gavino
Sualibio, Moreno Escares, Ferdinand Torres, Felipe Basilan, and Ruben Robalos, respondents.
HERMOSISIMA, JR., J.:p
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just
but the alter ego of a person or of another corporation. Where badges of fraud exist; where public
convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the
notion of legal entity should come to naught. The law in these instances will regard the corporation
as a mere association of persons and, in case of two corporations, merge them into one.
Thus, where a sister corporation is used as a shield to evade a corporation's subsidiary liability for
damages, the corporation may not be heard to say that it has a personality separate and distinct
from the other corporation. The piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of whether the National Labor Relations
Commission committed grave abuse of discretion when it issued a "break-open order" to the sheriff
to be enforced against personal property found in the premises of petitioner's sister company.
Petitioner Concept Builders, Inc., a domestic corporation, with principal office at 355 Maysan Road,
Valenzuela, Metro Manila, is engaged in the construction business. Private respondents were
employed by said company as laborers, carpenters and riggers.
On November, 1981, private respondents were served individual written notices of termination of
employment by petitioner, effective on November 30, 1981. It was stated in the individual notices that
their contracts of employment had expired and the project in which they were hired had been
completed.
Public respondent found it to be, the fact, however, that at the time of the termination of private
respondent's employment, the project in which they were hired had not yet been finished and
completed. Petitioner had to engage the services of sub-contractors whose workers performed the
functions of private respondents.
Aggrieved, private respondents filed a complaint for illegal dismissal, unfair labor practice and non-
payment of their legal holiday pay, overtime pay and thirteenth-month pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered judgment 1 ordering petitioner to reinstate private
respondents and to pay them back wages equivalent to one year or three hundred working days.
On November 27, 1985, the National Labor Relations Commission (NLRC) dismissed the motion for
reconsideration filed by petitioner on the ground that the said decision had already become final and
executory. 2
On October 16, 1986, the NLRC Research and Information Department made the finding that private
respondents' back wages amounted to P199,800.00. 3
On October 29, 1986, the Labor Arbiter issued a writ of execution directing the sheriff to execute the
Decision, dated December 19, 1984. The writ was partially satisfied through garnishment of sums
from petitioner's debtor, the Metropolitan Waterworks and Sewerage Authority, in the amount of
P81,385.34. Said amount was turned over to the cashier of the NLRC.
On February 1, 1989, an Alias Writ of Execution was issued by the Labor Arbiter directing the sheriff
to collect from herein petitioner the sum of P117,414.76, representing the balance of the judgment
award, and to reinstate private respondents to their former positions.
On July 13, 1989, the sheriff issued a report stating that he tried to serve the alias writ of execution
on petitioner through the security guard on duty but the service was refused on the ground that
petitioner no longer occupied the premises.
On September 26, 1986, upon motion of private respondents, the Labor Arbiter issued a second
alias writ of execution.
The said writ had not been enforced by the special sheriff because, as stated in his progress report,
dated November 2, 1989:
1. All the employees inside petitioner's premises at 355 Maysan Road, Valenzuela, Metro Manila,
claimed that they were employees of Hydro Pipes Philippines, Inc. (HPPI) and not by respondent;
2. Levy was made upon personal properties he found in the premises;
3. Security guards with high-powered guns prevented him from removing the properties he had
levied upon. 4
The said special sheriff recommended that a "break-open order" be issued to enable him to enter
petitioner's premises so that he could proceed with the public auction sale of the aforesaid personal
properties on November 7, 1989.
On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter
alleging that the properties sought to be levied upon by the sheriff were owned by Hydro (Phils.), Inc.
(HPPI) of which he is the Vice-President.
On November 23, 1989, private respondents filed a "Motion for Issuance of a Break-Open Order,"
alleging that HPPI and petitioner corporation were owned by the same incorporator/stockholders.
They also alleged that petitioner temporarily suspended its business operations in order to evade its
legal obligations to them and that private respondents were willing to post an indemnity bond to
answer for any damages which petitioner and HPPI may suffer because of the issuance of the
break-open order.
In support of their claim against HPPI, private respondents presented duly certified copies of the
General Informations Sheet, dated May 15, 1987, submitted by petitioner to the Securities Exchange
Commission (SEC) and the General Information Sheet, dated May 25, 1987, submitted by HPPI to
the Securities and Exchange Commission.
The General Information Sheet submitted by the petitioner revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
HPPI P 6,999,500.00
Antonio W. Lim 2,900,000.00
Dennis S. Cuyegkeng 300.00
Elisa C. Lim 100,000.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman

Dennis S. Cuyegkeng Member
Elisa C. Lim Member
Teodulo R. Dino Member
Virgilio O. Casino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road
Valenzuela, Metro Manila. 5
On the other hand, the General Information Sheet of HPPI revealed the following:
1. Breakdown of Subscribed Capital
Name of Stockholder Amount Subscribed
Antonio W. Lim P 400,000.00
Elisa C. Lim 57,700.00
AWL Trading 455,000.00
Dennis S. Cuyegkeng 40,100.00
Teodulo R. Dino 100.00
Virgilio O. Casino 100.00
2. Board of Directors
Antonio W. Lim Chairman
Elisa C. Lim Member
Dennis S. Cuyegkeng Member

Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa C. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila. 6
On February 1, 1990, HPPI filed an Opposition to private respondents' motion for issuance of a
break-open order, contending that HPPI is a corporation which is separate and distinct from
petitioner. HPPI also alleged that the two corporations are engaged in two different kinds of
businesses, i.e., HPPI is a manufacturing firm while petitioner was then engaged in construction.
On March 2, 1990, the Labor Arbiter issued an Order which denied private respondents' motion for
break-open order.
Private respondents then appealed to the NLRC. On April 23, 1992, the NLRC set aside the order of
the Labor Arbiter, issued a break-open order and directed private respondents to file a bond.
Thereafter, it directed the sheriff to proceed with the auction sale of the properties already levied
upon. It dismissed the third-party claim for lack of merit.
Petitioner moved for reconsideration but the motion was denied by the NLRC in a Resolution, dated
December 3, 1992.
Hence, the resort to the present petition.
Petitioner alleges that the NLRC committed grave abuse of discretion when it ordered the execution
of its decision despite a third-party claim on the levied property. Petitioner further contends, that the
doctrine of piercing the corporate veil should not have been applied, in this case, in the absence of
any showing that it created HPPI in order to evade its liability to private respondents. It also
contends that HPPI is engaged in the manufacture and sale of steel, concrete and iron pipes, a
business which is distinct and separate from petitioner's construction business. Hence, it is of no
consequence that petitioner and HPPI shared the same premises, the same President and the same
set of officers and subscribers. 7
We find petitioner's contention to be unmeritorious.
It is a fundamental principle of corporation law that a corporation is an entity separate and distinct
from its stockholders and from other corporations to which it may be connected. 8 But, this separate
and distinct personality of a corporation is merely a fiction created by law for convenience and to promote
justice. 9 So, when the notion of separate juridical personality is used to defeat public convenience, justify
wrong, protect fraud or defend crime, or is used as a device to defeat the labor laws, 10 this separate
personality of the corporation may be disregarded or the veil of corporate fiction pierced. 11 This is true
likewise when the corporation is merely an adjunct, a business conduit or an alter ego of another
corporation. 12
The conditions under which the juridical entity may be disregarded vary according to the peculiar
facts and circumstances of each case. No hard and fast rule can be accurately laid down, but
certainly, there are some probative factors of identity that will justify the application of the doctrine of
piercing the corporate veil, to wit:
1. Stock ownership by one or common ownership of both corporations.
2. Identity of directors and officers.
3. The manner of keeping corporate books and records.
4. Methods of conducting the business. 13
The SEC en banc explained the "instrumentality rule" which the courts have applied in disregarding
the separate juridical personality of corporations as follows:
Where one corporation is so organized and controlled and its affairs are conducted
so that it is, in fact, a mere instrumentality or adjunct of the other, the fiction of the
corporate entity of the "instrumentality" may be disregarded. The control necessary
to invoke the rule is not majority or even complete stock control but such domination
of instances, policies and practices that the controlled corporation has, so to speak,
no separate mind, will or existence of its own, and is but a conduit for its principal. It
must be kept in mind that the control must be shown to have been exercised at the
time the acts complained of took place. Moreover, the control and breach of duty
must proximately cause the injury or unjust loss for which the complaint is made.
The test in determining the applicability of the doctrine of piercing the veil of corporate fiction is as
follows:
1. Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction
attacked so that the corporate entity as to this transaction had at the time no
separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty or dishonest and
unjust act in contravention of plaintiff's legal rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or
unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In
applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with
reality and not form, with how the corporation operated and the individual defendant's
relationship to that operation. 14
Thus the question of whether a corporation is a mere alter ego, a mere sheet or paper corporation, a
sham or a subterfuge is purely one of fact. 15
In this case, the NLRC noted that, while petitioner claimed that it ceased its business operations on
April 29, 1986, it filed an Information Sheet with the Securities and Exchange Commission on May
15, 1987, stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila. On the
other hand, HPPI, the third-party claimant, submitted on the same day, a similar information sheet
stating that its office address is at 355 Maysan Road, Valenzuela, Metro Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O. Casio as the corporate
secretary of both corporations. It would also not be amiss to note that both
corporations had the same president, thesame board of directors,
the same corporate officers, and substantially the same subscribers.
From the foregoing, it appears that, among other things, the respondent (herein
petitioner) and the third-party claimant shared the same address and/or premises.
Under this circumstances, (sic) it cannot be said that the property levied upon by the
sheriff were not of respondents. 16
Clearly, petitioner ceased its business operations in order to evade the payment to private
respondents of back wages and to bar their reinstatement to their former positions. HPPI is
obviously a business conduit of petitioner corporation and its emergence was skillfully orchestrated
to avoid the financial liability that already attached to petitioner corporation.
The facts in this case are analogous to Claparols v. Court of Industrial Relations, 17 where we had the
occasion to rule:
Respondent court's findings that indeed the Claparols Steel and Nail Plant, which
ceased operation of June 30, 1957, was SUCCEEDED by the Claparols Steel
Corporation effective the next day, July 1, 1957, up to December 7, 1962, when the
latter finally ceased to operate, were not disputed by petitioner. It is very clear that
the latter corporation was a continuation and successor of the first entity . . . . Both
predecessors and successor were owned and controlled by petitioner Eduardo
Claparols and there was no break in the succession and continuity of the same
business. This "avoiding-the-liability" scheme is very patent, considering that 90% of
the subscribed shares of stock of the Claparols Steel Corporation (the second
corporation) was owned by respondent . . . Claparols himself, and all the assets of
the dissolved Claparols Steel and Nail plant were turned over to the emerging
Claparols Steel Corporation.
It is very obvious that the second corporation seeks the protective shield of a
corporate fiction whose veil in the present case could, and should, be pierced as it
was deliberately and maliciously designed to evade its financial obligation to its
employees.
In view of the failure of the sheriff, in the case at bar, to effect a levy upon the property subject of the
execution, private respondents had no other recourse but to apply for a break-open order after the
third-party claim of HPPI was dismissed for lack of merit by the NLRC. This is in consonance with
Section 3, Rule VII of the NLRC Manual of Execution of Judgment which provides that:
Should the losing party, his agent or representative, refuse or prohibit the Sheriff or
his representative entry to the place where the property subject of execution is
located or kept, the judgment creditor may apply to the Commission or Labor Arbiter
concerned for a break-open order.
Furthermore, our perusal of the records shows that the twin requirements of due notice and hearing
were complied with. Petitioner and the third-party claimant were given the opportunity to submit
evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of discretion when it affirmed the break-open
order issued by the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that factual findings of quasi-judicial agencies
supported by substantial evidence are binding on this Court and are entitled to great respect, in the
absence of showing of grave abuse of a discretion. 18
WHEREFORE, the petition is DISMISSED and the assailed resolutions of the NLRC, dated April 23,
1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.
Footnotes
1 Rollo, pp. 11-12.
2 Id., at 12.
3 Ibid.
4 Rollo, p. 14.
5 Rollo, pp. 16-17.
6 Id., at 17-18.
7 Rollo, pp. 7-8.
8 Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, 13 SCRA 290 (1965); Yutivo
Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 (1961).
9 Laguna Transportation Company, Inc. v. Social Security System, 107 SCRA 833 (1960).
10 La Campana Coffee Factory, Inc. Kaisahan Ng Mga Manggagawa sa La Campana

(KMM), 93 Phil. 160 (1953).
11 Sulo ng Bayan, Inc. v. Araneta, 72 SCRA 347 (1976).
12 Tan Boon Bee and Co. v. Jarencio, 263 SCRA 205 (1988).
13 4 Minn. L. Rev, pp. 219-227; cited in R. Lopez, The Corporation Code of the Philippines,
Annotated p. 19 (1994).
14 1 Fletcher Cyc. Corp., p. 490; Avelina G. Ramoso, et al. v. General Credit Corporation et
al., SEC AC No. 295, October 6, 1992.
15 Phoenix Safety Inc. Co. v. James, 28 Ariz 514, 237, p. 958.
16 Rollo, pp. 19-20.
17 65 SCRA 613 (1975).
18 Maya Farms Employees Organization v. National Labor Relations Commission, 239

SCRA 508 (1994); Capitol Industrial Construction Groups v. National Labor Relations
Commission, 221 SCRA 469 (1993); Sunset View Condominium Corporation v. National
Labor Relations Commission, 228 SCRA 466 (1993).

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 121315 July 19, 1999
COMPLEX ELECTRONICS EMPLOYEES ASSOCIATION (CEEA) represented by its union

president CECILIA TALAVERA, GEORGE ARSOLA, MARIO DIAGO AND SOCORRO
BONCAYAO, petitioners,
vs.
THE NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS
CORPORATION, IONICS CIRCUIT, INC., LAWRENCE QUA, REMEDIOS DE JESUS, MANUEL
GONZAGA, ROMY DELA ROSA, TERESITA ANDINO, ARMAN CABACUNGAN, GERRY
GABANA, EUSEBIA MARANAN and BERNADETH GACAD, respondents.
G.R. No. 122136 July 19, 1999
COMPLEX ELECTRONICS CORPORATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, COMPLEX ELECTRONICS EMPLOYEES
ASSOCIATION (CEEA), represented by Union President, CECILIA TALAVERA, respondents.
KAPUNAN, J.:
These consolidated cases filed by Complex Electronics Employees Association (G.R. No. 121315)
and Complex Electronics Corporation (G.R. No. 122136) assail the Decision of the NLRC dated
March 10, 1995 which set aside the Decision of the Labor Arbiter dated April 30, 1993.
The antecedents of the present petitions are as follows:
Complex Electronics Corporation (Complex) was engaged in the manufacture of electronic products.
It was actually a subcontractor of electronic products where its customers gave their job orders, sent
their own materials and consigned their equipment to it. The customers were foreign-based
companies with different product lines and specifications requiring the employment of workers with
specific skills for each product line. Thus, there was the AMS Line for the Adaptive Micro System,
Inc., the Heril Line for Heril Co., Ltd., the Lite-On Line for the Lite-On Philippines Electronics Co., etc.
The rank and file workers of Complex were organized into a union known as the Complex
Electronics Employees Association, herein referred to as the Union.
On March 4, 1992, Complex received a facsimile message from Lite-On Philippines Electronics Co.,
requiring it to lower its price by 10%. The full text reads as follows:
This is to inform your office that Taiwan required you to reduce your assembly cost
since it is higher by 50% and no longer competitive with that of mainland China. It is
further instructed that Complex Price be patterned with that of other sources, which is
10% lower.
Please consider and give us your revised rates soon. 1
Consequently, on March 9, 1992, a meeting was held between Complex and the personnel of the
Lite-On Production Line. Complex informed its Lite-On personnel that such request of lowering their
selling price by 10% was not feasible as they were already incurring losses at the present prices of
their products. Under such circumstances, Complex regretfully informed the employees that it was
left with no alternative but to close down the operations of the Lite-On Line. The company, however,
promised that:
1) Complex will follow the law by giving the people to be retrenched

the necessary 1 month notice. Hence, retrenchment will not take
place until after 1 month from March 09, 1992.
2) The Company will try to prolong the work for as many people as
possible for as long as it can by looking for job slots for them in
another line if workload so allows and if their skills are compatible
with the line requirement.
3) The company will give the employees to be retrenched a

retrenchment pay as provided for by law i.e. half a month for every
year of service in accordance with Article 283 of the Labor Code of
Philippines. 2
The Union, on the other hand, pushed for a retrenchment pay equivalent to one (1) month salary for
every year of service, which Complex refused.
On March 13, 1992, Complex filed a notice of closure of the Lite-On Line with the Department of
Labor and Employment (DOLE) and the retrenchment of the ninety-seven (97) affected employees. 3
On March 25, 1993, the Union filed a notice of strike with the National Conciliation and Mediation
Board (NCMB). 1wphi1.nt
Two days thereafter, or on March 27, 1993, the Union conducted a strike vote which resulted in a
"yes" vote.
In the evening of April 6, 1992, the machinery, equipment and materials being used for production at
Complex were pulled-out from the company premises and transferred to the premises of Ionics
Circuit, Inc. (Ionics) at Cabuyao, Laguna. The following day, a total closure of company operation
was effected at Complex.
A complaint was, thereafter, filed with the Labor Arbitration Branch of the NLRC for unfair labor
practice, illegal closure/illegal lockout, money claims for vacation leave, sick leave, unpaid wages,
13th month pay, damages and attorney's fees. The Union alleged that the pull-out of the machinery,
equipment and materials from the company premises, which resulted to the sudden closure of the
company was in violation of Section 3 and 8, Rule XIII, Book V of the Labor Code of the
Philippines 4 and the existing CBA. Ionics was impleaded as a party defendant because the officers and
management personnel of Complex were also holding office at Ionics with Lawrence Qua as the
President of both companies.
Complex, on the other hand, averred that since the time the Union filed its notice of strike, there was
a significant decline in the quantity and quality of the products in all of the production lines. The
delivery schedules were not met prompting the customers to lodge complaints against them. Fearful
that the machinery, equipment and materials would be rendered inoperative and unproductive due to
the impending strike of the workers, the customers ordered their pull-out and transfer to Ionics. Thus,
Complex was compelled to cease operations.
Ionics contended that it was an entity separate and distinct from Complex and had been in existence
since July 5, 1984 or eight (8) years before the labor dispute arose at Complex. Like Complex, it was
also engaged in the semi-conductor business where the machinery, equipment and materials were
consigned to them by their customers. While admitting that Lawrence Qua, the President of Complex
was also the President of Ionics, the latter denied having Qua as their owner since he had no
recorded subscription of P1,200,00.00 in Ionics as claimed by the Union. Ionics further argued that
the hiring of some displaced workers of Complex was an exercise of management prerogatives.
Likewise, the transfer of the machinery, equipment and materials from Complex was the decision of
the owners who were common customers of Complex and Ionics.
On April 30, 1993, the Labor Arbiter rendered a decision the dispositive portion of which reads:
WHEREFORE, all the foregoing premises being considered, judgment is hereby

rendered ordering the respondent Complex Electronics Corporation and/or Ionics
Circuit Incorporated and/or Lawrence Qua, to reinstate the 531 above-listed
employees to their former position with all the rights, privileges and benefits
appertaining thereto, and to pay said complainants-employees the aggregate
backwages amounting P26,949,891.80 as of April 6, 1993 and to such further
backwages until their actual reinstatement. In the event reinstatement is no longer
feasible for reasons not attributable to the complainants, said respondents are also
liable to pay complainants-employees their separation pay to be computed at the rate
of one (1) month pay for every year of service, a fraction of at least six (6) months to
be considered as one whole year.
Further, the aforenamed three (3) respondents are hereby ordered to pay jointly and
solidarily the complainants-employees an aggregate moral damages in the amount of
P1,062,000.00 and exemplary damages in the aggregate sum of P531,000.00.
And finally, said respondents are ordered to pay attorney's fees equivalent to ten
percent (10%) of whatever has been adjudicated herein in favor of the complainants.
The charge of slowdown strike filed by respondent Complex against the union is
hereby dismissed for lack of merit.
SO ORDERED. 5
Separate appeals were filed by Complex, Ionics and Lawrence Qua before the respondent NLRC
which rendered the questioned decision on March 10, 1995, the decretal portion of which states:
WHEREFORE, premises considered, the assailed decision is hereby ordered

vacated and set aside, and a new one entered ordering respondent Complex
Electronics Corporation to pay 531 complainants equivalent to one month pay in lieu
of notice and separation pay equivalent to one month pay for every year of service
and a fraction of six months considered as one whole year.
Respondents Ionics Circuit Incorporated and Lawrence Qua are hereby ordered
excluded as parties solidarily liable with Complex Electronics Corporation.
The award of moral damages is likewise deleted for lack of merit.
Respondent Complex, however, is hereby ordered to pay attorney's fees equivalent

to ten (10%) percent of the total amount of award granted the complainants.
SO ORDERED. 6
Complex, Ionics and the Union filed their motions for reconsideration of the above decision which
were denied by the respondent NLRC in an Order dated July 11, 1995. 7
Hence these petitions.
In G.R. No. 121315, petitioner Complex Electronics Employees Association asseverates that the
respondent NLRC erred when it:
SET ASIDE THE DECISION DATED APRIL 30, 1993 ISSUED BY

THE HON. LABOR ARBITER JOSE DE VERA.
II
EXCLUDED PRIVATE RESPONDENTS IONICS CIRCUITS,
INCORPORATED AND LAWRENCE QUA AS PARTIES SOLIDARILY
LIABLE WITH COMPLEX ELECTRONICS CORPORATION.
III
FOUND THAT COMPLEX ELECTRONICS CORPORATION WAS

NOT GUILTY OF ILLEGAL CLOSURE AND ILLEGAL DISMISSAL OF
THE PETITIONERS.
IV
REMOVED THE AWARD FOR BACKWAGES, REINSTATEMENT

AND DAMAGES IN THE DECISION DATED APRIL 30, 1993
ISSUED BY THE HON. LABOR ARBITER JOSE DE VERA. 8
On the other hand, in G.R. No. 122136, petitioner Complex Electronics Corporation raised the
following issues, to wit:
PUBLIC RESPONDENT NLRC ACTED IN GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF
JURISDICTION IN PROMULGATING ITS DECISION AND ORDER
DATED 10 MARCH 1995, AND 11 JULY 1995, RESPECTIVELY, THE
SAME BEING IN CONTRAVENTION OF THE EXPRESS MANDATE
OF THE LAW GOVERNING THE PAYMENT OF ONE MONTH PAY
IN LIEUOF NOTICE, SEPARATION PAY AND ATTORNEY'S FEES.
II
THERE IS NO APPEAL, NOR ANY PLAIN, SPEEDY AND

ADEQUATE REMEDY IN THE ORDINARY COURSE OF
LAW. 9
On December 23, 1996, the Union filed a motion for consolidation of G.R. No. 122136 with G.R. No.
121315. 10The motion was granted by this Court in a Resolution dated June 23, 1997. 11
On November 10, 1997, the Union presented additional documentary evidence which consisted of a
newspaper clipping in the Manila Bulletin, dated August 18, 1997 bearing the picture of Lawrence
Qua with the following inscription:
RECERTIFICATION. The Cabuyao (Laguna) operation of Ionic Circuits, Inc.

consisting of plants 2, 3, 4 and 5 was recertified to ISO 9002 as electronics contract
manufacturer by the TUV, a rating firm with headquarters in Munich, Germany.
Lawrence Qua, Ionics president and chief executive officer, holds the plaque of
recertification presented by Gunther Theisz (3rd from left), regional manager of TUV
Products Services Asia during ceremonies held at Sta. Elena Golf Club. This is the
first of its kind in the country that four plants were certified at the same time. 12
The Union claimed that the said clipping showed that both corporations, Ionics and Complex are one
and the same.
In answer to this allegation, Ionics explained that the photo which appeared at the Manila Bulletin
issue of August 18, 1997 pertained only to respondent Ionics' recertification of ISO 9002. There was
no mention about Complex Electronics Corporation. Ionics claimed that a mere photo is insufficient
to conclude that Ionics and Complex are one and the same. 13
We shall first delve on the issues raised by the petitioner Union.
The Union anchors its position on the fact that Lawrence Qua is both the president of Complex and
Ionics and that both companies have the same set of Board of Directors. It claims that business has
not ceased at Complex but was merely transferred to Ionics, a runaway shop. To prove that Ionics
was just a runaway shop, petitioner asserts that out of the 80,000 shares comprising the increased
capital stock of Ionics, it was Complex that owns majority of said shares with P1,200,000.00 as its
capital subscription and P448,000.00 as its paid up investment, compared to P800,000.00
subscription and P324,560.00 paid-up owing to the other stockholders, combined. Thus, according
to the Union, there is a clear ground to pierce the veil of corporate fiction.
The Union further posits that there was an illegal lockout/illegal dismissal considering that as of
March 11, 1992, the company had a gross sales of P61,967,559 from a capitalization of
P1,500,000.00. It even ranked number thirty among the top fifty corporations in Muntinlupa.
Complex, therefore, cannot claim that it was losing in its business which necessitated its closure.
With regards to Lawrence Qua, petitioner maintains that he should be made personally liable to the
Union since he was the principal player in the closure of the company, not to mention the clandestine
and surreptitious manner in which such closure was carried out, without regard to their right to due
process.
The Union's contentions are untenable.
A "runaway shop" is defined as an industrial plant moved by its owners from one location to another
to escape union labor regulations or state laws, but the term is also used to describe a plant
removed to a new location in order to discriminate against employees at the old plant because of
their union
activities. 14 It is one wherein the employer moves its business to another location or it temporarily closes
its business for anti-union purposes. 15 A "runaway shop" in this sense, is a relocation motivated by anti-
union animus rather than for business reasons. In this case, however, Ionics was not set up merely for the
purpose of transferring the business of Complex. At the time the labor dispute arose at Complex, Ionics
was already existing as an independent company. As earlier mentioned, it has been in existence since
July 5, 1984. It cannot, therefore, be said that the temporary closure in Complex and its subsequent
transfer of business to Ionics was for anti-union purposes. The Union failed to show that the primary
reason for the closure of the establishment was due to the union activities of the employees.
The mere fact that one or more corporations are owned or controlled by the same or single
stockholder is not a sufficient ground for disregarding separate corporate personalities. Thus,
in Indophil Textile Mill Workers Union vs. Calica, 16 we ruled that:
[I]n the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic,
alleging that the creation of the corporation is a devise to evade the application of the
CBA between petitioner Union and private respondent company. While we do not
discount the possibility of the similarities of the businesses of private respondent and
Acrylic, neither are we inclined to apply the doctrine invoked by petitioner in granting
the relief sought. The fact that the businesses of private respondent and Acrylic are
related, that some of the employees of the private respondent are the same persons
manning and providing for auxiliary services to the units of Acrylic, and that the
physical plants, offices and facilities are situated in the same compound, it is our
considered opinion that these facts are not sufficient to justify the piercing of the
corporate veil of Acrylic.
Likewise, in Del Rosario vs. National Labor Relations Commission, 17 the Court stated that substantial
identity of the incorporators of two corporations does not necessarily imply that there was fraud committed
to justify piercing the veil of corporate fiction.
In the recent case of Santos vs. National Labor Relations Commission, 18 we also ruled that:
The basic rule is still that which can be deduced from the Court's pronouncement
in Sunio vs.National Labor Relations Commission, thus:
. . . . . 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.
Ionics may be engaged in the same business as that of Complex, but this fact alone is not enough
reason to pierce the veil of corporate fiction of the corporation. Well-settled is the rule that a
corporation has a personality separate and distinct from that of its officers and stockholders. This
fiction of corporate entity can only be disregarded in certain cases such as when it is used to defeat
public convenience, justify wrong, protect fraud, or defend crime. 19 To disregard said separate juridical
personality of a corporation, the wrongdoing must be clearly and convincingly established. 20
As to the additional documentary evidence which consisted of a newspaper clipping filed by

petitioner Union, we agree with respondent Ionics that the photo/newspaper clipping itself does not
prove that Ionics and Complex are one and the same entity. The photo/newspaper clipping merely
showed that some plants of Ionics were recertified to ISO 9002 and does not show that there is a
relation between Complex and Ionics except for the fact that Lawrence Qua was also the president
of Ionics. However, as we have stated above, the mere fact that both of the corporations have the
same president is not in itself sufficient to pierce the veil of corporate fiction of the two corporations.
We, likewise, disagree with the Union that there was in this case an illegal lockout/illegal dismissal.
Lockout is the temporary refusal of employer to furnish work as a result of an industrial or labor
dispute. 21 It may be manifested by the employer's act of excluding employees who are union
members. 22 In the present case, there was a complete cessation of the business operations at Complex
not because of the labor dispute. It should be recalled that, before the labor dispute, Complex had already
informed the employees that they would be closing the Lite-On Line. The employees, however, demanded
for a separation pay equivalent to one (1) month salary for every year of service which Complex refused
to give. When Complex filed a notice of closure of its Lite-On Line, the employees filed a notice of strike
which greatly alarmed the customers of Complex and this led to the pull-out of their equipment, machinery
and materials from Complex. Thus, without the much needed equipment, Complex was unable to
continue its business. It was left with no other choice except to shut down the entire business. The
closure, therefore, was not motivated by the union activities of the employees, but rather by necessity
since it can no longer engage in production without the much needed materials, equipment and
machinery. We quote with approval the findings of the respondent NLRC on this matter:
At first glance after reading the decision a quo, it would seem that the closure of
respondent's operation is not justified. However, a deeper examination of the records
along with the evidence, would show that the closure, although it was done abruptly
as there was no compliance with the 30-day prior notice requirement, said closure
was not intended to circumvent the provisions of the Labor Code on termination of
employment. The closure of operation by Complex on April 7, 1992 was not without
valid reasons. Customers of respondent alarmed by the pending labor dispute and
the imminent strike to be foisted by the union, as shown by their strike vote, directed
respondent Complex to pull-out its equipment, machinery and materials to other safe
bonded warehouse. Respondent being mere consignees of the equipment,
machinery and materials were without any recourse but to oblige the customers'
directive. The pull-out was effected on April 6, 1992. We can see here that Complex's
action, standing alone, will not result in illegal closure that would cause the illegal
dismissal of the complainant workers. Hence, the Labor Arbiter's conclusion that
since there were only two (2) of respondent's customers who have expressed pull-
out of business from respondent Complex while most of the customer's have not
and, therefore, it is not justified to close operation cannot be upheld. The
determination to cease operation is a prerogative of management that is usually not
interfered with by the State as no employer can be required to continue operating at
a loss simply to maintain the workers in employment. That would be taking of
property without due process of law which the employer has the right to resist.
(Columbia Development Corp. vs. Minister of Labor and Employment, 146 SCRA
42).
As to the claim of petitioner Union that Complex was gaining profit, the financial statements for the
years 1990, 1991 and 1992 issued by the auditing and accounting firm Sycip, Gorres and Velayo
readily show that Complex was indeed continuously experiencing deficit and losses. 23 Nonetheless,
whether or not Complex was incurring great losses, it still one of the management's prerogative to close
down its business as long as it is done in good faith. Thus, inCatatista et al., vs. NLRC and Victorias
Milling Co., Inc. 24 we ruled:
In any case, Article 283 of the Labor Code is clear that an employer may close or
cease his business operations or undertaking even if he is not suffering from serious
business losses or financial reverses, as long as he pays his employees their
termination pay in the amount corresponding to their length of service. It would
indeed, be stretching the intent and spirit of the law if we were to unjustly interfere in
management's prerogative to close or cease its business operations just because
said business operations or undertaking is not suffering from any loss.
Going now to the issue of personal liability of Lawrence Qua, it is settled that in the absence of
malice or bad faith, a stockholder or an officer of a corporation cannot be made personally liable for
corporate liabilities. 25 In the present case, while it may be true that the equipment, materials and
machinery were pulled-out of Complex and transferred to Ionics during the night, their action was
sufficiently explained by Lawrence Qua in his Comment to the petition filed by the Union. We quote:
The fact that the pull-out of the machinery, equipment and materials was effected
during nighttime is not per se an indicia of bad faith on the part of respondent Qua
since he had no other recourse, and the same was dictated by the prevailing mood of
unrest as the laborers were already vandalizing the equipment, bent on picketing the
company premises and threats to lock out the company officers were being made.
Such acts of respondent Qua were, in fact, made pursuant to the demands of
Complex's customers who were already alarmed by the pending labor dispute and
imminent strike to be stage by the laborers, to have their equipment, machinery and
materials pull out of Complex. As such, these acts were merely done pursuant to his
official functions and were not, in any way, made with evident bad faith. 26
We perceive no intention on the part of Lawrence Qua and the other officers of Complex to defraud
the employees and the Union. They were compelled to act upon the instructions of their customers
who were the real owners of the equipment, materials and machinery. The prevailing labor unrest
permeating within the premises of Complex left the officers with no other choice but to pull them out
of Complex at night to prevent their destruction. Thus, we see no reason to declare Lawrence Qua
personally liable to the Union.
Anent the award of damages, we are inclined to agree with the NLRC that there is no basis for such
award. We again quote the respondent NLRC with favor:
By and large, we cannot hold respondents guilty of unfair labor practice as found by
the Labor Arbiter since the closure of operation of Complex was not established by
strong evidence that the purpose of said closure was to interfere with the employees'
right to self-organization and collective bargaining. As very clearly established, the
closure was triggered by the customers' pull-out of their equipment, machinery and
materials, who were alarmed by the pending labor dispute and the imminent strike by
the union, and as a protection to their interest pulled-out of business from Complex
who had no recourse but to cease operation to prevent further losses. The
indiscretion committed by the Union in filing the notice of strike, which to our mind is
not the proper remedy to question the amount of benefits due the complainants who
will be retrenched at the closure of the Lite-On Line, gave a wrong signal to
customers of Complex, which consequently resulted in the loss of employment of not
only a few but to all the of the workers. It may be worth saying that the right to strike
should only be a remedy of last resort and must not be used as a show of force
against the employer. 27
We shall now go to the issues raised by Complex in G.R. No. 122136.
Complex claims that the respondent NLRC erred in ordering them to pay the Union one (1) month
pay as indemnity for failure to give notice to its employees at least thirty (30) days before such
closure since it was quite clear that the employees were notified of the impending closure of the Lite-
On Line as early as March 9, 1992. Moreover, the abrupt cessation of operations was brought about
by the sudden pull-out of the customers which rendered it impossible for Complex to observe the
required thirty (30) days notice.
Art. 283 of the Labor Code provides that:
Art. 283. 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 operation 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 Ministry of Labor and Employment at least one (1)month
before the intended date thereof . . . . (Emphasis ours.)
The purpose of the notice requirement is to enable the proper authorities to determine after hearing
whether such closure is being done in good faith, i.e., for bona fide business reasons, or whether, to
the contrary, the closure is being resorted to as a means of evading compliance with the just
obligations of the employer to the employees affected. 28
While the law acknowledges the management prerogative of closing the business, it does not,
however, allow the business establishment to disregard the requirements of the law. The case
of Magnolia Dairy Products v. NLRC29 is quite emphatic about this:
The law authorizes an employer, like the herein petitioners, to terminate the
employment of any employee due to the installation of labor saving devices. The
installation of these devices is a management prerogative, and the courts will not
interfere with its exercise in the absence of abuse of discretion, arbitrariness, or
maliciousness on the part of management, as in this case. Nonetheless, this did not
excuse petitioner from complying with the required written notice to the employee
and to the Department of Labor and Employment (DOLE) at least one month before
the intended date of termination. This procedure enables an employee to contest the
reality or good faith character of the asserted ground for the termination of his
services before the DOLE.
The failure of petitioner to serve the written notice to private respondent and to the
DOLE, however, does not ipso facto make private respondent's termination from
service illegal so as to entitle her to reinstatement and payment of backwages. If at
all, her termination from service is merely defective because it was not tainted with
bad faith or arbitrariness and was due to a valid cause.
The well settled rule is that the employer shall be sanctioned for non-compliance with
the requirements of, or for failure to observe due process in terminating from service
its employee. InWenphil Corp. v. NLRC, we sanctioned the employer for this failure
by ordering it to indemnify the employee the amount of P1,000.00. Similarly, we
imposed the same amount as indemnification inRubberworld (Phils.), Inc. v. NLRC,
and, Aurelio v. NLRC and Alhambra Industries, Inc. v. NLRC. Subsequently, the sum
of P5,000.00 was awarded to an employee in Worldwide Papermills, Inc. v.NLRC,
and P2,000.00 in Sebuguero, et al., v. NLRC, et al. Recently, the sum of P5,000.00
was again imposed as indemnify against the employer. We see no valid and cogent
reason why petitioner should not be likewise sanctioned for its failure to serve the
mandatory written notice. Under the attendant facts, we find the amount of
P5,000.00, to be just and reasonable.
We, therefore, find no grave abuse of discretion on the part of the NLRC in ordering Complex to pay
one (1) month salary by way of indemnity. It must be borne in mind that what is at stake is the means
of livelihood of the workers so they are at least entitled to be formally informed of the management
decisions regarding their employment. 30
Complex, likewise, maintains that it is not liable for the payment for the payment of separation pay
since Article 283 of the Labor Code awards separation pay only in cases of closure not due to
serious business reversals. In this case, the closure of Complex was brought about by the losses
being suffered by the corporation.
We disagree.
Art. 283 further provides:
. . . . 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 his 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
case of cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent to one
(1) month pay or at least one-half (1/2) month pay for every year of service,
whichever is higher. A fraction of at least six (6) months shall be considered one (1)
whole year.
It is settled that in case of closures or cessation of operation of business establishments not due to
serious business losses or financial reverses, 31 the employees are always given separation benefits.
In the instant case, notwithstanding the financial losses suffered by Complex, such was, however,
not the main reason for its closure. Complex admitted in its petition that the main reason for the
cessation of the operations was the pull-out of the materials, equipment and machinery from the
premises of the corporation as dictated by its customers. It was actually still capable of continuing
the business but opted to close down to prevent further losses. Under the facts and circumstances of
the case, we find no grave abuse of discretion on the part of the public respondent in awarding the
employees one (1) month pay for every year of service as termination pay. 1wphi1.nt
WHEREFORE, premises considered, the assailed decision of the NLRC is AFFIRMED.
SO ORDERED.
Davide, Jr., C.J., Melo, Pardo and Ynares-Santiago, JJ., concur.
Footnotes
1 Rollo, of G.R. No. 122636, p. 270.
2 Id., at 271.
3 NLRC Decision dated March 10, 1995, rollo of G.R. No. 121315, p. 78.
4 Sec. 3. Notice of strike or lockout. In cases of bargaining deadlocks, a notice of strike or

lockout shall be filed with the regional branch of the Board at least thirty (30) days before the
intended dated thereof, a copy of said notice having been served on the other party
concerned. In case of unfair labor practices, the period of notice shall be fifteen (15) days.
However, in case of unfair labor practice involving the dismissal from employment of union
officers duly elected in accordance with the union constitution and by-laws which may
constitute union-busting where the existence of the union is threatened, the fifteen-day
cooling-off period shall not apply and the union may take action immediately after the strike
vote is conducted and the results thereof submitted to the Department of Labor and
Employment.
Sec. 8. Declaration of strike and lockout. Should the dispute remain unsettled after the
lapse of the requisite number of days from the filing of the notice of strike or lockout and the
results of the election required in the preceding section, the labor union may strike or the
employer may lockout its workers. The regional branch or the Board shall continue mediating
and conciliating.
5 Rollo of G.R. 121315, pp. 72-73.
6 Id., at 99-100.
7 Id., at 102-106.
8 Id., at 31.
9 Rollo of G.R. No. 122136, p. 21.
10 Rollo of G.R. 121315, pp. 273-274.
11 Rollo of G.R. No. 122136, p. 597.
12 Rollo of G.R. 121315, pp. 383-386.
13 Id., at 287-291.
14 See Textile Workers Union v. Darlington Mfg. Co., 380 US 263, 12 L Ed. 2d 827, 85, S Ct
994.
15 William P. Statsky, WEST'S LEGAL THESAURUS/DICTIONARY, Special Deluxe Edition,

p. 671.
16 205 SCRA 697 [1992].
17 187 SCRA 777 [1990].
18 254 SCRA 673 [1996].
19 Concept Builders, Inc. v. National Labor Relations Commission, 257 SCRA 149 [1996];
Philippine International Bank v. Court of Appeals, 252 SCRA 259 [1996]; Yu v. National Labor
Relations Commission, 245 SCRA 134 [1995].
20 Matuguina Integrated Wood Products, Inc. v. Court of Appeals, 263 SCRA 490 [1896].
21 Art. 212 (p), LABOR CODE OF THE PHILIPPINES.
22 Sta. Mesa Slipways & Engineering Co. v. CIR, 48 O.G. 3353, as cited in II C.A. Azucena,
THE LABOR CODE WITH COMMENTS AND CASES, Revised 1993 Ed., p. 296.
23 Records pp. 427-434.
24 247 SCRA 46 [1995].
25 AHS/Philippines, Inc. vs. Court of Appeals, 257 SCRA 319 [1996].
26 Rollo of G.R. No. 121315, p. 182.
27 Id., at 97-98.
28 Coca Cola Bottlers (Phils.), Inc. v. NLRC, 194 SCRA 592 [1991].
29 252 SCRA 483 [1996].

30 PAL v. NLRC, 225 SCRA 301 [1993].
31 North Davao Mining Corp. vs. NLRC, 254 SCRA 721, [1996]; See also: State Investment
House, Inc. vs. court of Appeals, 206 SCRA 348, [1992]; Mindanao Terminal and Brokerage
Service, Inc. vs. The Hon. Minister of Labor and Employment, 238 SCRA 77, [1994].

SUPREME COURT
Manila
EN BANC
A.C. No. 2797 October 4, 2002
ROSAURA P. CORDON, complainant,

vs.
JESUS BALICANTA, respondent.
RESOLUTION
PER CURIAM:
On August 21, 1985, herein complainant Rosaura Cordon filed with this Court a complaint for
disbarment, docketed as Administrative Case No. 2797, against Atty. Jesus Balicanta. After
respondents comment to the complaint and complainants reply thereto, this Court, on March 29,
1995 referred the matter to the Integrated Bar of the Philippines (IBP, for brevity) for investigation,
report and recommendation within 90 days from notice. Commissioner George Briones of the IBP
Commission on Bar Discipline was initially tasked to investigate the case. Commissioner Briones
was later on replaced by Commissioner Renato Cunanan. Complainant filed a supplemental
complaint which was duly admitted and, as agreed upon, the parties filed their respective position
papers.
Based on her complaint, supplemental complaint, reply and position paper, the complainant alleged
the following facts:
When her husband Felixberto C. Jaldon died, herein complainant Rosaura Cordon and her daughter
Rosemarie inherited the properties left by the said decedent. All in all, complainant and her daughter
inherited 21 parcels of land located in Zamboanga City. The lawyer who helped her settle the estate
of her late husband was respondent Jesus Balicanta.
Sometime in the early part of 1981, respondent enticed complainant and her daughter to organize a
corporation that would develop the said real properties into a high-scale commercial complex with a
beautiful penthouse for complainant. Relying on these apparently sincere proposals, complainant
and her daughter assigned 19 parcels of land to Rosaura Enterprises, Incorporated, a newly-formed
and duly registered corporation in which they assumed majority ownership. The subject parcels of
land were then registered in the name of the corporation.
Thereafter, respondent single-handedly ran the affairs of the corporation in his capacity as Chairman
of the Board, President, General Manager and Treasurer. The respondent also made complainant
sign a document which turned out to be a voting trust agreement. Respondent likewise succeeded in
making complainant sign a special power of attorney to sell and mortgage some of the parcels of
land she inherited from her deceased husband. She later discovered that respondent transferred the
titles of the properties to a certain Tion Suy Ong who became the new registered owner thereof.
Respondent never accounted for the proceeds of said transfers.
In 1981, respondent, using a spurious board resolution, contracted a loan from the Land Bank of the
Philippines (LBP, for brevity) in the amount of Two Million Two Hundred Twenty Pesos (P2,220,000)
using as collateral 9 of the real properties that the complainant and her daughter contributed to the
corporation. The respondent ostensibly intended to use the money to construct the Baliwasan
Commercial Center (BCC, for brevity). Complainant later on found out that the structure was made
of poor materials such as sawali, coco lumber and bamboo which could not have cost the
corporation anything close to the amount of the loan secured.
For four years from the time the debt was contracted, respondent failed to pay even a single
installment. As a result, the LBP, in a letter dated May 22, 1985, informed respondent that the past
due amortizations and interest had already accumulated to Seven Hundred Twenty-nine Thousand
Five Hundred Three Pesos and Twenty-five Centavos (P729,503.25). The LBP made a demand on
respondent for payment for the tenth time. Meanwhile, when the BCC commenced its operations,
respondent started to earn revenues from the rentals of BCCs tenants. On October 28, 1987, the
LBP foreclosed on the 9 mortgaged properties due to non-payment of the loan.
Respondent did not exert any effort to redeem the foreclosed properties. Worse, he sold the
corporations right to redeem the mortgaged properties to a certain Hadji Mahmud Jammang through
a fake board resolution dated January 14, 1989 which clothed himself with the authority to do so.
Complainant and her daughter, the majority stockholders, were never informed of the alleged
meeting held on that date. Again, respondent never accounted for the proceeds of the sale of the
right to redeem. Respondent also sold to Jammang a parcel of land belonging to complainant and
her daughter which was contiguous to the foreclosed properties and evidenced by Transfer
Certificate of Title No. 62807. He never accounted for the proceeds of the sale.
Sometime in 1983, complainants daughter, Rosemarie, discovered that their ancestral home had
been demolished and that her mother, herein complainant, was being detained in a small nipa shack
in a place called Culianan. Through the help of Atty. Linda Lim, Rosemarie was able to locate her
mother. Rosemarie later learned that respondent took complainant away from her house on the
pretext that said ancestral home was going to be remodeled and painted. But respondent
demolished the ancestral home and sold the lot to Tion Suy Ong, using another spurious board
resolution designated as Board Resolution No. 1, series of 1992. The resolution contained the
minutes of an alleged organizational meeting of the directors of the corporation and was signed by
Alexander Wee, Angel Fernando, Erwin Fernando and Gabriel Solivar. Complainant and her
daughter did not know how these persons became stockholders and directors of the corporation.
Respondent again did not account for the proceeds of the sale.
Complainant and her daughter made several demands on respondent for the delivery of the real
properties they allegedly assigned to the corporation, for an accounting of the proceeds of the LBP
loan and as well as the properties sold, and for the rentals earned by BCC. But the demands
remained unheeded. Hence, complainant and her daughter, in a letter dated June 4, 1985,
terminated the services of respondent as their lawyer and repeated their demands for accounting
and turn-over of the corporate funds, and the return of the 19 titles that respondent transferred to the
corporation. They also threatened him with legal action in a letter dated August 3, 1985.
Soon after, complainant found out from the Securities and Exchange Commission (SEC, for brevity)
that Rosaura Enterprises, Inc., due to respondents refusal and neglect, failed to submit the
corporations annual financial statements for 1981, 1982 and 1983; SEC General Information Sheets
for 1982, 1983 and 1984; Minutes of Annual Meetings for 1982, 1983 and 1984; and Minutes of
Annual Meetings of Directors for 1982, 1983 and 1984.
Complainant also discovered that respondent collected rental payments from the tenants of BCC
and issued handwritten receipts which he signed, not as an officer of the corporation but as the
attorney-at-law of complainant. Respondent also used the tennis court of BCC to dry his palay and
did not keep the buildings in a satisfactory state, so much so that the divisions were losing plywood
and other materials to thieves.
Complainant likewise accused respondent of circulating rumors among her friends and relatives that
she had become insane to prevent them from believing whatever complainant said. According to
complainant, respondent proposed that she legally separate from her present husband so that the
latter would not inherit from her and that respondent be adopted as her son.
For his defense, respondent, in his comment and position paper, denied employing deceit and
machination in convincing complainant and her daughter to assign their real properties to the
corporation; that they freely and voluntary executed the deeds of assignment and the voting trust
agreement that they signed; that he did not single-handedly manage the corporation as evidenced
by certifications of the officers and directors of the corporation; that he did not use spurious board
resolutions authorizing him to contract a loan or sell the properties assigned by the complainant and
her daughter; that complainant and her daughter should be the ones who should render an
accounting of the records and revenues inasmuch as, since 1984 up to the present, the part-time
corporate book-keeper, with the connivance of the complainant and her daughter, had custody of the
corporate records; that complainant and her daughter sabotaged the operation of BCC when they
illegally took control of it in 1986; that he never pocketed any of the proceeds of the properties
contributed by the complainant and her daughter; that the demolition of the ancestral home followed
legal procedures; that complainant was never detained in Culianan but she freely and voluntarily
lived with the family of P03 Joel Constantino as evidenced by complainants own letter denying she
was kidnapped; and that the instant disbarment case should be dismissed for being premature,
considering the pendency of cases before the SEC and the Regional Trial Court of Zamboanga
involving him and complainant.
Based on the pleadings and position papers submitted by the parties, Commissioner Renato
Cunanan, in his report1 dated July 1, 1999, recommended respondents disbarment based on the
following findings:
"A. The complainant, Rosaura Jaldon-Cordon and her daughter, Rosemarie were
stockholders of a corporation, together with respondent, named Rosaura Enterprises, Inc.
"Per the Articles of Incorporation marked as Annex A of Complainants Position Paper,

complainants subscription consists of 55% of the outstanding capital stock while her
daughters consists of 18%, giving them a total of 73%. Respondents holdings consist of
24% while three other incorporators, Rosauro L. Alvarez, Vicente T. Maalac and Darhan S.
Graciano each held 1% of the capital stock of the corporation.
"B. On April 5, 1981, complainant and her daughter Rosemarie Jaldon executed two Deeds
of Transfer and Assignment conveying and transferring to the corporation 19 parcels of land
in exchange for shares of stock in the corporation.
"x x x xxx xxx
"C. Both Deeds of Assignment particularly page 3 thereof indicate that respondent accepted
said assignment of properties and titles in behalf of the corporation as Treasurer. The deeds
were signed on April 5, 1981.
"x x x xxx xxx
"Together, therefore, complainant and her daughter owned 1,711 shares of the 1,750 shares
comprising the authorized capital stock of the corporation of 97% thereof.
"No increase in capitalization was applied for by the corporation.
"F. Respondent claims in his Comment, his Answer and his Position Paper that on April 4,
1981 he was elected as Chairman and Director and on April 5, 1981 he was elected
President of the corporation. Respondents own Annexes marked as G and G-1 of his
Comment show that on April 4, 1981 he was not only elected as Chairman and Director as
he claims but as Director, Board Chairman and President. The purported minutes was only
signed by respondent and an acting Secretary by the name of Vicente Maalac.
"Said Annex does not show who was elected Treasurer.
"Respondents Annex H and H-1 shows that in the alleged organizational meeting of the
directors on April 5, 1981 a certain Farnacio Bucoy was elected Treasurer. Bucoys name
does not appear as an incorporator nor a stockholder anywhere in the documents submitted.
"The purported minutes of the organizational meeting of the directors was signed only by
respondent Balicanta and a Secretary named Verisimo Martin.
"G. Since respondent was elected as Director, Chairman and President on April 4, 1981 as
respondents own Annexes G to G-1 would show, then complainants claim that respondent
was likewise acting as Treasurer of two corporations bear truth and credence as respondent
signed and accepted the titles to 19 parcels of land ceded by the complainant and her
daughter, as Treasurer on April 5, 1981 after he was already purportedly elected as
Chairman, President and Director.
"H. Respondent misleads the Commission into believing that all the directors signed the
minutes marked as Exhibit H to H-1 by stating that the same was duly signed by all the
Board of Directors when the document itself shows that only he and one Verisimo Martin
signed the same.
"He also claims that all the stockholders signed the minutes of organizational meeting
marked as Annexes G and G-1 of his Comment yet the same shows that only the acting
Chairman and acting Secretary signed.
"I. Respondent claims that the Board or its representative was authorized by the
stockholders comprising 2/3 of the outstanding capital stock, as required by law, to mortgage
the parcels of land belonging to the corporation, which were all assigned to the corporation
by complainant and her daughter, by virtue of Annex I and I-1: attached to his Comment.
"The subject attachment however reveals that only the following persons signed their
conformity to the said resolution: respondent Balicanta who owned 109 shares, Vicente
Maalac (1 share), Daihan Graciano (1 share).
"Complainants who collectively held a total of 1,711 shares out of the 1,750 outstanding
capital stock of the corporation were not represented in the purported stockholders meeting
authorizing the mortgage of the subject properties.
"The 2/3 vote required by law was therefore not complied with yet respondent proceeded to
mortgage the subject 9 parcels of land by the corporation.
"J. Respondent further relies on Annex J of his Comment, purportedly the minutes of a
special meeting of the Board of Directors authorizing him to obtain a loan and mortgage the
properties of the corporation dated August 29, 1981. This claim is baseless. The required
ratification of 2/3 by the stockholders of records was not met. Again, respondent attempts to
mislead the Commission and Court.
"K. Further, the constitution of the Board is dubious. The alleged minutes of the
organizational meeting of the stockholders electing the members of the Board, have not
been duly signed by the stockholders as shown in respondents annex G which was
purportedly the organizational meeting of the stockholders.
"L. Also, Annex J of respondents Comment which purportedly authorized him to obtain a
loan and to mortgage the 9 parcels of land was only signed by himself and a secretary.
"M. In said Annex 'J' of respondents Comment he stated that complainant Rosaura Cordon
was on leave by virtue of a voting trust agreement allegedly executed by complainant in his
favor covering all her shares of stock. The claim is baseless. The voting trust referred to by
respondent (annex D of his Comment), even if it were assumed to be valid, covered only
266 shares of complainants yet she owned a total of 1,039 shares after she and her
daughter ceded in favor of the corporation 19 parcels of land.
"Being a former lawyer to complainant, respondent should have ensured that her interest
was safeguarded. Yet, complainant was apparently and deliberately left our (sic) on the
pretext that, she had executed a voting trust agreement in favor of respondent.
"It is suspicious that complainant was made to sign a voting trust agreement on 21 August
1981 and immediately thereafter, the resolutions authorizing respondent to obtain a loan and
to mortgage the 9 parcels of land were passed and approved.
"N. It is also highly irregular for respondent who is a lawyer, to allow a situation to happen
where, with the exclusion of complainant as director the result was that there remained only
4 members of the Board,.
"O. Respondents own pleadings submitted to the Commission contradict each other.
"1. For instance, while in his Comment respondent DENIES that he employed deceit
and machination in convincing the complainant and her daughter to sign the articles
of incorporation of Rosaura Enterprises and in ceding to the corporation 19 parcels of
land in Zamboanga City, because they freely, intelligently and voluntarily signed the
same, yet, in his Position Paper, respondent took another stance.
"In paragraphs 1.1 and 1.2 of his Position Paper which was submitted 12 years later,
respondent claimed that it was actually the idea of Atty. Rosaura L. Alvarez that a
corporation be put up to incorporate the estate of the late Felixberto D. Jaldon.
"2. Likewise, respondent claimed that complainant and her daughter were not
directors, hence they were not notified of meetings, in paragraph 2-6 (c) of his
Comment he blamed the other stockholders and directors for the corporations
inability to comply with the Land Banks demands saying that they have consistently
failed since 1982 to convene (1.) for the annual stockholders meetings and (i.i) for
the monthly board meeting.
"His own pleadings claim that he had been the Chairman/President since 1981 to the
present. If (sic) so, it was his duty to convene the stockholders and the directors for
meetings.
"Respondent appeared able to convene the stockholders and directors when he

needed to make a loan of p2.2 million; when he sold the corporations right of
redemption over the foreclosed properties of the corporation to Jammang, when he
sold one parcel of land covered by TCT 62,807 to Jammang in addition to the 9
parcels of land which were foreclosed, and when he sold the complainants ancestral
home covered by TCT No. 72,004.
"It is thus strange why respondent claims that the corporation could not do anything
to save the corporations properties from being foreclosed because the stockholders
and directors did not convene.
"This assertion of respondent is clearly evident of dishonest, deceitful and immoral

conduct especially because, in all his acts constituting conveyances of corporate
property, respondent used minutes of stockholders and directors meetings signed
only by him and a secretary or signed by him and persons who were not
incorporators much less stockholders.
"It is worthy of note that in respondents Exhibits 15, 16, 17 and 18 of his position
paper, there were 7 new stockholders and complainant appeared to have only 266
shares to her name while her daughter Rosemarie had no shares at all. Respondent
did not present any proof of conveyance of shares by complainant and her daughter.
"It is further worth noting that complainants voting trust (annex D of respondents
Comment) where she allegedly entrusted 266 shares to respondent on August 21,
1981 had only a validity of 5 years. Thus, she should have had her entire holdings of
1,283 shares back in her name in August 1986.
"Respondents purported minutes of stockholders meeting (Exhs. 15 and 17) do

not reflect this.
"There was no explanation whatsoever from respondent on how complainant and her
daughter lost their 97% control holding in the corporation.
"3. As a further contradiction in respondents pleadings, we note that in paragraph

2.7.C of his Comment he said that only recently, this year, 1985, the complainant
and her aforenamed daughter examined said voluminous supporting
receipts/documents which had previously been examined by the Land Bank for loan
releases, during which occasion respondent suggested to them that the corporation
will have to hire a full-time book-keeper to put in order said voluminous supporting
receipts/documents, to which they adversely reacted due to lack of corporate money
to pay for said book-keeper. But in respondents Position Paper par. 6.3 he stated
that:
Anyway, it is not the respondent but rather the complainant who should render a
detailed accounting to the corporation of the corporate records as well as corporate
revenues/income precisely becausesince 1994 to the present:
(a). The corporate part-time book-keeper Edilberto Benedicto, with the indispensable
connivance and instigation of the complainant and her daughter, among others, has
custody of the corporate records, xxx
"4. In other contradictory stance, respondent claims in par. 7.3 of his position paper
that complainant and her daughter sabotaged the BCC operations of the corporation
by illegally taking over actual control and supervision thereof sometime in 1986, xxx
"Yet respondents own exhibits in his position paper particularly Exhibit 15 and 16
where the subject of the foreclosed properties of the corporation comprising the
Baliwasan Commercial Center (BCC) was taken up, complainant and her daughter
were not even present nor were they the subject of the discussion, belying
respondents claim that the complainant and her daughter illegally took actual control
of BCC.
"5. On the matter of the receipts issued by respondent evidencing payment to him of
rentals by lessees of the corporation, attached to the complaint as Annexes H to H-
17, respondent claims that the receipts are temporary in nature and that
subsequently regular corporate receipts were issued. On their face however the
receipts clearly appear to be official receipts, printed and numbered duly signed by
the respondent bearing his printed name.
"It is difficult to believe that a lawyer of respondent stature would issue official
receipts to lessees if he only meant to issue temporary ones.
"6. With regard to respondents claim that the complainant consented to the sale of
her ancestral home, covered by TCT No. T-72,004 to one Tion Suy Ong for which he
attached as Exhibit 22 to his Position Paper the minutes of an annual meeting of the
stockholders, it behooves this Commission why complainants signature had to be
accompanied by her thumb mark. Furthermore, complainants signature appears
unstable and shaky. This Office is thus persuaded to believe complainants allegation
in paragraph 3b of her position paper that since September 1992 up to March 1993
she was being detained by one PO# (sic) Joel Constantino and his wife under
instructions from respondent Balicanta.
"This conclusion is supported by a letter from respondent dated March 1993, Annex
H of complainants position paper, where respondent ordered Police Officer
Constantino to allow Atty. Linda Lim and Rosemarie Jaldon to talk to Tita Rosing.
"The complainants thumb mark together with her visibly unstable shaky signature
lends credence to her claim that she was detained in the far flung barrio of Culianan
under instructions of respondent while her ancestral home was demolished and the
lot sold to one Tion Suy Ong.
"It appears that respondent felt compelled to over-ensure complainants consent by

getting her to affix her thumb mark in addition to her signature.
"7. Respondent likewise denies that he also acted as Corporate Secretary in addition
to being the Chairman, President and Treasurer of the corporation. Yet, respondent
submitted to this commission documents which are supported to be in the
possession of the Corporate Secretary such as the stock and transfer book and
minutes of meetings.
"The foregoing findings of this Commission are virtual smoking guns that prove on no
uncertain terms that respondent, who was the legal counsel of complainant in the
latter part of the settlement of the estate of her deceased husband, committed
unlawful, immoral and deceitful conduct proscribed by Rule 1.01 of the code of
professional responsibility.
"Likewise, respondent clearly committed a violation of Canon 15 of the same code

which provides that A lawyer should observe candor fairness and loyalty in all his
dealings and transactions with his client.
"Respondents acts gravely diminish the publics respect for the integrity of the
profession of law for which this Commission recommends that he be meted the
penalty of disbarment.
"The pendency of the cases at the SEC and the Regional Trial Court of Zamboanga
filed by complainant against respondent does not preclude a determination of
respondents culpability as a lawyer.
"This Commission cannot further delay the resolution of this complaint filed in 1985
by complainant, and old widow who deserves to find hope and recover her
confidence in the judicial system.
"The findings of this office, predominantly based on documents adduced by both

parties lead to only one rather unpalatable conclusion. That respondent Atty. Jesus F.
Balicanta, in his professional relations with herein complainant did in fact employ
unlawful, dishonest, and immoral conduct proscribed in no uncertain terms by Rule
1.01 of the Code of Professional Responsibility. In addition, respondents actions
clearly violated Canon 15 to 16 of the same Code.
"It is therefore our unpleasant duty to recommend that respondent, having committed
acts in violation of the Canons of Professional Responsibility, thereby causing a great
disservice to the profession, be meted the ultimate sanction of disbarment." 2
On September 30, 1999, while Commissioner Cunanans recommendation for respondents

disbarment was pending review before Executive Vice-President and Northern Luzon Governor
Teofilo Pilando, respondent filed a motion requesting "for a full-blown investigation and for
invalidation of the entire proceedings and/or remedial action under Section 11, Rule 139-B, Revised
Rules of Court," alleging that he had evidence that Commissioner Cunanans report was drafted by
the lawyers of complainant, Attys. Antonio Cope and Rita Linda Jimeno. He presented two unsigned
anonymous letters allegedly coming from a disgruntled employee of Attys. Cope and Jimeno. He
claimed to have received these letters in his mailbox.3
Respondents motion alleging that Attys. Antonio Cope and Rita Linda Jimeno drafted Commissioner
Cunanans report was accompanied by a complaint praying for the disbarment of said lawyers
including Commissioner Cunanan. The complaint was docketed as CBD Case No. 99-658. After
Attys. Cope and Jimeno and Commissioner Cunanan filed their answers, a hearing was conducted
by the Investigating Committee of the IBP Board of Governors.
On May 26, 2001, the IBP Board of Governors issued a resolution4 dismissing for lack of merit the
complaint for disbarment against Attys. Cope and Jimeno and Commissioner Cunanan. And in Adm.
Case No. 2797, the Board adopted and approved the report and recommendation of Commissioner
Cunanan, and meted against herein respondent Balicanta the penalty of suspension from the
practice of law for 5 years "for commission of acts of misconduct and disloyalty by taking undue and
unfair advantage of his legal knowledge as a lawyer to gain material benefit for himself at the
expense of complainant Rosaura P. Jaldon-Cordon and caused serious damage to the
complainant."5
To support its decision, the Board uncovered respondents fraudulent acts in the very same
documents he presented to exonerate himself. It also took note of respondents contradictory and
irreconcilable statements in the pleadings and position papers he submitted. However, it regarded
the penalty of disbarment as too severe for respondents misdeeds, considering that the same were
his first offense.6
Pursuant to Section 12 (b), Rule 139-B of the Rules of Court, 7 the said resolution in Administrative
Case No. 2797 imposing the penalty of suspension for 5 years on respondent was automatically
elevated to this Court for final action. On the other hand, the dismissal of the complaint for
disbarment against Attys. Cope and Jimeno and Commissioner Cunanan, docketed as CBD Case
No. 99-658, became final in the absence of any petition for review.
This Court confirms the duly supported findings of the IBP Board that respondent committed
condemnable acts of deceit against his client. The fraudulent acts he carried out against his client
followed a well thought of plan to misappropriate the corporate properties and funds entrusted to
him. At the very outset, he embarked on his devious scheme by making himself the President,
Chairman of the Board, Director and Treasurer of the corporation, although he knew he was
prohibited from assuming the position of President and Treasurer at the same time. 8 As Treasurer,
he accepted in behalf of the corporation the 19 titles that complainant and her daughter co-owned.
The other treasurer appointed, Farnacio Bucoy, did not appear to be a stockholder or director in the
corporate records. The minutes of the meetings supposedly electing him and Bucoy as officers of the
corporation actually bore the signatures of respondent and the secretary only, contrary to his claim
that they were signed by the directors and stockholders.
He likewise misled the IBP investigating commission in claiming that the mortgage of 9 of the
properties of the corporation previously belonging to complainant and her daughter was ratified by
the stockholders owning two-thirds or 67% of the outstanding capital stock when in fact only three
stockholders owning 111 out of 1,750 outstanding shares or 6.3% assented thereto. The alleged
authorization granting him the power to contract the LBP loan for Two Million Two Hundred Twenty
Pesos (P2,220,000) was also not approved by the required minimum of two-thirds of the outstanding
capital stock despite respondents claim to the contrary. In all these transactions, complainant and
her daughter who both owned 1,711 out of the 1,750 outstanding shares of the corporation or 97.7%
never had any participation. Neither were they informed thereof.
Clearly, there was no quorum for a valid meeting for the discussion and approval of these
transactions.
Respondent cannot take refuge in the contested voting trust agreement supposedly executed by
complainant and her daughter for the reason that it authorized respondent to represent complainant
for only 266 shares.
Aside from the dishonest transactions he entered into under the cloak of sham resolutions, he failed
to explain several discrepancies in his version of the facts. We hereby reiterate some of these
statements noted by Commissioner Cunanan in his findings.
First, respondent blamed the directors and the stockholders who failed to convene for the required
annual meetings since 1982. However, respondent appeared able to convene the stockholders and
directors when he contracted the LBP debt, when he sold to Jammang the corporations right of
redemption over the foreclosed properties of the corporation, when he sold one parcel of land
covered by TCT No. 62807 to Jammang, when he mortgaged the 9 parcels of land to LBP which
later foreclosed on said mortgage, and when he sold the complainants ancestral home covered by
TCT No. 72004.
Second, the factual findings of the investigating commission, affirmed by the IBP Board, disclosed
that complainant and her daughter own 1,711 out of 1,750 shares of the outstanding capital stock of
the corporation, based on the Articles of Incorporation and deeds of transfer of the properties. But
respondents evidence showed that complainant had only 266 shares of stock in the corporation
while her daughter had none, notwithstanding the fact that there was nothing to indicate that
complainant and her daughter ever conveyed their shares to others.
Respondent likewise did not explain why he did not return the certificates representing the 266
shares after the lapse of 5 years from the time the voting trust certificate was executed in 1981. 9
The records show that up to now, the complainant and her daughter own 97% of the outstanding
shares but respondent never bothered to explain why they were never asked to participate in or why
they were never informed of important corporate decisions.
Third, respondent, in his comment, alleged that due to the objection of complainant and her daughter
to his proposal to hire an accountant, the corporation had no formal accounting of its revenues and
income. However, respondents position paper maintained that there was no accounting because the
part-time bookkeeper of the corporation connived with complainant and her daughter in keeping the
corporate records.
Fourth, respondents claim that complainant and her daughter took control of the operations of the
corporation in 1986 is belied by the fact that complainant and her daughter were not even present in
the alleged meeting of the board (which took place after 1986) to discuss the foreclosure of the
mortgaged properties. The truth is that he never informed them of such meeting and he never gave
control of the corporation to them.
Fifth, Commissioner Cunanan found that:
"5. on the matter of the receipts issued by respondent evidencing payment to him of rentals by
lessees of the corporation, attached to the complaint as Annexes H to H-17, respondent claims
that the receipts are temporary in nature and that subsequently regular corporate receipts were
issued. On their face however the receipts clearly appear to be official receipts, printed and
numbered duly signed by the respondent bearing his printed name.
"It is difficult to believe that a lawyer of respondents stature would issue official receipts to lessees if
he only meant to issue temporary ones."10
Sixth, respondent denies that he acted as Corporate Secretary aside from being the Chairman,
President and Treasurer of the corporation. Yet respondent submitted to the investigating
commission documents which were supposed to be in the official possession of the Corporate
Secretary alone such as the stock and transfer book and minutes of meetings.
Seventh, he alleged in his comment that he was the one who proposed the establishment of the
corporation that would invest the properties of the complainant but, in his position paper, he said that
it was a certain Atty. Rosauro Alvarez who made the proposal to put up the corporation.
After a thorough review of the records, we find that respondent committed grave and serious
misconduct that casts dishonor on the legal profession. His misdemeanors reveal a deceitful scheme
to use the corporation as a means to convert for his own personal benefit properties left to him in
trust by complainant and her daughter.
Not even his deviousness could cover up the wrongdoings he committed. The documents he thought
could exculpate him were the very same documents that revealed his immoral and shameless ways.
These documents were extremely revealing in that they unmasked a man who knew the law and
abused it for his personal gain without any qualms of conscience. They painted an intricate web of
lies, deceit and opportunism beneath a carefully crafted smokescreen of corporate maneuvers.
The Code of Professional Responsibility mandates upon each lawyer, as his duty to society, the
obligation to obey the laws of the land and promote respect for law and legal processes. Specifically,
he is forbidden to engage in unlawful, dishonest, immoral or deceitful conduct. 11 If the practice of law
is to remain an honorable profession and attain its basic ideal, those enrolled in its ranks should not
only master its tenets and principles but should also, in their lives, accord continuing fidelity to
them.12 Thus, the requirement of good moral character is of much greater import, as far as the
general public is concerned, than the possession of legal learning.13 Lawyers are expected to abide
by the tenets of morality, not only upon admission to the Bar but also throughout their legal career, in
order to maintain ones good standing in that exclusive and honored fraternity. 14 Good moral
character is more than just the absence of bad character. Such character expresses itself in the will
to do the unpleasant thing if it is right and the resolve not to do the pleasant thing if it is wrong. 15 This
must be so because "vast interests are committed to his care; he is the recipient of unbounded trust
and confidence; he deals with his clients property, reputation, his life, his all." 16
Indeed, the words of former Presiding Justice of the Court of Appeals Pompeyo Diaz cannot find a
more relevant application than in this case:
"There are men in any society who are so self-serving that they try to make law serve their selfish
ends. In this group of men, the most dangerous is the man of the law who has no conscience. He
has, in the arsenal of his knowledge, the very tools by which he can poison and disrupt society and
bring it to an ignoble end."17
Good moral standing is manifested in the duty of the lawyer "to hold in trust all moneys and
properties of his client that may come into his possession." 18 He is bound "to account for all money or
property collected or received for or from the client." 19 The relation between an attorney and his client
is highly fiduciary in nature. Thus, lawyers are bound to promptly account for money or property
received by them on behalf of their clients and failure to do so constitutes professional misconduct. 20
This Court holds that respondent cannot invoke the separate personality of the corporation to
absolve him from exercising these duties over the properties turned over to him by complainant. He
blatantly used the corporate veil to defeat his fiduciary obligation to his client, the complainant.
Toleration of such fraudulent conduct was never the reason for the creation of said corporate fiction.
The massive fraud perpetrated by respondent on the complainant leaves us no choice but to set
aside the veil of corporate entity. For purposes of this action therefore, the properties registered in
the name of the corporation should still be considered as properties of complainant and her
daughter. The respondent merely held them in trust for complainant (now an ailing 83-year-old) and
her daughter. The properties conveyed fraudulently and/or without the requisite authority should be
deemed as never to have been transferred, sold or mortgaged at all. Respondent shall be liable, in
his personal capacity, to third parties who may have contracted with him in good faith.
Based on the aforementioned findings, this Court believes that the gravity of respondents offenses
cannot be adequately matched by mere suspension as recommended by the IBP. Instead, his
wrongdoings deserve the severe penalty of disbarment, without prejudice to his criminal and civil
liabilities for his dishonest acts.
WHEREFORE, respondent Attorney Jesus T. Balicanta is hereby DISBARRED. The Clerk of Court is
directed to strike out his name from the Roll of Attorneys.
SO ORDERED.
Bellosillo, Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Carpio, Austria-Martinez,

Corona, Carpio-Morales, and Callejo, Sr., JJ., concur.
Davide, Jr., C.J., Mendoza, and Sandoval-Gutierrez, JJ., on leave.

Footnotes
1
Rollo, pp. 334-357.
2
Rollo, pp. 345-357.
3
Rollo, pp. 314-317.
4
Rollo, pp. 264-332.
5
Rollo, pp. 167-168.
6
Rollo, pp. 329-331.
7
Sec. 12. Review and decision by the Board of Governors. xxx xxx xxx
(b) If the Board, by the vote of majority of its total membership, determines that the
respondent should be suspended from the practice of law or disbarred, it shall issue
a resolution setting forth its findings and recommendations which, together with the
whole record of the case, shall forthwith be transmitted to the Supreme Court for final
action.
8
Sec. 25, PD 902-A (The Corporation Code of the Philippines).
9
Sec. 59 of PD 902-A (The Corporation Code of the Philippines) provides that:
Sec. 59. Voting trusts. - One or more stockholders of a stock corporation may create
a voting trust for the purpose of conferring upon a trustee or trustees the right to vote
and other rights pertaining to the shares for a period not exceeding five (5) years at
any time: Provided, That in the case of a voting trust specifically required as a
condition in a loan agreement, said voting trust may be for a period exceeding five
(5) years but shall automatically expire upon full payment of the loan.
xxx xxx xxx
Unless expressly renewed, all rights granted in a voting trust agreement shall
automatically expire at the end of the agreed period, and the voting trust certificates
as well as the certificates of stock in the name of the trustee or trustees shall thereby
be deemed cancelled and new certificates of stock shall be reissued in the name of
the transferors.
(Emphasis supplied)
10
Rollo, pp. 354-355.
11
Rule 1.01, Canon 1, Code of Professional Responsibility.
12
Docena vs. Limon, 295 SCRA 262, 266 (1998).
13
In Re: Al C. Argosino, 246 SCRA 14(1995).
14
Villanueva vs. Sta. Ana, 245 SCRA 707, 709(1995).
15
Supra, note 13.
16
Id.
Commencement address to the 1981 graduating class of the Ateneo Law School on March
17
25, 1981.
18
Canon 16, Code of Professional Responsibility.
19
Rule 16.01, Canon 16, Code of Professional Responsibility.
20
Penticostes v. Ibaez, 304 SCRA 281, 284 (1999).

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. L-69259 January 26, 1988
DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners,

vs.
INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents.
GUTIERREZ, JR., J.:
The petitioners question the decision of the Intermediate Appellate Court which sustained the private
respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco
conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was
actually a deed of sale which violated a right of first refusal under a lease contract.
Briefly, the facts of the case are summarized as follows:

In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169
square meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the
Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila) which
is covered by Transfer Certificate of Title No. T-4240 of the Bulacan land registry.
On April 3, 1974, the said co-owners leased to Construction Components

International Inc. the same property and providing that during the existence or after
the term of this lease the lessor should he decide to sell the property leased shall first
offer the same to the lessee and the letter has the priority to buy under similar
conditions (Exhibits A to A-5)
On August 3, 1974, lessee Construction Components International, Inc. assigned its

rights and obligations under the contract of lease in favor of Hydro Pipes Philippines,
Inc. with the signed conformity and consent of lessors Delfin Pacheco and Pelagia
Pacheco (Exhs. B to B-6 inclusive)
The contract of lease, as well as the assignment of lease were annotated at he back
of the title, as per stipulation of the parties (Exhs. A to D-3 inclusive)
On January 3, 1976, a deed of exchange was executed between lessors Delfin and
Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former
conveyed to the latter the leased property (TCT No.T-4240) together with another
parcel of land also located in Malinta Estate, Valenzuela, Metro Manila (TCT No.
4273) for 2,500 shares of stock of defendant corporation with a total value of
P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo)
On the ground that it was not given the first option to buy the leased property pursuant to the proviso
in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended complaint for
reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades
Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco.
After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion
of the decision reads:
ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the
plaintiffs preferential right to acquire the subject property (right of first refusal) and
ordering the defendants and all persons deriving rights therefrom to convey the said
property to plaintiff who may offer to acquire the same at the rate of P14.00 per
square meter, more or less, for Lot 1095 whose area is 27,169 square meters only.
Without pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp. 246-
247). (Appellant's Brief, pp. 1-2; p. 134, Rollo)
The lower court's decision was affirmed on appeal by the Intermediate Appellate Court.
The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate
court's decision.
We initially denied the petition but upon motion for reconsideration, we set aside the resolution
denying the petition and gave it due course.
The petitioners allege that:

The denial of the petition will work great injustice to the petitioners, in that:
1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from
petitioners a parcel of industrial land consisting of 27,169 square meters or 2.7
hectares (located right after the Valenzuela, Bulacan exit of the toll expressway) for
only P14/sq. meter, or a total of P380,366, although the prevailing value thereof is
approximately P300/sq. meter or P8.1 Million;
2. Private respondent is allowed to exercise its right of first refusal even if there is no
"sale" or transfer of actual ownership interests by petitioners to third parties; and
3. Assuming arguendo that there has been a transfer of actual ownership interests,
private respondent will acquire the land not under "similar conditions" by which it was
transferred to petitioner Delpher Trades Corporation, as provided in the same
contractual provision invoked by private respondent. (pp. 251-252, Rollo)
The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties
executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was
meant to be a contract of sale which, in effect, prejudiced the private respondent's right of first
refusal over the leased property included in the "deed of exchange."
Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that
Delpher Trades Corporation is a family corporation; that the corporation was organized by the
children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses
Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes
Philippines in order to perpetuate their control over the property through the corporation and to avoid
taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095 which
had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased
property was transferred to the corporation by virtue of a deed of exchange of property; that in
exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of
stock which are equivalent to a 55% majority in the corporation because the other owners only
owned 2,000 shares; and that at the time of incorporation, he knew all about the contract of lease of
Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration, they refer to
this scheme as "estate planning." (p. 252, Rollo)
Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership
of the subject parcel of land since the Pachecos remained in control of the property. Thus, the
petitioners allege: "Considering that the beneficial ownership and control of petitioner corporation
remained in the hands of the original co-owners, there was no transfer of actual ownership interests
over the land when the same was transferred to petitioner corporation in exchange for the latter's
shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In
reality, petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the
corporation and the co-owners should be deemed to be the same, there being in substance and in
effect an Identity of interest." (p. 254, Rollo)
The petitioners maintain that the Pachecos did not sell the property. They argue that there was no
sale and that they exchanged the land for shares of stocks in their own corporation. "Hence, such
transfer is not within the letter, or even spirit of the contract. There is a sale when ownership is
transferred for a price certain in money or its equivalent (Art. 1468, Civil Code) while there is a barter
or exchange when one thing is given in consideration of another thing (Art. 1638, Civil Code)." (pp.
254-255, Rollo)
On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate
entity separate and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher
Trades Corporation is the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco,
having treated Delpher Trades Corporation as such a separate and distinct corporate entity, is not a
party who may allege that this separate corporate existence should be disregarded. It maintains that
there was actual transfer of ownership interests over the leased property when the same was
transferred to Delpher Trades Corporation in exchange for the latter's shares of stock.
We rule for the petitioners.
After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing

stock directly from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson,
47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their
properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the
Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation
by subscription "The essence of the stock subscription is an agreement to take and pay for original
unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition,
p. 430) It is significant that the Pachecos took no par value shares in exchange for their properties.
A no-par value share does not purport to represent any stated proportionate interest
in the capital stock measured by value, but only an aliquot part of the whole number
of such shares of the issuing corporation. The holder of no-par shares may see from
the certificate itself that he is only an aliquot sharer in the assets of the corporation.
But this character of proportionate interest is not hidden beneath a false appearance
of a given sum in money, as in the case of par value shares. The capital stock of a
corporation issuing only no-par value shares is not set forth by a stated amount of
money, but instead is expressed to be divided into a stated number of shares, such
as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot
sharer in the assets of the corporation, no matter what value they may have, to the
extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the attention
of persons interested in the financial condition of a corporation is focused upon the
value of assets and the amount of its debts. (Agbayani, Commentaries and
Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p.
107).
Moreover, there was no attempt to state the true or current market value of the real estate. Land
valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a
square meter.
It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have
control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who
also belong to the same family group.
In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did
was to invest their properties and change the nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades Corporation to take control of their properties and at
the same time save on inheritance taxes.
As explained by Eduardo Neria:
xxx xxx xxx

ATTY. LINSANGAN:
Q Mr. Neria, from the point of view of taxation, is there any benefit to
the spouses Hernandez and Pacheco in connection with their
execution of a deed of exchange on the properties for no par value
shares of the defendant corporation?
A Yes, sir.
COURT:
Q What do you mean by "point of view"?
A To take advantage for both spouses and corporation in entering in

the deed of exchange.
ATTY. LINSANGAN:
Q (What do you mean by "point of view"?) What are these benefits to

the spouses of this deed of exchange?
A Continuous control of the property, tax exemption benefits, and

other inherent benefits in a corporation.
Q What are these advantages to the said spouses from the point of
view of taxation in entering in the deed of exchange?
A Having fulfilled the conditions in the income tax law, providing for
tax free exchange of property, they were able to execute the deed of
exchange free from income tax and acquire a corporation.
Q What provision in the income tax law are you referring to?
A I refer to Section 35 of the National Internal Revenue Code under

par. C-sub-par. (2) Exceptions regarding the provision which I quote:
"No gain or loss shall also be recognized if a person exchanges his
property for stock in a corporation of which as a result of such
exchange said person alone or together with others not exceeding
four persons gains control of said corporation."
Q Did you explain to the spouses this benefit at the time you
executed the deed of exchange?
A Yes, sir
Q You also, testified during the last hearing that the decision to have
no par value share in the defendant corporation was for the purpose
of flexibility. Can you explain flexibility in connection with the
ownership of the property in question?
A There is flexibility in using no par value shares as the value is
determined by the board of directors in increasing capitalization. The
board can fix the value of the shares equivalent to the capital
requirements of the corporation.
Q Now also from the point of taxation, is there any flexibility in the
holding by the corporation of the property in question?
A Yes, since a corporation does not die it can continue to hold on to

the property indefinitely for a period of at least 50 years. On the other
hand, if the property is held by the spouse the property will be tied up
in succession proceedings and the consequential payments of estate
and inheritance taxes when an owner dies.
Q Now what advantage is this continuity in relation to ownership by a

particular person of certain properties in respect to taxation?
A The property is not subjected to taxes on succession as the

corporation does not die.
Q So the benefit you are talking about are inheritance taxes?
A Yes, sir. (pp. 3-5, tsn., December 15, 1981)
The records do not point to anything wrong or objectionable about this "estate planning" scheme
resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what
otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be
doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing Gregory v.
Helvering, 293 U.S. 465, 7 L. ed. 596).
The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot
be considered a contract of sale. There was no transfer of actual ownership interests by the
Pachecos to a third party. The Pacheco family merely changed their ownership from one form to
another. The ownership remained in the same hands. Hence, the private respondent has no basis
for its claim of a light of first refusal under the lease contract.
WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of
the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in
Civil Case No. 885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs.
SO ORDERED.
Fernan (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 85416 July 24, 1990
FRANCISCO V. DEL ROSARIO, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and LEONARDO V. ATIENZA, respondents.
Jardeleza, Sobrevias, Diaz, Hayudini & Bodegon Law Offices for petitioner.
Lourdes T. Pagayatan for private respondent.
CORTES, J.:
In POEA Case No. 85-06-0394, the Philippine Overseas Employment Administration (POEA)
promulgated a decision on February 4, 1986 dismissing the complaint for money claims for lack of
merit. The decision was appealed to the National Labor Relations Commission (NLRC), which on
April 30, 1987 reversed the POEA decision and ordered Philsa Construction and Trading Co., Inc.
(the recruiter) and Arieb Enterprises (the foreign employer) to jointly and severally pay private
respondent the peso equivalent of $16,039.00, as salary differentials, and $2,420.03, as vacation
leave benefits. The case was elevated to the Supreme Court, but the petition was dismissed on
August 31, 1987 and entry of judgment was made on September 24, 1987.
A writ of execution was issued by the POEA but it was returned unsatisfied as Philsa was no longer
operating and was financially incapable of satisfying the judgment. Private respondent moved for the
issuance of an alias writ against the officers of Philsa. This motion was opposed by the officers, led
by petitioner, the president and general manager of the corporation.
On February 12, 1988, the POEA issued a resolution, the dispositive portion of which read:
WHEREFORE, premises considered, let an alias writ of Execution be issued and the
handling sheriff is ordered to execute against the properties of Mr. Francisco V. del
-Rosario and if insufficient, against the cash and/or surety bond of Bonding Company
concerned for the full satisfaction of the judgment awarded.
Petitioner appealed to the NLRC. On September 23, 1988, the NLRC dismissed the appeal. On
October 21, 1988, petitioner's motion for reconsideration was denied.
Thus, this petition was filed on October 28, 1988, alleging that the NLRC gravely abused its
discretion. On November 10, 1988 the Court issued a temporary restraining order enjoining the
enforcement of the NLRC's decision dated September 23, 1988 and resolution dated October 21,
1988. The petition was given due course on June 14, 1989.
After considering the undisputed facts and the arguments raised in the pleadings, the Court finds
grave abuse of discretion on the part of the NLRC.
The action of the NLRC affirming the issuance of an alias writ of execution against petitioner, on the
theory that the corporate personality of Philsa should be disregarded, was founded primarily on the
following findings of the POEA
xxx xxx xxx
6. Per the certification issued by the Licensing Division of this Office, it appears that
Philsa Construction & Trading Co., Inc., with office address at 126 Pioneer St.,
Mandaluyong, Metro Manila, represented by Mr. Francisco V. del Rosario, President
and General Manager, was formerly a registered construction contractor whose
authority was originally issued on July 21, 1978 but was already delisted from the list
of agencies/entities on August 15, 1986 for inactivity;
7. Per another certification issued by the Licensing Division of this Office, it also
appears that another corporation, Philsa International Placement & Services Corp.,
composed of practically the same set of incorporators/stockholders, was registered
as a licensed private employment agency whose license was issued on November 5,
1981, represented by the same Mr. Francisco V. del Rosario as its President/
General Manager.
and an application of the ruling of the Court in A.C. Ransom Labor Union-CCLU v. NLRC, G.R. No.
69494, June 10, 1986, 142 SCRA 269.
However, we find that the NLRC's reliance on the findings of the POEA and the ruling in A. C.
Ransom is totally misplaced.
1. Under the law a corporation is bestowed juridical personality, separate and distinct from its
stockholders [Civil Code, Art. 44; Corporation Code, sec. 2]. But when the juridical personality of the
corporation is used to defeat public convenience, justify wrong, protect fraud or defend crime, the
corporation shall be considered as a mere association of persons [Koppel (Phil.), Inc. v. Yatco, 77
Phil. 496 (1946), citing 1 Fletcher, Cyclopedia of Corporations, 135-136; see also Palay, Inc. v.
Clave, G.R. No. 56076, September 21, 1983, 124 SCRA 638], and its responsible officers and/or
stockholders shall be held individually liable [Namarco v. Associated Finance Co., Inc., G.R. No. L-
20886, April 27, 1967, 19 SCRA 962]. For the same reasons, a corporation shall be liable for the
obligations of a stockholder [Palacio v. Fely Transportation Company, G.R. No. L-15121, August 31,
1962, 5 SCRA 1011; Emilio Cano Enterprises, Inc. v. Court of Industrial Relations, G.R. No. L-20502,
February 26, 1965, 13 SCRA 290], or a corporation and its successor-in-interest shall be considered
as one and the liability of the former shall attach to the latter [Koppel v. Yatco, supra; Liddell & Co. v.
Collector of Internal Revenue, G.R. No. L-9687, June 30, 1961, 2 SCRA 632].
But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be
clearly and convincingly established. It cannot be presumed.
In this regard we find the NLRC's decision wanting. The conclusion that Philsa allowed its license to
expire so as to evade payment of private respondent's claim is not supported by the facts. Philsa's
corporate personality therefore remains inviolable.
Consider the following undisputed facts:
(1) Private respondent filed his complaint with the POEA on June 4, 1985;
(2) The last renewal of Philsa's license expired on October 12, 1985;
(3) The POEA dismissed private respondent's complaint on February 4, 1986;
(4) Philsa was delisted for inactivity on August 15, 1986; *
(5) The dismissal of the complaint was appealed to the NLRC and it was only on April
30, 1987 that the judgment awarding differentials and benefits to private respondent
was rendered.
Thus, at the time Philsa allowed its license to lapse in 1985 and even at the time it was delisted in
1986, there was yet no judgment in favor of private respondent. An intent to evade payment of his
claims cannot therefore be implied from the expiration of Philsa's license and its delisting.
Neither will the organization of Philsa International Placement and Services Corp. and its registration
with the POEA as a private employment agency imply fraud since it was organized and registered in
1981, several years before private respondent filed his complaint with the POEA in 1985. The
creation of the second corporation could not therefore have been in anticipation of private
respondent's money claims and the consequent adverse judgment against Philsa
Likewise, substantial identity of the incorporators of the two corporations does not necessarily imply
fraud.
The circumstances of this case distinguish it from those in earlier decisions of the Court in labor
cases where the veil of corporate fiction was pierced.
In La Campana Coffee Factory, Inc. v. Kaisahan ng Manggagawa sa La Campana (KKM) 93 Phil.
160 (1953), La Campana Coffee Factory, Inc. and La Campana Gaugau Packing were substantially
owned by the same person. They had one office, one management, and a single payroll for both
businesses. The laborers of the gaugaufactory and the coffee factory were also interchangeable, i.e.,
the workers in one factory worked also in the other factory.
In Claparols v. Court of Industrial Relations, G.R. No. L-30822, July 31, 1975, 65 SCRA 613, the
Claparols Steel and Nail Plant, which was ordered to pay its workers backwages, ceased operations
on June 30, 1957 and was succeeded on the next day, July 1, 1957 by the Claparols Steel
Corporation. Both corporations were substantially owned and controlled by the same person and
there was no break or cessation in operations. Moreover, all the assets of the steel and nail plant
were transferred to the new corporation.
2. As earlier stated, we also find that, contrary to the NLRC'S holding, the ruling in A. C. Ransom is
inapplicable to this case. In A. C. Ransom, the Court said:
... In the instant case, it would appear that RANSOM, in 1969, foreseeing the
possibility or probability of payment of back wages to the 22 strikers, organized
ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22
strikers win their case. RANSOM actually ceased operations on May 1, 1973, after
the December 19, 1972 Decision of the Court of Industrial Relations was
promulgated against RANSOM. [At p. 274.]
The distinguishing marks of fraud were therefore clearly apparent in A. C. Ransom. A new
corporation was created, owned by the same family, engaging in the same business and operating in
the same compound.
Thus, considering that the non-payment of the workers was a continuing situation, the Court
adjudged its President, the "responsible officer" of the corporation, personally liable for the
backwages awarded, he being the chief operation officer or "manager" who could be held criminally
liable for violations of Republic Act No. 602 (the old Minimum Wage Law.)
In the case now before us, not only has there been a failure to establish fraud, but it has also not
been shown that petitioner is the corporate officer responsible for private respondent's predicament.
It must be emphasized that the claim for differentials and benefits was actually directed against the
foreign employer. Philsa became liable only because of its undertaking to be jointly and severally
bound with the foreign employer, an undertaking required by the rules of the POEA [Rule II, sec. 1(d)
(3)], together with the filing of cash and surety bonds [Rule 11, sec. 4], in order to ensure that
overseas workers shall find satisfaction for awards in their favor.
At this juncture, the Court finds it appropriate to point out that a judgment against a recruiter should
initially be enforced against the cash and surety bonds filed with the POEA. As provided in the POEA
Rules and Regulations
... The bonds shall answer for all valid and legal claims arising from violations of the
conditions for the grant and use of the license or authority and contracts of
employment. The bonds shall likewise guarantee compliance with the provisions of
the Labor Code and its implementing rules and regulations relating to recruitment
and placement, the rules of the Administration and relevant issuances of the Ministry
and all liabilities which the Administration may impose. ... [Rule II, see. 4.]
Quite evidently, these bonds do not answer for a single specific liability, but for all sorts of liabilities of
the recruiter to the worker and to the POEA. Moreover, the obligations guaranteed by the bonds are
continuing. Thus, the bonds are subject to replenishment when they are garnished, and failure to
replenish shall cause the suspension or cancellation of the recruiter's license [Rule II, sec. 19].
Furthermore, a cash bond shall be refunded to a recruiter who surrenders his license only upon
posting of a surety bond of similar amount valid for three (3) years [Rule II, sec. 20]. All these, to
ensure recovery from the recruiter.
It is therefore surprising why the POEA ordered execution "against the properties of Mr. Francisco V.
del Rosarioand if insufficient, against the cash and/or surety bond of Bonding Company
concerned for the till satisfaction of the judgment awarded" in complete disregard of the scheme
outlined in the POEA Rules and Regulations. On this score alone, the NLRC should not have
affirmed the POEA.
WHEREFORE, the petition is GRANTED and the decision and resolution of the NLRC, dated
September 23, 1988 and October 21, 1988, respectively, in POEA Case No. 85-06-0394 are SET
ASIDE. The temporary restraining order issued by the Court on November 10, 1988 is MADE
PERMANENT.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
Footnotes
* Under the POEA Rules and Regulations, "[a]ny agency or entity which fails to
renew its license or authority shall, upon expiration thereof, be immediately delisted
and disallowed from conducting recruitment and placement." [Rule II, see. 17.]
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 115849 January 24, 1996
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and
MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and
JOSE JANOLO,respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of
letters and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale
over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in
this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First
Philippine International Bank) repudiate such "apparent authority" after said contract has been
deemed perfected? During the pendency of a suit for specific performance, does the filing of a
"derivative suit" by the majority shareholders and directors of the distressed bank to prevent the
enforcement or implementation of the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant Petition for
review oncertiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated
January 14, 1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution
promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the
said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the
damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of
the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In
all other aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are deemed,
herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as
follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs

and against the defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of
land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less,
covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937,
inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and
receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately
deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for
purposes of registration of the same deed and transfer of the six (6) titles in the names of the
plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as
exemplary damages ;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorney's fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate
damages in the amount of P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the
petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their
respective memoranda and reply memoranda. The First Division transferred this case to the Third
Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid
submissions, the Court assigned the case to the undersigned ponente for the writing of this
Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner
Bank, for brevity) is a banking institution organized and existing under the laws of the Republic of the
Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all
times material to this case, Head-Manager of the Property Management Department of the petitioner
Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of
original plaintiffs-appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set
aside through this petition.
The Facts
The facts of this case are summarized in the respondent Court's Decision3 as follows:
(1) In the course of its banking operations, the defendant Producer Bank of the Philippines
acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose,
Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The
property used to be owned by BYME Investment and Development Corporation which had
them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio
Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated
negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's
legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property
Management Department of the defendant bank. The meeting was held pursuant to plaintiffs'
plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal purchase offer to the bank through a
letter dated August 30, 1987 (Exh. "B"), as follows:
August 30, 1987
The Producers Bank of the Philippines

Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera

Manager, Property Management Dept.
Gentleman:
I have the honor to submit my formal offer to purchase your properties covered by titles listed
hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.
TCT NO. AREA
T-106932 113,580 sq. m.
T-106933 70,899 sq. m.
T-106934 52,246 sq. m.
T-106935 96,768 sq. m.
T-106936 187,114 sq. m.
T-106937 481,481 sq. m.
My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00)

PESOS, in cash.
Kindly contact me at Telephone Number 921-1344.
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by
letter which is hereunder quoted (Exh. "C"):
September 1, 1987
JP M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila
Attention: JOSE O. JANOLO
Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna
(formerly owned by Byme Industrial Corp.). Please be informed however that the bank's
counter-offer is at P5.5 million for more than 101 hectares on lot basis.
We shall be very glad to hear your position on the on the matter.
Best regards.
(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote
(Exh. "D"):
September 17, 1987
Producers Bank
Paseo de Roxas
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta.
Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the said lot
at P4.250 million in CASH..
Hoping that this proposal meets your satisfaction.
(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place
was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-
President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the
meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through
Rivera, the following letter (Exh. "E"):
The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila
Attention: Mr. Mercurio Rivera
Re: 101 Hectares of Land

in Sta. Rosa, Laguna
Gentlemen:
Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we
are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly
owned by Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED
THOUSAND (P5,500,000.00).
Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in
the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera
wrote plaintiff Demetria the following letter (Exh. "F"):
Attention: Atty. Demetrio Demetria
Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located
at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for
submission to the newly designated Acting Conservator of the bank.
For your information.
(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by
the bank with what plaintiff considered as a perfected contract of sale, which demands were
in one form or another refused by the bank. As detailed by the trial court in its decision, on
November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered
payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement."
Defendants refused to receive both the payment and the letter. Instead, the parcels of land
involved in the transaction were advertised by the bank for sale to any interested buyer (Exh,
"H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents on what was
considered as a "perfected agreement." Thus:
Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-
hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to
106937.
From the documents at hand, it appears that your counter-offer dated September 1, 1987 of
this same lot in the amount of P5.5 million was accepted by our client thru a letter dated
September 30, 1987 and was received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected. We
were also informed that despite repeated follow-up to consummate the purchase, you now
refuse to honor your commitment. Instead, you have advertised for sale the same lot to
others.
In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days from
your receipt hereof. We are ready to remit the agreed amount of P5.5 million at your advice.
Otherwise, we shall be constrained to file the necessary court action to protect the interest of
our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter
and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been
"referred . . . to the office of our Conservator for proper disposition" However, no response
came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second
tender of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant
Encarnacion. Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Attn.: Atty. NIDA ENCARNACION

Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check
No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot
covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered
under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5 Million
as the purchase price of the said lots. Please inform us of the date of documentation of the
sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988,
plaintiff, through counsel, made a final demand for compliance by the bank with its
obligations under the considered perfected contract of sale (Exhibit "N"). As recounted by the
trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of
defendant's answer to amended complaint), the defendants through Acting Conservator
Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with
the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that
basis, the defendants justified the refusal of the tenders of payment and the non-compliance
with the obligations under what the plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against
the bank, its Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was
that the transaction had with the bank resulted in a perfected contract of sale, The
defendants took the position that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there was no meeting of the minds as to
the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar
Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as
owner of 80% of the Bank's outstanding shares of stock, he had a substantial interest in
resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to
intervene on the ground that it was filed after trial had already been concluded. It also denied
a motion for reconsideration filed thereafter. From the trial court's decision, the Bank,
petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which
subsequently affirmed with modification the said judgment. Henry Co did not appeal the
denial of his motion for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of
Demetria and Janolo, in view of the assignment of the latters' rights in the matter in litigation to said
private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and
several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and
Cruz, filed an action (hereafter, the "Second Case") purportedly a "derivative suit" with the
Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against
Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as unenforceable
and to stop Ejercito from enforcing or implementing the sale"4 In his answer, Janolo argued that the
Second Case was barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of
Court to Dismiss the Case Without Prejudice. "Private respondent opposed this motion on the
ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with
prejudice."5 Private respondent, in his memorandum, averred that this motion is still pending in the
Makati RTC.
In their Petition6 and Memorandum7, petitioners summarized their position as follows:
I.
The Court of Appeals erred in declaring that a contract of sale was perfected between
Ejercito (in substitution of Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable contract of sale
between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have the power to
overrule or revoke acts of previous management.
IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence on
record.
On the other hand, petitioners prayed for dismissal of the instant suit on the ground 8 that:
I.
Petitioners have engaged in forum shopping.

II.
The factual findings and conclusions of the Court of Appeals are supported by the evidence
on record and may no longer be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between Demetria
and Janolo (substituted by; respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being estopped from
repudiating the agency and the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated
Revised Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not
(t)heretofore commenced any other action or proceeding involving the same issues in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no
such action or proceeding is pending" in said courts or agencies. A violation of the said circular
entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be
sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the
record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch
134, involving a derivative suit filed by stockholders of petitioner Bank against the conservator and
other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice. 9
Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of
actual forum shopping because the instant petition pending before this Court involves "identical
parties or interests represented, rights asserted and reliefs sought (as that) currently pending before
the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases
are so interwined that a judgement or resolution in either case will constitute res judicata in the
other." 10
On the other hand, petitioners explain 11 that there is no forum-shopping because:

1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded
as a defendant, whereas in the "Second Case" (assuming the Bank is the real party in
interest in a derivative suit), it wasplaintiff;
2) "The derivative suit is not properly a suit for and in behalf of the corporation under the
circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and

attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is
one" and "(t)hat is a legal question for the courts to decide";
4) Petitioners did not hide the Second Case at they mentioned it in the said
VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private international law. 12, where non-
resident litigants are given the option to choose the forum or place wherein to bring their suit for
various reasons or excuses, including to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less
than honorable excuses, the principle of forum non conveniens was developed whereby a court, in
conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient"
or available forum and the parties are not precluded from seeking remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to
have his action tried in a particular court or jurisdiction where he feels he will receive the most
favorable judgment or verdict." Hence, according to Words and Phrases14, "a litigant is open to the
charge of "forum shopping" whenever he chooses a forum with slight connection to factual
circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their
differences without imposing undue expenses and vexatious situations on the courts".
In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of
venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As to
the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal
actions "where the defendant or any of the defendants resides or may be found, or where the plaintiff
or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies,
aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the
criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a
vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal each remedy
being available independently of the others although he cannot recover more than once.
In either of these situations (choice of venue or choice of remedy), the litigant actually shops
for a forum of his action, This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available courts,
or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic)
conflicting adjudications among different courts and consequent confusion enimical (sic) to
an orderly administration of justice. It had created extreme inconvenience to some of the
parties to the action.
Thus, "forum shopping" had acquired a different concept which is unethical professional
legal practice. And this necessitated or had given rise to the formulation of rules and canons
discouraging or altogether prohibiting the practice. 15
What therefore originally started both in conflicts of laws and in our domestic law as a legitimate
device for solving problems has been abused and mis-used to assure scheming litigants of dubious
reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already
mentioned, promulgated Circular 28-91. And even before that, the Court had prescribed it in the
Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several
cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the filing of repetitious
suits in different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice)
in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al.,"as a reprehensible
manipulation of court processes and proceedings . . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party

seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in connection with litigations
commenced in the courts while an administrative proceeding is pending, as in this case, in
order to defeat administrative processes and in anticipation of an unfavorable administrative
ruling and a favorable court ruling. This is specially so, as in this case, where the court in
which the second suit was brought, has no jurisdiction. 18
The test for determining whether a party violated the rule against forum shopping has been laid
dawn in the 1986 case of Buan vs. Lopez 19, also by Chief Justice Narvasa, and that is, forum
shopping exists where the elements of litis pendentia are present or where a final judgment in one
case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563 identity
of parties, or at least such parties as represent the same interests in both actions, as well as
identity of rights asserted and relief prayed for, the relief being founded on the same facts,
and the identity on the two preceding particulars is such that any judgment rendered in the
other action, will, regardless of which party is successful, amount to res adjudicata in the
action under consideration: all the requisites, in fine, of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and RTC Case No. 86-36563, an
identity as regards parties, or interests represented, rights asserted and relief sought, as well
as basis thereof, to a degree sufficient to give rise to the ground for dismissal known
as auter action pendant or lis pendens. That same identity puts into operation the sanction of
twin dismissals just mentioned. The application of this sanction will prevent any further delay
in the settlement of the controversy which might ensue from attempts to seek reconsideration
of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563
promulgated on July 15, 1986, which dismissed the petition upon grounds which appear
persuasive.
Consequently, where a litigant (or one representing the same interest or person) sues the same
party against whom another action or actions for the alleged violation of the same right and the
enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is bar to
the others; and, a final judgment in one would constitute res judicata and thus would cause the
dismissal of the rest. In either case, forum shopping could be cited by the other party as a ground to
ask for summary dismissal of the two 20 (or more) complaints or petitions, and for imposition of the
other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action
against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the Second Case, it is
obvious that there exist identity of parties or interests represented, identity of rights or causes and
identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the instant petition
was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller
(herein petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the
complaint 21 in the Second Case seeks to declare such purported sale involving the same real
property "as unenforceable as against the Bank", which is the petitioner herein. In other words, in the
Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish
what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the
relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to
escape from the obligation to sell the property to respondent. In Danville Maritime, Inc. vs.
Commission on Audit. 22, this Court ruled that the filing by a party of two apparently different actions,
but with the same objective,constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner impleaded different
respondents therein PNOC in the case before the lower court and the COA in the case
before this Court and sought what seems to be different reliefs. Petitioner asks this Court to
set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct
said body to approve the Memorandum of Agreement entered into by and between the
PNOC and petitioner, while in the complaint before the lower court petitioner seeks to enjoin
the PNOC from conducting a rebidding and from selling to other parties the vessel "T/T
Andres Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that although the relief prayed for in
the two (2) actions are ostensibly different, the ultimate objective in both actions is the same,
that is, approval of the sale of vessel in favor of petitioner and to overturn the letter-directive
of the COA of October 10, 1988 disapproving the sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action for certiorari and
prohibition in this Court despite the pendency of their action in the Makati Regional Trial
Court, is a species of forum-shopping. Both actions unquestionably involve the same
transactions, the same essential facts and circumstances. The petitioners' claim of absence
of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit
did not involve certain acts which transpired after its commencement, is specious. In the
RTC action, as in the action before this Court, the validity of the contract to purchase and sell
of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the
propriety of implementing the same (by paying the pledgee banks the amount of their loans,
obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief
was the same: the prevention of such implementation and/or the restoration of the status
quo ante. When the acts sought to be restrained took place anyway despite the issuance by
the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It
remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises
was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so
as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined
but nonetheless done. The remedy was certainly not the institution of another action in
another forum based on essentially the same facts, The adoption of this latter recourse
renders the petitioners amenable to disciplinary action and both their actions, in this Court as
well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests represented.
Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First
Case, they represent the same interest and entity, namely, petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the
matter in controversy. They are not principally or even subsidiarily liable; much less are they direct
parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the stockholders are
bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for and in
behalf of the Producers Bank of the Philippines" 24. Indeed, this is the very essence of a derivative
suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the corporation

wherein he holdsstock in order to protect or vindicate corporate rights, whenever the officials
of the corporation refuse to sue, or are the ones to be sued or hold the control of the
corporation. In such actions, the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979];
emphasis supplied).
In the face of the damaging admissions taken from the complaint in the Second Case, petitioners,
quite strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was
brought, not by the minority shareholders, but by Henry Co et al., who not only own, hold or control
over 80% of the outstanding capital stock, but also constitute the majority in the Board of Directors of
petitioner Bank. That being so, then they really represent the Bank. So, whether they sued
"derivatively" or directly, there is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is
separate and distinct from its shareholders. But the rulings of this Court are consistent: "When the
fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of
an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or
generally the perpetration of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals." 25
In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the
instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise
blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court
processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously
prosecuting or defending corporate causes and in using and applying remedies available to it. To
rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to
circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs sought, "because it
(the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second
Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63, Makati,
etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff instead of filing a responsive pleading in the
other case setting forth therein, as causes of action, specific denials, special and
affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not
exist in the first place. (emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it could not have
chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual setting
between Victronics and the present suit. In the former, as underscored in the above-quoted Court
ruling, the defendants did not file anyresponsive pleading in the first case. In other words, they did
not make any denial or raise any defense or counter-claim therein In the case before us however,
petitioners filed a responsive pleading to the complaint as a result of which, the issues were
joined.
Indeed, by praying for affirmative reliefs and interposing counterclaims in their responsive
pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves
the very remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is
the vexation caused the courts and parties-litigant by a party who asks different courts and/or
administrative agencies to rule on the same or related causes and/or to grant the same or
substantially the same reliefs, in the process creating the possibility of conflicting decisions being
rendered by the different fora upon the same issue. In this case, this is exactly the problem: a
decision recognizing the perfection and directing the enforcement of the contract of sale will directly
conflict with a possible decision in the Second Case barring the parties front enforcing or
implementing the said sale. Indeed, a final decision in one would constitute res judicata in the
other 28.
The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction
possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed
because petitioners' present counsel entered their appearance only during the proceedings in this
Court, and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the
pendency of the Second Case to show good faith in observing Circular 28-91. The Lawyers who filed
the Second Case are not before us; thus the rudiments of due process prevent us from motu
propio imposing disciplinary measures against them in this Decision. However, petitioners
themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules
against forum-shopping and not to trifle with court proceedings and processes They are warned that
a repetition of the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not merely because of
forum-shopping but also because of the substantive issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not there was, on the basis of the
facts established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has
been established, respondent Court stated:
There is no dispute that the object of the transaction is that property owned by the defendant
bank as acquired assets consisting of six (6) parcels of land specifically identified under
Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the
bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose
Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs
wanted to purchase the property and it was precisely for this purpose that they met with
defendant Rivera, Manager of the Property Management Department of the defendant bank,
in early August 1987. The procedure in the sale of acquired assets as well as the nature and
scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera
himself, which testimony was relied upon by both the bank and by Rivera in their appeal
briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I
published it in the form of an inter-office memorandum distributed to all branches that
these are acquired assets for sale. I was instructed to advertise acquired assets for
sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon
having been offered, I present it to the Committee. I provide the Committee with
necessary information about the property such as original loan of the borrower, bid
price during the foreclosure, total claim of the bank, the appraised value at the time
the property is being offered for sale and then the information which are relative to
the evaluation of the bank to buy which the Committee considers and it is the
Committee that evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and once approved, we
have to execute the deed of sale and it is the Conservator that sign the deed of sale,
sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the
property, dealt with and talked to the right person. Necessarily, the agenda was the price of
the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to
accept offers and to present the offer to the Committee before which the said official is
authorized to discuss information relative to price determination. Necessarily, too, it being
inherent in his authority, Rivera is the officer from whom official information regarding the
price, as determined by the Committee and approved by the Conservator, can be had. And
Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony
of plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did
you ask him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it
would take because he was saying that the matter of pricing will be passed upon by
the committee. And when I asked him how long it will take for the committee to
decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two week's (sic) time, in effect what he was saying he was
not the one who was to decide. But he would refer it to the committee and he would
relay the decision of the committee to me.
Q Please answer the question.

A He did not say that he had the authority (.) But he said he would refer the matter
to the committee and he would relay the decision to me and he did just like that.
"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co
was the Head, with Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the authority and
the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's
assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20,
1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering
an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-
buyers with their proposed buying price on one hand, and the bank Committee, the
Conservator and ultimately the bank itself with the set price on the other, and considering
further the discussion of price at the meeting of August resulting in a formal offer of P3.5
Million in cash, there can be no other logical conclusion than that when, on September 1,
1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for
more than 101 hectares on lot basis," such counter-offer price had been determined by the
Past Due Committee and approved by the Conservator after Rivera had duly presented
plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower,
bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the
established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"),
the official and definitive price at which the bank was selling the property.
There were averments by defendants below, as well as before this Court, that the P5.5
Million price was not discussed by the Committee and that price. As correctly characterized
by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this
point are at best equivocal and considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not inspire belief. Both Co ad
Entereso, as members of the Past Due Committee of the bank, claim that the offer of the
plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso
openly admit that they seldom attend the meetings of the Committee. It is important to note
that negotiations on the price had started in early August and the plaintiffs had already
offered an amount as purchase price, having been made to understand by Rivera, the official
in charge of the negotiation, that the price will be submitted for approval by the bank and that
the bank's decision will be relayed to plaintiffs. From the facts, the official bank price. At any
rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and
negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn
around and later say, as it now does, that what Rivera states as the bank's action on the
matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a
corporation knowingly permits one of its officers, or any other agent, to do acts within the
scope of an apparent authority, and thus holds him out to the public as possessing power to
do those acts, the corporation will, as against any one who has in good faith dealt with the
corporation through such agent, he estopped from denying his authority (Francisco v. GSIS,
7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v.
Court of Appeals, G.R. No. 103957, June 14, 1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows:
"(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established."
There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6)
parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less,
and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a
dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer
which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank,
there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30 They disputed
the factual basis of the respondent Court's findings that there was an offer made by Janolo for P3.5
million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot
find fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such as this, errors
of fact if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and
the trial court as well) chose to believe the evidence presented by respondent more than that
presented by petitioners is not by itself a reversible error. In fact, such findings merit serious
consideration by this Court, particularly where, as in this case, said courts carefully and meticulously
discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review
the question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer
was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which
could be drawn from the factual findings of the respondent Court. They also delve into the
contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or apparent. The
doctrine of "apparent authority", with special reference to banks, was laid out in Prudential Bank vs.
Court of Appeals31, where it was held that:
Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agent's apparent representation yields to the
principal's true representation and the contract is considered as entered into between the
principal and the third person (citing National Food Authority vs. Intermediate Appellate
Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scape of their authority (9 C.J.S., p. 417). A bank holding out its officers
and agents as worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their employment; nor
will it be permitted to shirk its responsibility for such frauds even though no benefit
may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his authority
even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).
Application of these principles is especially necessary because banks have a fiduciary

relationship with the public and their stability depends on the confidence of the people in
their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care
in the selection and supervision of its employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or
implied authority to act for the Bank in the matter of selling its acquired assets. This evidence
includes the following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case,
Manager of the Property Management Department of the Bank". By his own admission,
Rivera was already the person in charge of the Bank's acquired assets (TSN, August 6,
1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank. And
during the initial meeting between the buyers and Rivera, the latter suggested that the
buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30
July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5
million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to
buy the property for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of
the Bank (TSN, January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994,
during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990,
pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed
Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN, January
16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the
officer acting for the Bank in relation to parties interested in buying assets owned/acquired by
the Bank. In fact, Rivera was the officer mentioned in the Bank's advertisements offering for
sale the property in question (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32, the Court,
through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the
apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by
similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and
testimony which seek to establish Rivera's actual authority. These pieces of evidence, however, are
inherently weak as they consist of Rivera's self-serving testimony and various inter-office
memoranda that purport to show his limited actual authority, of which private respondent cannot be
charged with knowledge. In any event, since the issue is apparent authority, the existence of which is
borne out by the respondent Court's findings, the evidence of actual authority is immaterial insofar as
the liability of a corporation is concerned 33.
Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law
firm" had once acted for the Bank in three criminal cases, they should be charged with actual
knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had already
made a factual finding that the buyers had no notice of Rivera's actual authority prior to the sale. In
fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the
other hand, respondent has proven that Demetria and Janolo merely associated with a loose
aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana
Parker) acted in said criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated
September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent
Court's finding that "there was a meeting of minds when on 30 September 1987 Demetria and
Janolo through Annex "L" (letter dated September 30, 1987) "accepted" Rivera's counter offer of
P5.5 million under Annex "J" (letter dated September 17, 1987)", citing the late Justice Paras35, Art.
1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto 37.
However, the above-cited authorities and precedents cannot apply in the instant case because, as
found by the respondent Court which reviewed the testimonies on this point, what was "accepted" by
Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and
reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September
28, 1987. Note that the said letter of September 30, 1987 begins with"(p)ursuant to our discussion
last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co
that the September 28, 1987 meeting "was meant to have the offerors improve on their position of
P5.5. million."38However, both the trial court and the Court of Appeals found petitioners' testimonial
evidence "not credible", and we find no basis for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding
that private respondents' evidence is more in keeping with truth and logic that during the meeting
on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has been passed
upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)" 39. Hence,
assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis
Co's reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the
said offer. And by virtue of the September 30, 1987 letter accepting thisrevived offer, there was a
meeting of the minds, as the acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and
action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came
only on May 12, 1988 or more than seven (7) months after Janolo' acceptance. Such delay, and the
absence of any circumstance which might have justifiably prevented the Bank from acting earlier,
clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank's part
to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied admission on the part
of the petitioners that the written offer made on September 1, 1987 was carried through during the
meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and
good faith.
It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for
the first time on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of law,
theories, issues of fact and arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot
be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145
SCRA 592).40
. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor
raised during the trial in the court below cannot be raised for the first time on appeal as it
would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA,
153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty &
Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989];
Gevero vs. IAC, G.R. 77029, August 30, 1990).41
Since the issue was not raised in the pleadings as an affirmative defense, private respondent was
not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed,
this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the
case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the
record and as appreciated by the lower courts, the inevitable conclusion is simply that there was a
perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged42:
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the
meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo
accepted with their letter of 30 September 1987, the contract produced thereby would be
unenforceable by action there being no note, memorandum or writing subscribed by the
Bank to evidence such contract. (Please see article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs'
acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of
sale. They are however clear embodiments of the fact that a contract of sale was perfected
between the parties, such contract being binding in whatever form it may have been entered
into (case citations omitted). Stated simply, the banks' letter of September 1, 1987, taken
together with plaintiffs' letter dated September 30, 1987, constitute in law a sufficient
memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications commenced not only from
September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these
letters constitute sufficient memoranda since they include the names of the parties, the terms and
conditions of the contract, the price and a description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did
constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still, the statute of
frauds will not apply by reason of the failure of petitioners to object to oral testimony proving
petitioner Bank's counter-offer of P5.5 million. Hence, petitioners by such utter failure to object
are deemed to have waived any defects of the contract under the statute of frauds, pursuant to
Article 1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by
the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the
counter-offer of P5.5 million is a plenty and the silence of petitioners all throughout the
presentation makes the evidence binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria
told me to accompany him we were able to meet Luis Co at the Bank.
xxx xxx xxx
Q Now, what transpired during this meeting with Luis Co of the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is
the final price and that is the price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant
Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?
A We went straight to the point because he being a busy person, I told him if the amount of
P5.5 million could still be reduced and he said that was already passed upon by the
committee. What the bank expects which was contrary to what Mr. Rivera stated. And he told
me that is the final offer of the bank P5.5 million and we should indicate our position as soon
as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said that was it. Atty.
Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office
in Producers Bank Building during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter
offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we
accepted, the offer of the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the
Committee and it is not within his power to reduce this amount. What can you say to that
statement that the amount of P5.5 million was reached by the Committee?
A It was not discussed by the Committee but it was discussed initially by Luis Co and the
group of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting,
sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place.
Petitioners energetically contended that the conservator has the power to revoke or overrule actions
of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265
(otherwise known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or examining

department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi-banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator to take charge of the assets,
liabilities, and the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the institution,
reorganize the management thereof, and restore its viability. He shall have the power to
overrule or revoke the actions of the previous management and board of directors of the
bank or non-bank financial intermediary performing quasi-banking functions, any provision of
law to the contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the
perfected contract of sale was raised for the first time in this Petition as this was not litigated in
the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the
trial court, let alone in the Court of Appeals, "cannot be raised for the first time on appeal as it would
be offensive to the basic rules of fair play, justice and due process." 43
In the second place, there is absolutely no evidence that the Conservator, at the time the contract
was perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator
at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey
after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated
not the contract but the authority of Rivera to make a binding offer and which unarguably
came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced
hereunder:
May 12, 1988
Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria
regarding the six (6) parcels of land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor
perfected a "contract to sell and buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former
Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M.
Pascua detailed the functions of Property Management Department (PMD) staff and officers
(Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of his
subordinates has no authority, power or right to make any alleged counter-offer. In short,
your lawyer-clients did not deal with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates
Pambansa Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended),
only the Board of Directors/Conservator may authorize the sale of any property of the
corportion/bank..
Our records do not show that Mr. Rivera was authorized by the old board or by any of the
bank conservators (starting January, 1984) to sell the aforesaid property to any of your
clients. Apparently, what took place were just preliminary discussions/consultations between
him and your clients, which everyone knows cannot bind the Bank's Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the same
is patently violative of corporate and banking laws. We believe that this is more than
sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are official,
legal and in accordance with law. We also have no personal interest in any of the properties
of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion

LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out that such powers must be related to the "(preservation
of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its
viability." Such powers, enormous and extensive as they are, cannot extend to the post-
facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment
clause of the Constitution 44. If the legislature itself cannot revoke an existing valid contract, how can
it delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are,
under existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible.
Hence, the conservator merely takes the place of a bank's board of directors. What the said board
cannot do such as repudiating a contract validly entered into under the doctrine of implied
authority the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot
simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to
assail such contracts as he has already done so in the instant case. A contrary understanding of
the law would simply not be permitted by the Constitution. Neither by common sense. To rule
otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by
simply getting the conservator to unilaterally revoke all previous dealings which had one way or
another or come to be considered unfavorable to the Bank, yielding nothing to perfected contractual
rights nor vested interests of the third parties who had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact
by the Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers
Hanover & Trust Corporation, 45, we held:
. . . The rule regarding questions of fact being raised with this Court in a petition
for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante vs.
Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the
errors of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of
Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of
decisions]. This Court has emphatically declared that "it is not the function of the Supreme
Court to analyze or weigh such evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the lower court" (Tiongco v. De la
Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R.
No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L-
47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a showing that the findings
complained of are totally devoid of support in the record, or that they are so glaringly
erroneous as to constitute serious abuse of discretion, such findings must stand, for this
Court is not expected or required to examine or contrast the oral and documentary evidence
submitted by the parties" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394, December 17,
1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals 46, we held:
The resolution of this petition invites us to closely scrutinize the facts of the case, relating to
the sufficiency of evidence and the credibility of witnesses presented. This Court so held that
it is not the function of the Supreme Court to analyze or weigh such evidence all over again.
The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been
committed by the lower court. The Supreme Court is not a trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and
Development Corp. 47:
The Court has consistently held that the factual findings of the trial court, as well as the Court
of Appeals, are final and conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts found by the lower courts is
allowed are when the conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or impossible; when
there is grave abuse of discretion in the appreciation of facts; when the judgment is premised
on a misapprehension of facts; when the findings went beyond the issues of the case and
the same are contrary to the admissions of both appellant and appellee. After a careful study
of the case at bench, we find none of the above grounds present to justify the re-evaluation
of the findings of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance
Company Inc. vs.Hon. Court of Appeals, et al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is
not the function of this Court to assess and evaluate all over again the evidence, testimonial
and documentary, adduced by the parties, particularly where, such as here, the findings of
both the trial court and the appellate court on the matter coincide. (emphasis supplied)
Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and
conclusions which were not only contrary to the evidence on record but have no bases at all,"
specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been determined
by the past due committee and approved by conservator Romey, after Rivera presented the same
for discussion" and (2) "the meeting with Co was not to scale down the price and start negotiations
anew, but a meeting on the already determined price of P5.5 million" Hence, citing Philippine
National Bank vs. Court of Appeals 49, petitioners are asking us to review and reverse such factual
findings.
The first point was clearly passed upon by the Court of Appeals 50, thus:
There can be no other logical conclusion than that when, on September 1, 1987, Rivera
informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101
hectares on lot basis, "such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer
for discussion by the Committee . . . Tersely put, under the established fact, the price of P5.5
Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at
which the bank was selling the property. (p. 11, CA Decision)
xxx xxx xxx
. . . The argument deserves scant consideration. As pointed out by plaintiff, during the
meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-
president of the bank, where the topic was the possible lowering of the price, the bank official
refused it and confirmed that the P5.5 Million price had been passed upon by the Committee
and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point, characterizing it
as "not credible" and "at best equivocal and considering the gratuitous and self-serving character of
these declarations, the bank's submissions on this point do not inspire belief."
To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo
Romey to testify on their behalf, as he would have been in the best position to establish their thesis.
Under the rules on evidence 51, such suppression gives rise to the presumption that his testimony
would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed
insufficient by both the trial court and the respondent Court, and instead, it was respondent's
submissions that were believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower
courts are valid and correct. But the petitioners are now asking this Court to disturb these findings to
fit the conclusion they are espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by
the Court of Appeals 52. We have studied both the records and the CA Decision and we find no such
exceptions in this case. On the contrary, the findings of the said Court are supported by a
preponderance of competent and credible evidence. The inferences and conclusions are seasonably
based on evidence duly identified in the Decision. Indeed, the appellate court patiently traversed and
dissected the issues presented before it, lending credibility and dependability to its findings. The best
that can be said in favor of petitioners on this point is that the factual findings of respondent Court
did not correspond to petitioners' claims, but were closer to the evidence as presented in the trial
court by private respondent. But this alone is no reason to reverse or ignore such factual findings,
particularly where, as in this case, the trial court and the appellate court were in common agreement
thereon. Indeed, conclusions of fact of a trial judge as affirmed by the Court of Appeals are
conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of
any kind, because the trial court is in a better position to observe the demeanor of the witnesses and
their courtroom manner as well as to examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping and the raising of issues for
the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the
conservator's powers to repudiate contracts entered into by the Bank's officers] which per
se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved as
well into the substantive issues the perfection of the contract of sale and its enforceability, which
required the determination of questions of fact. While the Supreme Court is not a trier of facts and as
a rule we are not required to look into the factual bases of respondent Court's decisions and
resolutions, we did so just the same, if only to find out whether there is reason to disturb any of its
factual findings, for we are only too aware of the depth, magnitude and vigor by which the parties
through their respective eloquent counsel, argued their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a
government-appointed conservator and "there is need to rehabilitate the Bank in order to get it back
on its feet . . . as many people depend on (it) for investments, deposits and well as employment. As
of June 1987, the Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and
there were (other) offers to buy the subject properties for a substantial amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot
emotionally close its eyes to overriding considerations of substantive and procedural law, like
respect for perfected contracts, non-impairment of obligations and sanctions against forum-
shopping, which must be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondent's submission that, while the subject properties
may currently command a much higher price, it is equally true that at the time of the transaction in
1987, the price agreed upon of P5.5 million was reasonable, considering that the Bank acquired
these properties at a foreclosure sale for no more than P3.5 million 54. That the Bank procrastinated
and refused to honor its commitment to sell cannot now be used by it to promote its own advantage,
to enable it to escape its binding obligation and to reap the benefits of the increase in land values. To
rule in favor of the Bank simply because the property in question has algebraically accelerated in
price during the long period of litigation is to reward lawlessness and delays in the fulfillment of
binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court
hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is
REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or
similar acts will be dealt with more severely. Costs against petitioners.
SO ORDERED.
Narvasa, C.J., Davide Jr., Melo and Francisco, JJ., concur.
Footnotes
1
Eleventh Division, J. Emeterio C. Cui, Chairman and ponente, and JJ. Quirino D. Abad
Santos, Jr. and Buenaventura J. Guerrero, members.
2
Regional Trial Court, National Capital Region, Branch 59, Makati City, Hon. Lucia Violago-
Isnani, presiding judge.
3
Rollo, pp. 101-107.
4
Memorandum for Petitioners, p. 30; rollo, p. 997.
5
Memorandum for Respondent, p. 18; rollo, p. 1074.
6
Rollo, p. 43.
7
Rollo, pp. 995-996.
8
Rollo, pp. 1094-1095.
9
Rollo, p. 96.
10
Memorandum for Respondent, pp. 21-22; rollo, pp. 1077-1078.
11
Memorandum for Petitioners, pp. 31-36; Rollo, pp. 998-1003.
12
Cf. Salonga, Private International Law, 1995 ed., p. 56 et seq.
13
Fifth edition, 1979, p. 590.
14
Permanent edition, vol. 17, p. 646.
15
Annotation on Forum Shopping, by David G. Nitafan, 179 SCRA 157-162.
16
See "Annotation" referred to in footnote no. 15 supra for a summary of these cases.
17
155 SCRA 566, at pp. 568 and 575 (November 12, 1987).
Villanueva vs. Adre, 178 SCRA 876, at p. 882 (April 27, 1989). Also cited in Crisostomo vs.
18
Securities and Exchange Commission, 179 SCRA 146 (November 6, 1989), and Earth
Minerals Exploration, Inc. vs. Macaraig, Jr. 194 SCRA 1 (February 11, 1991).
19
145 SCRA 34 (October 13, 1986).20 In Buan vs. Lopez, supra, the Court expressly ruled:
"That same identity puts into operation the sanction of twin dismissals just mentioned."
21
Rollo, pp, 534-541.
22
175 SCRA 701 (July 28, 1989). In this case, petitioner filed with the Supreme Court a
petition forcertiorari questioning a letter-directive of the Commission on Audit ordering the re-
bidding of a vessel, the "T/T Andres Bonifacio", being sold by the Philippine National Oil
Company (PNOC), Simultaneously, a separate complaint for injunction and damages was
filed by the same petitioner before the Makati RTC to enjoin PNOC from conducting such a
rebidding.
23
Palm Avenue Realty Development Corporation, et al. vs. PCGG, et al., 153 SCRA 579
(August 31, 1987); at pp. 591-592.
24
See Footnote 21 supra.
25
Villa-Rey Transit, Inc. vs. Ferrer, 25 SCRA 845, (October 29, 1968), at pp, 857-858.
26
This court has pierced the veil of corporate fiction in numerous cases where it was used,
among others, to avoid a judgment credit (Sibagat Timber Corp. vs. Garcia, 216 SCRA 470
[December 11, 1992]; Tan Boon Bee & Co., Inc, vs. Jarencio, 163 SCRA 205 [June 30,
1988]); to avoid inclusion of corporate assets as part of the estate of a decedent (Cease vs.
CA, 93 SCRA 483 [October 18, 1979]); to avoid liability arising from debt (Arcilla vs. CA, 215
SCRA 120 [0ctober 23, 1992]; Philippine Bank of Communications vs. CA, 195 SCRA 567
[March 22, 1991]); or when made use of as a shield to perpetrate fraud and/or confuse
legitimate issues (Jacinto vs. CA, 198 SCRA 211 [June 6, 1991]); or to promote unfair
objectives or otherwise to shield them (Villanueva vs. Adre, 172 SCRA 876 [April 27, 1989]).
27
217 SCRA 517 (Jan, 25, 1993).
28
See footnote 15 for further discussion on forum shopping.
29
Rollo, pp. 108-111.
30
Memorandum for Petitioners, p. 42; Rollo, p. 1009.
31
223 SCRA 350 (June 14, 1993).
32
G.R. No. 118509 (December 1, 1995).
33
2 Fletcher 351.
34
Petition, p. 56 et seq.; rollo, p. 64 et seq. Memorandum, p. 54 et seq.; rollo, p. 1021 et seq.
35
IV E. Paras, Civil Code of the Philippines (1971 ed.), pp. 462-463.
36
Art. 1319 of Civil Code reads as follows:
"Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain acid the
acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came
to his knowledge. The contract, in such a case, is presumed to have been entered into in the
place where the offer was made".
37
41 Phil, 670 (March 30, 1916); see also Bataagan vs. Cojuangco, 78 Phil., 481.
38
Memorandum, p, 64; Rollo, p. 1031.
39
CA Decision, p. 15; rollo, p. 114.
40
Berin vs. Court of Appeals, 194 SCRA 508, 512 (February 27, 1991).
The Reparations Commission vs. The Visayan Packing Corporation, 193 SCRA 531, 539-
41
540 (February 6, 1991).
42
At p. 75; rollo, p. 83.
43
Dihiansan vs. CA, 153 SCRA 713 (September 14, 1987); Anchuelo vs. IAC, 147 SCRA 434
(January 29, 1987); Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 (January 28,
1988); Ramos vs. IAC, 175 SCRA 70 (July 5, 1989); Gevero vs. IAC, 189 SCRA 201 (August
30, 1990); The Reparations Commission vs. The Visayan Packing Corporation, 193 SCRA
531, 540 (February 6, 1991).
44
Section 10 of Art. III of the Constitution reads as follows:
"Sec. 10. No law impairing the obligation of contracts shall be passed."
45
177 SCRA 618, 624 (September 15, 1989).
46
216 SCRA 224, 232 (December 7, 1992).
47
G.R. No. 112130 (March 31, 1995).
48
G.R. No. 102253 (June 2, 1995).
49
187 SCRA 735, 739 (July 24, 1990).
50
CA Decision, pp. 11 and 15.
51
Sec. 3(e), Rule 131, Rules of Court.
52
Vide Regalado, Remedial Law Compendium, 1988 ed., Vol. I, pp. 352-353, See also Chua
Tiong Tay vs, Court of Appeals, et al., supra.
53
Memorandum for Petitioners, p. 76; rollo, p. 1043.
54
In his Memorandum, private respondent alleged (and petitioners have not denied) that (a)
the property was sold at foreclosure for only P3,033,264.00 and (b) in a suit for deficiency
judgment against the property's former owner and mortgage debtor, the petitioner Bank
maintained that the value of the property was only P3 million.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 100812 June 25, 1999
FRANCISCO MOTORS CORPORATION, petitioner,

vs.
COURT OF APPEALS and SPOUSES GREGORIO and LIBRADA MANUEL, respondents.
QUISUMBING, J.:
This petition for review on certiorari, under Rule 45 of the Rules of Court, seeks to annul the
1
decision of the Court of Appeals in C.A. G.R. CV No. 10014 affirming the
decision rendered by Branch 135, Regional Trial Court of Makati, Metro
Manila. The procedural antecedents of this petition are as follows:
against private respondents

On January 23, 1985, petitioner filed a complaint
2
to recover three thousand four hundred twelve and six

centavos (P3,412.06), representing the balance of the
jeep body purchased by the Manuels from petitioner; an
additional sum of twenty thousand four hundred fifty-four
and eighty centavos (P20,454.80) representing the unpaid
balance on the cost of repair of the vehicle; and six
thousand pesos (P6,000.00) for cost of suit and attorney's
fees. 3 To the original balance on the price of jeep body
were added the costs of repair. 4 In their answer, private
respondents interposed a counterclaim for unpaid legal
services by Gregorio Manuel in the amount of fifty
thousand pesos (P50,000) which was not paid by the
incorporators, directors and officers of the petitioner. The
trial court decided the case on June 26, 1985, in favor of
petitioner in regard to the petitioner's claim for money, but
also allowed the counter-claim of private respondents.
Both parties appealed. On April 15, 1991, the Court of
Appeals sustained the trial court's decision. 5 Hence, the
present petition.
For our review in particular is the propriety of the permissive counterclaim which private respondents
filed together with their answer to petitioner's complaint for a sum of money. Private respondent
Gregorio Manuel alleged as an affirmative defense that, while he was petitioner's Assistant Legal
Officer, he represented members of the Francisco family in the intestate estate proceedings of the
late Benita Trinidad. However, even after the termination of the proceedings, his services were not
paid. Said family members, he said, were also incorporators, directors and officers of petitioner.
Hence to petitioner's collection suit, he filed a counter permissive counterclaim for the unpaid
6
attorney's fees.
For failure of petitioner to answer the counterclaim, the trial court declared petitioner in default on
this score, and evidence ex-parte was presented on the counterclaim. The trial court ruled in favor of
private respondents and found that Gregorio Manuel indeed rendered legal services to the Francisco
family in Special Proceedings Number 7803 "In the Matter of Intestate Estate of Benita Trinidad".
Said court also found that his legal services were not compensated despite repeated demands, and
7
thus ordered petitioner to pay him the amount of fifty thousand (P50,000.00) pesos.
Dissatisfied with the trial court's order, petitioner elevated the matter to the Court of Appeals, posing
the following issues:
I.
WHETHER OR NOT THE DECISION RENDERED BY THE LOWER COURT IS

NULL AND VOID AS IT NEVER ACQUIRED JURISDICTION OVER THE PERSON
OF THE DEFENDANT.
II.
WHETHER OR NOT PLAINTIFF-APPELLANT NOT BEING A REAL PARTY IN THE

ALLEGED PERMISSIVE COUNTERCLAIM SHOULD BE HELD LIABLE TO THE
CLAIM OF DEFENDANT-APPELLEES.
III.
WHETHER OR NOT THERE IS FAILURE ON THE PART OF PLAINTIFF-

8
APPELLANT TO ANSWER THE ALLEGED PERMISSIVE COUNTERCLAIM.
Petitioner contended that the trial court did not acquire jurisdiction over it because no summons was
validly served on it together with the copy of the answer containing the permissive counterclaim.
Further, petitioner questions the propriety of its being made party to the case because it was not the
real party in interest but the individual members of the Francisco family concerned with the intestate
case.
In its assailed decision now before us for review, respondent Court of Appeals held that a
counterclaim must be answered in ten (10) days, pursuant to Section 4, Rule 11, of the Rules of
Court; and nowhere does it state in the Rules that a party still needed to be summoned anew if a
counterclaim was set up against him. Failure to serve summons, said respondent court, did not
effectively negate trial court's jurisdiction over petitioner in the matter of the counterclaim. It likewise
pointed out that there was no reason for petitioner to be excused from answering the counterclaim.
Court records showed that its former counsel, Nicanor G. Alvarez, received the copy of the answer
with counterclaim two (2) days prior to his withdrawal as counsel for petitioner. Moreover when
petitioner's new counsel, Jose N. Aquino, entered his appearance, three (3) days still remained
within the period to file an answer to the counterclaim. Having failed to answer, petitioner was
correctly considered in default by the trial
9
court. Even assuming that the trial court acquired no jurisdiction over
petitioner, respondent court also said, but having filed a motion for
reconsideration seeking relief from the said order of default, petitioner was
estopped from further questioning the trial court's jurisdiction. 10
On the question of its liability for attorney's fees owing to private respondent Gregorio Manuel,
petitioner argued that being a corporation, it should not be held liable therefor because these fees
were owed by the incorporators, directors and officers of the corporation in their personal capacity as
heirs of Benita Trinidad. Petitioner stressed that the personality of the corporation, vis-a-vis the
11
individual persons who hired the services of private respondent, is separate and distinct, hence, the
liability of said individuals did not become an obligation chargeable against petitioner.
Nevertheless, on the foregoing issue, the Court of Appeals ruled as follows:
However, this distinct and separate personality is merely a fiction created by law for
convenience and to promote justice. Accordingly, this separate personality of the
corporation may be disregarded, or the veil of corporate fiction pierced, in cases
where it is used as a cloak or cover for found (sic) illegality, or to work an injustice, or
where necessary to achieve equity or when necessary for the protection of creditors.
(Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347) Corporations are composed of
natural persons and the legal fiction of a separate corporate personality is not a
shield for the commission of injustice and inequity. (Chemplex Philippines, Inc. vs.
Pamatian, 57 SCRA 408).
In the instant case, evidence shows that the plaintiff-appellant Francisco Motors
Corporation is composed of the heirs of the late Benita Trinidad as directors and
incorporators for whom defendant Gregorio Manuel rendered legal services in the
intestate estate case of their deceased mother. Considering the aforestated
principles and circumstances established in this case, equity and justice demands
plaintiff-appellant's veil of corporate identity should be pierced and the defendant be
compensated for legal services rendered to the heirs, who are directors of the
12
plaintiff-appellant corporation.
Now before us, petitioner assigns the following errors:
I.
THE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE OF PIERCING

THE VEIL OF CORPORATE ENTITY.
II.
THE COURT OF APPEALS ERRED IN AFFIRMING THAT THERE WAS

JURISDICTION OVER PETITIONER WITH RESPECT TO THE
13
COUNTERCLAIM.
Petitioner submits that respondent court should not have resorted to piercing the veil of corporate
fiction because the transaction concerned only respondent Gregorio Manuel and the heirs of the late
Benita Trinidad. According to petitioner, there was no cause of action by said respondent against
petitioner; personal concerns of the heirs should be distinguished from those involving corporate
affairs. Petitioner further contends that the present case does not fall among the instances wherein
the courts may look beyond the distinct personality of a corporation. According to petitioner, the
services for which respondent Gregorio Manuel seeks to collect fees from petitioner are personal in
nature. Hence, it avers the heirs should have been sued in their personal capacity, and not involve
14
the corporation.
With regard to the permissive counterclaim, petitioner also insists that there was no proper service of
the answer containing the permissive counterclaim. It claims that the counterclaim is a separate
case which can only be properly served upon the opposing party through summons. Further
petitioner states that by nature, a permissive counterclaim is one which does not arise out of nor is
necessarily connected with the subject of the opposing party's claim. Petitioner avers that since
there was no service of summons upon it with regard to the counterclaim, then the court did not
acquire jurisdiction over petitioner. Since a counterclaim is considered an action independent from
the answer, according to petitioner, then in effect there should be two simultaneous actions between
the same parties: each party is at the same time both plaintiff and defendant with respect to the
15
other, requiring in each case separate summonses.
In their Comment, private respondents focus on the two questions raised by petitioner. They defend
the propriety of piercing the veil of corporate fiction, but deny the necessity of serving separate
summonses on petitioner in regard to their permissive counterclaim contained in the answer.
Private respondents maintain both trial and appellate courts found that respondent Gregorio Manuel
was employed as assistant legal officer of petitioner corporation, and that his services were solicited
by the incorporators, directors and members to handle and represent them in Special Proceedings
No. 7803, concerning the Intestate Estate of the late Benita Trinidad. They assert that the members
of petitioner corporation took advantage of their positions by not compensating respondent Gregorio
Manuel after the termination of the estate proceedings despite his repeated demands for payment of
his services. They cite findings of the appellate court that support piercing the veil of corporate
identity in this particular case. They assert that the corporate veil may be disregarded when it is used
to defeat public convenience, justify wrong, protect fraud, and defend crime. It may also be pierced,
according to them, where the corporate entity is being used as an alter ego, adjunct, or business
conduit for the sole benefit of the stockholders or of another corporate entity. In these instances, they
16
aver, the corporation should be treated merely as an association of individual persons.
Private respondents dispute petitioner's claim that its right to due process was violated when
respondents' counterclaim was granted due course, although no summons was served upon it. They
claim that no provision in the Rules of Court requires service of summons upon a defendant in a
counterclaim. Private respondents argue that when the petitioner filed its complaint before the trial
court it voluntarily submitted itself to the jurisdiction of the court. As a consequence, the issuance of
summons on it was no longer necessary. Private respondents say they served a copy of their answer
with affirmative defenses and counterclaim on petitioner's former counsel, Nicanor G. Alvarez. While
petitioner would have the Court believe that respondents served said copy upon Alvarez after he had
withdrawn his appearance as counsel for the petitioner, private respondents assert that this
contention is utterly baseless. Records disclose that the answer was received two (2) days before
the former counsel for petitioner withdrew his appearance, according to private respondents. They
maintain that the present petition is but a form of dilatory appeal, to set off petitioner's obligations to
the respondents by running up more interest it could recover from them. Private respondents
17
therefore claim damages against petitioner.
To resolve the issues in this case, we must first determine the propriety of piercing the veil of
corporate fiction.
Basic in corporation law is the principle that a corporation has a separate personality distinct from its
18
stockholders and from other corporations to which it may be connected. However, under the
doctrine of piercing the veil of corporate entity, the corporation's separate
juridical personality may be disregarded, for example, when the corporate
identity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime. Also, where the corporation 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, then its distinct personality
may be ignored. 19 In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the
liability will directly attach to them. The legal fiction of a separate corporate personality in those cited instances, for reasons of public policy
and in the interest of justice, will be justifiably set aside.
In our view, however, given the facts and circumstances of this case, the doctrine of piercing the
corporate veil has no relevant application here. Respondent court erred in permitting the trial court's
resort to this doctrine. The rationale behind piercing a corporation's identity in a given case is to
remove the barrier between the corporation from the persons comprising it to thwart the fraudulent
and illegal schemes of those who use the corporate personality as a shield for undertaking certain
proscribed activities. However, in the case at bar, instead of holding certain individuals or persons
responsible for an alleged corporate act, the situation has been reversed. It is the petitioner as a
corporation which is being ordered to answer for the personal liability of certain individual directors,
officers and incorporators concerned. Hence, it appears to us that the doctrine has been turned
upside down because of its erroneous invocation. Note that according to private respondent
Gregorio Manuel his services were solicited as counsel for members of the Francisco family to
represent them in the intestate proceedings over Benita Trinidad's estate. These estate proceedings
did not involve any business of petitioner.
Note also that he sought to collect legal fees not just from certain Francisco family members but also
from petitioner corporation on the claims that its management had requested his services and he
acceded thereto as an employee of petitioner from whom it could be deduced he was also receiving
a salary. His move to recover unpaid legal fees through a counterclaim against Francisco Motors
Corporation, to offset the unpaid balance of the purchase and repair of a jeep body could only result
from an obvious misapprehension that petitioner's corporate assets could be used to answer for the
liabilities of its individual directors, officers, and incorporators. Such result if permitted could easily
prejudice the corporation, its own creditors, and even other stockholders; hence, clearly inequitous
to petitioner.
Furthermore, considering the nature of the legal services involved, whatever obligation said
incorporators, directors and officers of the corporation had incurred, it was incurred in their personal
capacity. When directors and officers of a corporation are unable to compensate a party for a
personal obligation, it is far-fetched to allege that the corporation is perpetuating fraud or promoting
injustice, and be thereby held liable therefor by piercing its corporate veil. While there are no hard
and fast rules on disregarding separate corporate identity, we must always be mindful of its function
and purpose. A court should be careful in assessing the milieu where the doctrine of piercing the
corporate veil may be applied. Otherwise an injustice, although unintended, may result from its
erroneous application.
The personality of the corporation and those of its incorporators, directors and officers in their
personal capacities ought to be kept separate in this case. The claim for legal fees against the
concerned individual incorporators, officers and directors could not be properly directed against the
corporation without violating basic principles governing corporations. Moreover, every action
including a counterclaim must be prosecuted or defended in the name of the real party in
20
interest. It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at the door of petitioner (FMC) rather
than individual members of the Francisco family.
However, with regard to the procedural issue raised by petitioner's allegation, that it needed to be
summoned anew in order for the court to acquire jurisdiction over it, we agree with respondent
court's view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or
cross-claim must be answered within ten (10) days from service. Nothing in the Rules of Court says
that summons should first be served on the defendant before an answer to counterclaim must be
made. The purpose of a summons is to enable the court to acquire jurisdiction over the person of the
defendant. Although a counterclaim is treated as an entirely distinct and independent action, the
defendant in the counterclaim, being the plaintiff in the original complaint, has already submitted to
21
the jurisdiction of the court. Following Rule 9, Section 3 of the 1997 Rules of Civil Procedure, if a
defendant (herein petitioner) fails to answer the counterclaim, then upon
motion of plaintiff, the defendant may be declared in default. This is what
happened to petitioner in this case, and this Court finds no procedural error in
the disposition of the appellate court on this particular issue. Moreover, as
noted by the respondent court, when petitioner filed its motion seeking to set
aside the order of default, in effect it submitted itself to the jurisdiction of the
court. As well said by respondent court:
Further on the lack of jurisdiction as raised by plaintiff-appellant[,] [t]he records show
that upon its request, plaintiff-appellant was granted time to file a motion for
reconsideration of the disputed decision. Plaintiff-appellant did file its motion for
reconsideration to set aside the order of default and the judgment rendered on the
counterclaim.
Thus, even if the court acquired no jurisdiction over plaintiff-appellant on the

counterclaim, as it vigorously insists, plaintiff-appellant is considered to have
submitted to the court's jurisdiction when it filed the motion for reconsideration
seeking relief from the court. (Soriano vs. Palacio, 12 SCRA 447). A party is
estopped from assailing the jurisdiction of a court after voluntarily submitting himself
to its jurisdiction. (Tejones vs. Gironella, 159 SCRA 100). Estoppel is a bar against
22
any claims of lack of jurisdiction. (Balais vs. Balais, 159 SCRA 37).
WHEREFORE, the petition is hereby GRANTED and the assailed decision is hereby REVERSED
insofar only as it held Francisco Motors Corporation liable for the legal obligation owing to private
respondent Gregorio Manuel; but this decision is without prejudice to his filing the proper suit against
the concerned members of the Francisco family in their personal capacity. No pronouncement as to
costs.
1wphi1.nt
SO ORDERED.
Bellosillo, Puno, Mendoza and Buena, JJ., concur.
Footnotes
1 Dated April 15, 1991. Rollo, pp. 31-35. Reconsideration thereof was denied on July
1, 1991. Rollo, pp. 28-29.
2 Civil Case No. 9542. Records, RTC, pp. 1-3.
3 Rollo, p. 31.
4 Id., at 9.
5 Id., at 11.
6 Supra, note 4.
7 Supra note 5.
8 Rollo, pp. 32-33.
9 Id. at 32.
10 Id. at 34.
11 Ibid.
12 Rollo, pp. 34-35.
13 Id. at 12.
14 Id. at 12-16.
15 Id. at 18-21; See also Golden Ribbon Lumber Co., Inc. vs. Salvador S. Santos
and Rafaela M. Santos, C.A. G. R. No. 12935 November 15, 1955.
16 Id. at 47-51.
17 Id. at 52-60.
18 Concept Builder's Inc. vs. NLRC 257 SCRA 149, 157 (1996); See also Emilio
Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 (1965) and Yutivo Sons Hardware Co.
vs. CTA, 1 SCRA 160(1961).
19 Indophil Textile Mill Workers Union vs. Calica, 205 SCRA 697, 704 (1992); See
also Umali et al vs. CA, 189 SCRA 529, 542 (1990).
20 Sec. 2, Rule 3 of the RULES OF COURT; See also, De Leon vs. Court of
Appeals, 277 SCRA 478, 486 (1997).
21 In the Court of Appeals Decision, Section 3 of Rule 9 was still under Section 1 of
Rule 18 of the Rules of Court.
22 Rollo, p. 34.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 108936 October 4, 1996
SOL LAGUIO, RENE LAOLAO, ANNALIZA ENSANDO, EDELIZA ASAS, LILIA MARAY, EVELYN
UNTALAN,* ROSARIO CHICO, REYNALDO GARCIA, MERLITA DE LOS SANTOS,* JOSEPHINE
DERONG,* GEMMA TIBALAO BANTOLO, LUCY ALMONTE,* CRISPINA VANQUARDIA,
NARCISA VENZON, NORMA ELEGANTE,* AMELITA MORENO,* ABNER PETILOS, NARCISO
HILAPO, DOLORES OLAES, MELINDA LLADOC, ERNA AZARCON, and APRIL TOY, INC.
WORKERS UNION ALAB, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, WELL WORLD TOYS, INC., APRIL TOYS, INC.,
YU SHENG LING, JENN L. WANG, EUCLIFF CHENG, CHI SHENG LIN, NENITA C. AGUIRRE,
MA. THERESA R. CADIENTE and GLICERIA R. AGUIRRE, respondents.
RESOLUTION
FRANCISCO, J.:p
Private respondent April Toy, Inc. (April for brevity) is a domestic corporation incorporated on
January 6, 1989, for the purpose of "manufacturing, importing, exporting, buying , selling,
sub-contracting or otherwise dealing in, at wholesale and retail," 1 stuffed toys, with principal
place of business at Paraaque, Manila. On December 20, 1989, or after almost a year of
operation, April posted a memorandum 2 within its premises and circulated a copy of the same
among its employees informing them of its dire financial condition. To avert further business
reverses, April decided to shorten its corporate term "up to February 28, 1990," 3 submitted a
notice of dissolution to the Securities and Exchange Commission and published the same in a
newspaper of general circulation 4. April also notified its employees, the Department of Labor and
Employment, 5 the Social Security System, 6 the Board of Investments, 7 the Bureau of Internal
Revenue, 8 and the Municipality of Paraaque of its dissolution.
In view of April's cessation of operations, petitioners who initially composed of seventy-seven

employees below filed a complaint for "illegal shutdown/retrenchment/dismissal and unfair
labor practice." 9 On June 21, 1990, petitioners amended their complaint to implead private
respondent Well World Toys, Inc. (Well World for brevity), a corporation also engaged in the
manufacture of stuffed toys for export with principal office located at Las Pias, Manila.
In their complaint, petitioners basically alleged that they were original probationary
employees 10 of Well World but were later laid off in 1989 "for starting to organize themselves into
a union". 11 They applied with and were thereafter hired by April. On February 2, 1990, and while
under the employ of April, petitioners conducted a certification election where their union,
Alyansang Likha ng mga Anak ng Bayan (ALAB), won as the exclusive bargaining agent for the
workers. Petitioners thereafter submitted a Collective Bargaining Agreement proposal which April
rejected in view of its cessation of operation. The closure, petitioners declared, is April's clever
ploy to "defeat their right to self organization". 12 Petitioners further alleged that the original
incorporators and principal officers of April were likewise the original incorporators of Well World,
thus both corporations should be treated as one corporation liable for their claims. In his decision
dated December 20, 1991, the Labor Arbiter found as valid the closure of April, and treated April
and Well World as two distinct corporations. While the seventy-seven complainants were ruled to
be the employees of April, the Labor Arbiter, nevertheless, ordered Well World to give financial
assistance to its former forty-nine probationary employees who were found to have been laid off
in 1989 due to business losses. April was likewise ordered to pay its separated employees their
separation pay and, together with Well World, assessed for attorney's fees. Petitioners appealed
before the National Labor Relations Commission (NLRC), but to no avail. Hence, this petition,
supported by the Office of the Solicitor General, anchored solely on the NLRC's purported grave
abuse of discretion in not finding April and Well World as one corporation liable for their
grievances.
To bolster their claim that April and Well World are one and the same corporation, petitioners
argue that both corporations have the same set of incorporators. Thus
Incorporators of Well World Incorporators of April
Name Citizenship No. of Name Citizenship No. of

Shares Shares
Eucliff Cheng Filipino 148 Nenita C. Aguirre Filipino 2,797

Jenn Li Wang Chinese 25 Ma. Theresa Cadiente Filipino 800
Yu-Sheng Ling Chinese 25 Gliceria R. Aguirre Filipino 400
Chia-Sheng Lin Chinese 25 Pacifico R. Cadiente Filipino 1
Chia-Yu-Yen Lin Chinese 25 Emalyn A. Fernandez Filipino 1
Ma. Theresa Cadiente Filipino 1 Erlinda M. Hizon Filipino 1
Gliceria Aguirre Filipino 1
4,000
250
(Petition, pp. 4-5; Rollo, pp. 5-6; Memorandum pp. 7-8, Rollo, 242-243.)
Petitioners also insist that the two corporations "are being managed by Mr. Jean Li
Wang" 13 and that their articles of incorporation, general information sheets and certificates of
increase of capital stock were notarized by the same Notary Public. Additionally, petitioners aver
that when some of them transferred from Well World to April they were not given their separation
pay, a factor which presumably proves that April is a mere conduit of Well World. Petitioners
likewise assert that their transfer from one corporation to another was made at the time that they
were on the process of organizing a union. Finally, petitioners allege that April and Well World
were engaged in the same line of business, with the latter also supplying the former raw materials
and machineries. These circumstances, petitioners claim, make their case akin to the case of La
Campana Coffee Factory Inc. v. Kaisahan ng mga Manggagawa sa La Campana (KKM), 93 Phil.
160, where the Court considered two corporations, i.e., La Campana Coffee Factory, Inc. and La
Campana Gaugau Packing, as one and the same. We are not persuaded.
A cursory examination of the composition of April and Well World's incorporators and the
number of shares they own hardly supports petitioners' asseveration. In fact, petitioners'
allegation that both corporations were managed by a single individual, Mr. Jen Li Weng,
contradicts paragraphs 7 and 8 of their petition which state:
7. Respondents Yu-Sheng Ling, Jen Li Weng (Alias James Wang), Eucliff Cheng and
Chia Sheng Lin are the President, Managing Director, Treasurer and Secretary
respectively of respondent Well World Toy, Inc., all of whom are holding office at 399-
B Real St., Talon, Las Pias, Metro Manila. . .
8. Respondents Nenita C. Aguirre, Ma. Theresa R. Cadiente and Gliceria R. Aguirre
are the President, Treasurer and Secretary, respectively of respondent April Toy, Inc.
all of whom are holding office at No. 6-C Ascie Avenue, Severina Industrial Estate,
Km. 16 South Superhighway Paraaque. . . 14
What clearly appears therefrom is that the two corporations have two different set of officers
managing their respective affairs in two separate offices.
It is basic that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other legal entity to which it
may be related. Mere substantial identity of the incorporators of the two corporations does
not necessarily imply fraud, 15 nor warrant the piercing of the veil of corporate fiction. In the
absence of clear and convincing evidence that April and Well World's corporate personalities
were used to perpetuate fraud, or circumvent the law said corporations were rightly treated as
distinct and separate from each other. Further, petitioners' emphatic reliance with the case of La
Campana is misplaced. In La Campana, unlike in this case, the two corporations, i.e., La
Campana Coffee Factory, Inc. and La Campana Gaugau Packing, were not only owned by the
same person, but moreover have a single management, business office and a single payroll for
both businesses. Indeed, the workers of La Campana Gaugau Packing "were interchangeable,
that is, the laborers from gaugau factory were sometimes transferred to the coffee factory and
vice-versa." 16
We thus quote with approval the observations made by the Labor Arbiter as follows:
We can not fully subscribe to the above contention of the complainants. We do not
believe that the circumstances related by the complainants are sufficient indicia that
the two corporations are one and the same corporation although it appears that two
of the original incorporators and stockholders of April Toy, Inc. were incorporators and
minority stockholders of Well-World Toy, Inc. Hence it does not mean that the two (2)
corporations are adjunct and conduit. There is not express provision under the
Corporation Law prohibiting stockholders or incorporators of a corporation to be a
stockholder or incorporator of another corporation.
The fiction that a corporation was a distinct and separate personality shall not be
used as a subterfuge to commit injustice and circumvent the law does not apply in
the present case. There is no conclusive evidence to convince us that respondent
April Toy, Inc. was established and later on closed to defeat the rights of the workers
of Well-World Toy, Inc. which would otherwise support the charge of unfair labor
practice. Hence, we find that the two (2) corporations are separate and distinct
entities. 17
and, on appeal, by public respondent NLRC, thus:
[R]elative to the closure of April Toy, it is clear from the records that as early as
December 1989 or long before a certification election was conducted among its rank-
and-file employees on February 2, 1990, the employees were already aware that
April Toy was suffering from financial crisis. It further appearing that April Toy
continued to suffer losses as evidenced by its financial statements ending December
31, 1989 and its balance sheet ending March 31, 1990, the Labor Arbiter a
quo correctly ruled that the eventual closure of its business on February 27, 1990, is
valid.
Anent the question of whether or not April Toy and Well-World Toy are one and the
same, with the facts and circumstances showing that the owners of April Toy are
different from those of Well-World, the management of one being different from the
other, and the office of April Toy is situated more than ten kilometers away from Well-
World, plus the fact that the closure of April Toy was for valid reasons, the Labor
Arbiter likewise correctly opined that the two corporations are separate and distinct
from each other, and that there is no basis for piercing the veil of corporate fiction. 18
Furthermore, the petition hinges on the factual findings of both the Labor Arbiter and the
NLRC. It should be stressed that the factual findings of quasi-judicial agencies like the NLRC
are generally accorded not only respect but, at times, finality if such are supported by
substantial evidence 19. Judicial review by this Court in labor cases does not go so far as to
require this Court to evaluate the sufficiency of the evidence upon which the Labor Arbiter and
respondent NLRC based their determination as our review is limited to issues of jurisdiction or
grave abuse of discretion. In the instant suit, the findings of the Labor Arbiter was duly affirmed by
respondent NLRC, findings amply supported by substantial evidence on record. We find no
cogent reason, as none was presented, to deviate from the same.
ACCORDINGLY, finding no grave abuse of discretion on the part of respondent NLRC in

rendering the assailed resolution, the instant petition is hereby DISMISSED for lack of merit.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur.
Footnotes
* Petitioners who signed, with the assistance of counsel, their respective Release,
Waiver and Quitclaim, discharging April Toys, Inc., from any liability. They also moved
for the dismissal of the instant petition. See: Rollo, pp. 346-357.
1 Articles of Incorporation of April Toy, Inc., Rollo, p. 312.
2 Rollo, pp. 321-322.
3 Director's Certificate, Rollo, p. 332.
4 Rollo, p. 335.
5 Rollo, p. 340.
6 Rollo, p. 336.
7 Rollo, p. 337.
8 Rollo, p. 338.
9 Decision of the Labor Arbiter, p. 1; Rollo, p. 15.
10 Of the seventy-seven initial complainants below, forty nine were former

probationary employees of Well World Toys, Inc.. Only the following probationary
employees proceeded to file this petition,viz.: Lucy Almonte, Norma Elegante, Abner
Petilos, Narciso Hilapo, Evelyn Untalan, Narcisa Venzon, Solita Laguio, and
Josephine Derong. (See: Rollo, p. 22).
11 Petition, p. 5; Rollo, p. 6.
12 Memorandum for the petitioners, p. 2; Rollo, p. 237.
13 Petition, p. 9; Rollo, p. 10.
14 Petition, pp. 3-4; Rollo, pp. 4-5.
15 De Rosario v. NLRC, 187 SCRA 777, 781.
16 La Campana Coffee Factory, Inc. v. Kaisahan ng mga Manggagawa sa La

Campana (KKM), 93 Phil. 160, 166.
17 Decision of the Labor Arbiter, pp. 12-13; Rollo, pp. 26-27.
18 Resolution of the NLRC, p. 3; Rollo, p. 32.
19 Vallende v. NLRC, 245 SCRA 662.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 124715 January 24, 2000
RUFINA LUY LIM, petitioner,

vs.
COURT OF APPEALS, AUTO TRUCK TBA CORPORATION, SPEED DISTRIBUTING, INC.,
ACTIVE DISTRIBUTORS, ALLIANCE MARKETING CORPORATION, ACTION COMPANY,
INC. respondents.
BUENA, J.:
May a corporation, in its universality, be the proper subject of and be included in the inventory of the
estate of a deceased person?
Petitioner disputes before us through the instant petition for review on certiorari, the decision1 of the
Court of Appeals promulgated on 18 April 1996, in CA-GR SP No. 38617, which nullified and set
aside the orders dated 04 July 19952, 12 September 19953 and 15 September 19954 of the Regional
Trial Court of Quezon City, Branch 93, sitting as a probate court.
Petitioner Rufina Luy Lim is the surviving spouse of late Pastor Y. Lim whose estate is the subject of
probate proceedings in Special Proceedings Q-95-23334, entitled, "In Re: Intestate Estate of Pastor
Y. Lim Rufina Luy Lim, represented by George Luy, Petitioner". 1wphi1.nt
Private respondents Auto Truck Corporation, Alliance Marketing Corporation, Speed Distributing,
Inc., Active Distributing, Inc. and Action Company are corporations formed, organized and existing
under Philippine laws and which owned real properties covered under the Torrens system.
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving spouse and duly
represented by her nephew George Luy, fried on 17 March 1995, a joint petition 5 for the
administration of the estate of Pastor Y. Lim before the Regional Trial Court of Quezon City.
Private respondent corporations, whose properties were included in the inventory of the estate of
Pastor Y. Lim, then filed a motion6 for the lifting of lis pendens and motion7 for exclusion of certain
properties from the estate of the decedent.
In an order8 dated 08 June 1995, the Regional Trial Court of Quezon City, Branch 93, sitting as a
probate court, granted the private respondents' twin motions, in this wise:
Wherefore, the Register of Deeds of Quezon City is hereby ordered to lift, expunge or delete
the annotation of lis pendens on Transfer Certificates of Title Nos. 116716, 116717, 116718,
116719 and 5182 and it is hereby further ordered that the properties covered by the same
titles as well as those properties by (sic) Transfer Certificate of Title Nos. 613494, 363123,
236236 and 263236 are excluded from these proceedings.
SO ORDERED.
Subsequently, Rufina Luy Lim filed a verified amended petition 9 which contained the following
averments:
3. The late Pastor Y. Lim personally owned during his lifetime the following business entities,
to wit:
Business
Address:
Entity
xxx xxx xxx
Alliance Block 3, Lot 6, Dacca BF
Marketing, Inc. Homes, Paraaque, Metro
Manila.
xxx xxx xxx
Speed
910 Barrio Niog, Aguinaldo
Distributing
Highway, Bacoor, Cavite.
Inc.
xxx xxx xxx
Auto Truck 2251 Roosevelt Avenue,
TBA Corp. Quezon City.
xxx xxx xxx
Active Block 3, Lot 6, Dacca BF
Distributors, Homes, Paraaque, Metro
Inc. Manila.
xxx xxx xxx
Action 100 20th Avenue Murphy,
Company Quezon City or 92-D Mc-
Arthur Highway Valenzuela
Bulacan.
3.1 Although the above business entities dealt and engaged in business with the
public as corporations, all their capital, assets and equity were however, personally
owned by the late Pastor Y Lim. Hence the alleged stockholders and officers
appearing in the respective articles of incorporation of the above business entities
were mere dummies of Pastor Y. Lim, and they were listed therein only for purposes
of registration with the Securities and Exchange Commission.
4. Pastor Lim, likewise, had Time, Savings and Current Deposits with the following banks: (a)
Metrobank, Grace Park, Caloocan City and Quezon Avenue, Quezon City Branches and (b)
First Intestate Bank (formerly Producers Bank), Rizal Commercial Banking Corporation and
in other banks whose identities are yet to be determined.
5. That the following real properties, although registered in the name of the above entities,
were actually acquired by Pastor Y. Lim during his marriage with petitioner, to wit:
Corporation Title Location

xxx xxx xxx
k. Auto Truck TCT No. 617726 Sto. Domingo TBA
Corporation Cainta, Rizal
q. Alliance Marketing TCT No. 27896 Prance, Metro Manila
Copies of the above-mentioned Transfer Certificate of Title and/or Tax Declarations are
hereto attached as Annexes "C" to "W".
xxx xxx xxx
7. The aforementioned properties and/or real interests left by the late Pastor Y. Lim, are all
conjugal in nature, having been acquired by him during the existence of his marriage with
petitioner.
8. There are other real and personal properties owned by Pastor Y. Lim which petitioner
could not as yet identify. Petitioner, however will submit to this Honorable Court the identities
thereof and the necessary documents covering the same as soon as possible.
On 04 July 1995, the Regional Trial Court acting on petitioner's motion issued an order 10, thus:
Wherefore, the order dated 08 June 1995 is hereby set aside and the Registry of Deeds of
Quezon City is hereby directed to reinstate the annotation of lis pendens in case said
annotation had already been deleted and/or cancelled said TCT Nos. 116716, 116717,
116718, 116719 and 51282.
Further more (sic), said properties covered by TCT Nos. 613494, 365123, 236256 and
236237 by virtue of the petitioner are included in the instant petition.
SO ORDERED.
On 04 September 1995, the probate court appointed Rufina Lim as special administrator 11 and
Miguel Lim and Lawyer Donald Lee, as co-special administrators of the estate of Pastor Y. Lim, after
which letters of administration were accordingly issued.
In an order12 dated 12 September 1995, the probate court denied anew private respondents' motion
for exclusion, in this wise:
The issue precisely raised by the petitioner in her petition is whether the corporations are the
mere alter egos or instrumentalities of Pastor Lim, Otherwise (sic) stated, the issue involves
the piercing of the corporate veil, a matter that is clearly within the jurisdiction of this
Honorable Court and not the Securities and Exchange Commission. Thus, in the case
of Cease vs. Court of Appeals, 93 SCRA 483, the crucial issue decided by the regular court
was whether the corporation involved therein was the mere extension of the decedent. After
finding in the affirmative, the Court ruled that the assets of the corporation are also assets of
the estate.
A reading of P.D. 902, the law relied upon by oppositors, shows that the SEC's exclusive
(sic) applies only to intra-corporate controversy. It is simply a suit to settle the intestate estate
of a deceased person who, during his lifetime, acquired several properties and put up
corporations as his instrumentalities.
SO ORDERED.
On 15 September 1995, the probate court acting on an ex parte motion filed by petitioner, issued an
order13 the dispositive portion of which reads:
Wherefore, the parties and the following banks concerned herein under enumerated are
hereby ordered to comply strictly with this order and to produce and submit to the special
administrators, through this Honorable Court within (5) five days from receipt of this order
their respective records of the savings/current accounts/time deposits and other deposits in
the names of Pastor Lim and/or corporations above-mentioned, showing all the transactions
made or done concerning savings/current accounts from January 1994 up to their receipt of
this court order.
xxx xxx xxx
SO ORDERED.
Private respondent filed a special civil action for certiorari14, with an urgent prayer for a restraining
order or writ of preliminary injunction, before the Court of Appeals questioning the orders of the
Regional Trial Court, sitting as a probate court.
On 18 April 1996, the Court of Appeals, finding in favor of herein private respondents, rendered the
assailed decision15, the decretal portion of which declares:
Wherefore, premises considered, the instant special civil action for certiorari is hereby
granted, The impugned orders issued by respondent court on July 4, 1995 and September
12, 1995 are hereby nullified and set aside. The impugned order issued by respondent on
September 15, 1995 is nullified insofar as petitioner corporations" bank accounts and
records are concerned.
SO ORDERED.
Through the expediency of Rule 45 of the Rules of Court, herein petitioner Rufina Luy Lim now
comes before us with a lone assignment of
error16:
The respondent Court of Appeals erred in reversing the orders of the lower court which
merely allowed the preliminary or provisional inclusion of the private respondents as part of
the estate of the late deceased (sic) Pastor Y. Lim with the respondent Court of Appeals
arrogating unto itself the power to repeal, to disobey or to ignore the clear and explicit
provisions of Rules 81,83,84 and 87 of the Rules of Court and thereby preventing the
petitioner, from performing her duty as special administrator of the estate as expressly
provided in the said Rules.
Petitioner's contentions tread on perilous grounds.
In the instant petition for review, petitioner prays that we affirm the orders issued by the probate court
which were subsequently set aside by the Court of Appeals.
Yet, before we delve into the merits of the case, a review of the rules on jurisdiction over probate
proceedings is indeed in order.
The provisions of Republic Act 769117, which introduced amendments to Batas Pambansa Blg. 129,
are pertinent:
Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary
Reorganization Act of 1980", is hereby amended to read as follows:
Sec. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive jurisdiction:
xxx xxx xxx
(4) In all matters of probate, both testate and intestate, where the gross value of the estate
exceeds One Hundred Thousand Pesos (P100,000) or, in probate matters in Metro Manila,
where such gross value exceeds Two Hundred Thousand Pesos (P200,000);
xxx xxx xxx
Sec. 3. Section 33 of the same law is hereby amended to read as follows:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in Civil Cases. Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial Courts shall exercise:
1. Exclusive original jurisdiction over civil actions and probate proceedings, testate
and intestate, including the grant of provisional remedies in proper cases, where the
value of the personal property, estate or amount of the demand does not exceed One
Hundred Thousand Pesos (P100,000) or, in Metro Manila where such personal
property, estate or amount of the demand does not exceed Two Hundred Thousand
Pesos (P200,000), exclusive of interest, damages of whatever kind, attorney's fees,
litigation expenses and costs, the amount of which must be specifically
alleged, Provided, that interest, damages of whatever kind, attorney's, litigation
expenses and costs shall be included in the determination of the filing fees, Provided
further, that where there are several claims or causes of actions between the same
or different parties, embodied in the same complaint, the amount of the demand shall
be the totality of the claims in all the causes of action, irrespective of whether the
causes of action arose out of the same or different transactions;
xxx xxx xxx
Simply put, the determination of which court exercises jurisdiction over matters of probate depends
upon the gross value of the estate of the decedent.
As to the power and authority of the probate court, petitioner relies heavily on the principle that a
probate court may pass upon title to certain properties, albeit provisionally, for the purpose of
determining whether a certain property should or should not be included in the inventory.
In a litany of cases, We defined the parameters by which the court may extend its probing arms in
the determination of the question of title in probate proceedings.
This Court, in PASTOR, JR. vs. COURT OF APPEALS,18 held:
. . . As a rule, the question of ownership is an extraneous matter which the probate court
cannot resolve with finality. Thus, for the purpose of determining whether a certain property
should or should not be included in the inventory of estate properties, the Probate Court may
pass upon the title thereto, but such determination is provisional, not conclusive, and is
subject to the final decision in a separate action to resolve title.
We reiterated the rule in PEREIRA vs. COURT OF APPEALS19:
. . . The function of resolving whether or not a certain property should be included in the
inventory or list of properties to be administered by the administrator is one clearly within the
competence of the probate court. However, the court's determination is only provisional in
character, not conclusive, and is subject to the final decision in a separate action which may
be instituted by the parties.
Further, in MORALES vs. CFI OF CAVITE20 citing CUIZON vs. RAMOLETE21, We made an
exposition on the probate court's limited jurisdiction:
It is a well-settled rule that a probate court or one in charge of proceedings whether testate
or intestate cannot adjudicate or determine title to properties claimed to be a part of the
estate and which are equally claimed to belong to outside parties. All that the said court
could do as regards said properties is to determine whether they should or should not be
included in the inventory or list of properties to be administered by the administrator. If there
is no dispute, well and good; but if there is, then the parties, the administrator and the
opposing parties have to resort to an ordinary action for a final determination of the
conflicting claims of title because the probate court cannot do so.
Again, in VALERA vs. INSERTO22, We had occasion to elucidate, through Mr. Justice Andres
Narvasa23:
Settled is the rule that a Court of First Instance (now Regional Trial Court), acting as a
probate court, exercises but limited jurisdiction, and thus has no power to take cognizance of
and determine the issue of title to property claimed by a third person adversely to the
decedent, unless the claimant and all other parties having legal interest in the property
consent, expressly or impliedly, to the submission of the question to the probate court for
adjudgment, or the interests of third persons are not thereby prejudiced, the reason for the
exception being that the question of whether or not a particular matter should be resolved by
the court in the exercise of its general jurisdiction or of its limited jurisdiction as a special
court (e.g. probate, land registration, etc.), is in reality not a jurisdictional but in essence of
procedural one, involving a mode of practice which may be waived. . . .
. . . . These considerations assume greater cogency where, as here, the Torrens title is not in
the decedent's name but in others, a situation on which this Court has already had occasion
to rule . . . . (emphasis Ours)
Petitioner, in the present case, argues that the parcels of land covered under the Torrens system and
registered in the name of private respondent corporations should be included in the inventory of the
estate of the decedent Pastor Y. Lim, alleging that after all the determination by the probate court of
whether these properties should be included or not is merely provisional in nature, thus, not
conclusive and subject to a final determination in a separate action brought for the purpose of
adjudging once and for all the issue of title.
Yet, under the peculiar circumstances, where the parcels of land are registered in the name of
private respondent corporations, the jurisprudence pronounced in BOLISAY vs., ALCID 24 is of great
essence and finds applicability, thus:
It does not matter that respondent-administratrix has evidence purporting to support her
claim of ownership, for, on the other hand, petitioners have a Torrens title in their favor, which
under the law is endowed with incontestability until after it has been set aside in the manner
indicated in the law itself, which of course, does not include, bringing up the matter as a
mere incident in special proceedings for the settlement of the estate of deceased persons. . .
.
. . . . In regard to such incident of inclusion or exclusion, We hold that if a property covered

by Torrens title is involved, the presumptive conclusiveness of such title should be given due
weight, and in the absence of strong compelling evidence to the contrary, the holder thereof
should be considered as the owner of the property in controversy until his title is nullified or
modified in an appropriate ordinary action, particularly, when as in the case at bar,
possession of the property itself is in the persons named in the title. . . .
A perusal of the records would reveal that no strong compelling evidence was ever presented by
petitioner to bolster her bare assertions as to the title of the deceased Pastor Y. Lim over the
properties. Even so, P.D. 1529, otherwise known as, "The Property Registration Decree", proscribes
collateral attack on Torrens Title, hence:
xxx xxx xxx
Sec. 48. Certificate not subject to collateral attack. A certificate of title shall not be subject
to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding
in accordance with law.
In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property subject of the
controversy was duly registered under the Torrens system, We categorically stated:
. . . Having been apprised of the fact that the property in question was in the possession of
third parties and more important, covered by a transfer certificate of title issued in the name
of such third parties, the respondent court should have denied the motion of the respondent
administrator and excluded the property in question from the inventory of the property of the
estate. It had no authority to deprive such third persons of their possession and ownership of
the property. . . .
Inasmuch as the real properties included in the inventory of the estate of the Late Pastor Y. Lim are
in the possession of and are registered in the name of private respondent corporations, which under
the law possess a personality separate and distinct from their stockholders, and in the absence of
any cogency to shred the veil of corporate fiction, the presumption of conclusiveness of said titles in
favor of private respondents should stand undisturbed.
Accordingly, the probate court was remiss in denying private respondents' motion for exclusion.
While it may be true that the Regional Trial Court, acting in a restricted capacity and exercising
limited jurisdiction as a probate court, is competent to issue orders involving inclusion or exclusion of
certain properties in the inventory of the estate of the decedent, and to adjudge, albeit, provisionally
the question of title over properties, it is no less true that such authority conferred upon by law and
reinforced by jurisprudence, should be exercised judiciously, with due regard and caution to the
peculiar circumstances of each individual case.
Notwithstanding that the real properties were duly registered under the Torrens system in the name
of private respondents, and as such were to be afforded the presumptive conclusiveness of title, the
probate court obviously opted to shut its eyes to this gleamy fact and still proceeded to issue the
impugned orders.
By its denial of the motion for exclusion, the probate court in effect acted in utter disregard of the
presumption of conclusiveness of title in favor of private respondents. Certainly, the probate court
through such brazen act transgressed the clear provisions of law and infringed settled jurisprudence
on this matter.
Moreover, petitioner urges that not only the properties of private respondent corporations are
properly part of the decedent's estate but also the private respondent corporations themselves. To
rivet such flimsy contention, petitioner cited that the late Pastor Y. Lim during his lifetime, organized
and wholly-owned the five corporations, which are the private respondents in the instant
case.25 Petitioner thus attached as Annexes "F"26 and "G"27 of the petition for review affidavits
executed by Teresa Lim and Lani Wenceslao which among others, contained averments that the
incorporators of Uniwide Distributing, Inc. included on the list had no actual and participation in the
organization and incorporation of the said corporation. The affiants added that the persons whose
names appeared on the articles of incorporation of Uniwide Distributing, Inc., as incorporators
thereof, are mere dummies since they have not actually contributed any amount to the capital stock
of the corporation and have been merely asked by the late Pastor Y. Lim to affix their respective
signatures thereon.
It is settled that a corporation is clothed with personality separate and distinct from that of the
persons composing it. It may not generally be held liable for that of the persons composing it. It may
not be held liable for the personal indebtedness of its stockholders or those of the entities connected
with it.28
Rudimentary is the rule that a corporation is invested by law with a personality distinct and separate
from its stockholders or members. In the same vein, a corporation by legal fiction and convenience is
an entity shielded by a protective mantle and imbued by law with a character alien to the persons
comprising it.
Nonetheless, the shield is not at all times invincible. Thus, in FIRST PHILIPPINE INTERNATIONAL
BANK vs.COURT OF APPEALS29, We enunciated:
. . . When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a

vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime,
the veil with which the law covers and isolates the corporation from the members or
stockholders who compose it will be lifted to allow for its consideration merely as an
aggregation of individuals. . . .
Piercing the veil of corporate entity requires the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one
corporation from a seemingly separate one, were it not for the existing corporate fiction. 30
The corporate mask may be lifted and the corporate veil may be pierced when a corporation is just
but the alter ego of a person or of another corporation. Where badges of fraud exist, where public
convenience is defeated; where a wrong is sought to be justified thereby, the corporate fiction or the
notion of legal entity should come to naught.31
Further, the test in determining the applicability of the doctrine of piercing the veil of corporate fiction
is as follows: 1) Control, not mere majority or complete stock control, but complete domination, not
only of finances but of policy and business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the
violation of a statutory or other positive legal duty, or dishonest and unjust act in contravention of
plaintiffs legal right; and (3) The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of. The absence of any of these elements prevent "piercing the
corporate veil".32
Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate
corporate personalities.33
Moreover, to disregard the separate juridical personality of a corporation, the wrong-doing must be
clearly and convincingly established. It cannot be presumed. 34
Granting arguendo that the Regional Trial Court in this case was not merely acting in a limited
capacity as a probate court, petitioner nonetheless failed to adduce competent evidence that would
have justified the court to impale the veil of corporate fiction. Truly, the reliance reposed by petitioner
on the affidavits executed by Teresa Lim and Lani Wenceslao is unavailing considering that the
aforementioned documents possess no weighty probative value pursuant to the hearsay rule.
Besides it is imperative for us to stress that such affidavits are inadmissible in evidence inasmuch as
the affiants were not at all presented during the course of the proceedings in the lower court. To put it
differently, for this Court to uphold the admissibility of said documents would be to relegate from Our
duty to apply such basic rule of evidence in a manner consistent with the law and jurisprudence.
Our pronouncement in PEOPLE BANK AND TRUST COMPANY vs. LEONIDAS35 finds pertinence:
Affidavits are classified as hearsay evidence since they are not generally prepared by the
affiant but by another who uses his own language in writing the affiant's statements, which
may thus be either omitted or misunderstood by the one writing them. Moreover, the adverse
party is deprived of the opportunity to cross-examine the affiants. For this reason, affidavits
are generally rejected for being hearsay, unless the affiant themselves are placed on the
witness stand to testify thereon.
As to the order36 of the lower court, dated 15 September 1995, the Court of Appeals correctly
observed that the Regional Trial Court, Branch 93 acted without jurisdiction in issuing said order; The
probate court had no authority to demand the production of bank accounts in the name of the private
respondent corporations.
WHEREFORE, in view of the foregoing disquisitions, the instant petition is hereby DISMISSED for
lack of merit and the decision of the Court of Appeals which nullified and set aside the orders issued
by the Regional Trial Court, Branch 93, acting as a probate court, dated 04 July 1995 and 12
September 1995 is AFFIRMED. 1wphi1.nt
SO ORDERED.
Bellosillo, Mendoza, Quisumbing and De Leon, Jr., JJ., concur.

Footnotes
1
In CA GR SP No. 38617, promulgated on 18 April 1996, penned by Justice Ramon A
Barcelona and concurred in by Justice Artemon D. Luna and Justice Portia Alino-
Hormachuelos, Thirteenth Division.
2
Rollo, p. 83.
3
Rollo, pp. 92-94.
4
Ibid, 95-97.
5
Docketed as Special Proceeding No. Q-95-23334; Rollo, pp. 76-82.
6
Rollo, p. 32.
7
Rollo, pp. 84-87.
8
Rollo, p. 33.
9
Ibid.
10
Ibid, p. 35.
Order dated 04 September 1995, issued by RTC-Quezon City Branch 93, Presiding Judge
11
Amado M. Costales, in SP Proc. No. Q-95-23334; Rollo, pp. 88-91.
Order dated 12 September 1995, issued by RTC-Quezon City, Branch 93, Presiding Judge
12
Amado M. Costales, in SP. Proc. No. Q-95-23334; Rollo, pp. 92-94.
Order dated 15 September, issued by RTC-Quezon City, Branch 93, Presiding Judge
13
Amado M. Costales, in SP Proc. No. Q-95-23334; Rollo, pp. 95-97.
14
Rollo, p. 32.
15
Ibid, pp. 32-40.
16
Petition for Review in G.R. No. 124715; Rollo, pp. 20-21.
17
Republic Act 7691, otherwise known as "An Act Expanding the Jurisdiction of the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, Amending
for the Purpose Batas Pambansa Blg. 129, Otherwise Known as the Judiciary
Reorganization Act of 1980", approved on 25 March 1994.
18
G.R. No. L-56340, 24 June 1983; 122 SCRA 885.
19
G.R. No. L-81147, 20 June 1989; 174 SCRA 154.
20
G.R. No. L-47125, 29 December 1986; 146 SCRA 373.
21
129 SCRA 495.
22
G.R. No. L-56504, May 7, 1987; 149 SCRA 533
23
Later Chief Justice of the Supreme Court.
24
G.R. No. L-45494, August 31, 1978; 85 SCRA 213.
25
Rollo, p.17.
26
Affidavit executed by Teresa T. Lim, dated 13 January 1995; Rollo, p. 74.
27
Affidavit executed by Lani G. Wenceslao; Rollo, p. 75.
28
Mataguina Integrated Wood Products, Inc. vs. Court of Appeals, 263 SCRA 490.
29
252 SCRA 259.
30
Traders Royal Bank vs. Court of Appeals, 269 SCRA 15.
31
Concept Builders, Inc. vs. NLRC, 257, SCRA 149.
32
257 SCRA 149.
33
Traders Royal Bank vs. Court of Appeals, 269 SCRA 15.
Mataguina Integrated Wood Products Inc. vs. Court of Appeals, 263 SCRA 491, citing Del
34
Rosario vs. NLRC, G.R. No. 85416, 24 July 1990, 187 SCRA 777.
35
207 SCRA 164.
36
Rollo, pp. 95-97.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 113907 February 28, 2000
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (MSMG-UWP), ITS

PRESIDENT BEDA MAGDALENA VILLANUEVA, MARIO DAGANIO, DONATO GUERRERO,
BELLA P. SANCHEZ, ELENA TOBIS, RHODA TAMAYO, LIWAYWAY MALLILIN, ELOISA
SANTOS, DOMINADOR REBULLO, JOSE IRLAND, TEOFILA QUEJADA, VICENTE
SAMONTINA, FELICITAS DURIAN, ANTONIO POLDO, ANGELINA TUGNA, SALVADOR
PENALOSA, LUZVIMINDA TUBIG, ILUMINADA RIVERA, ROMULO SUMILANG, NENITA
BARBELONIA, LEVI BASILIA, RICARDO PALAGA, MERCY ROBLES, LEODEGARIO GARIN,
DOMINGO ECLARINAL, MELCHOR GALLARDO, MARCELO GARIN, ROSALINA BAUTISTA,
MARY ANN TALIGATOS, ALEJANDRO SANTOS, ANTONIO FRAGA, LUZ GAPULTOS,
MAGDALENA URSUA, EUGENIO ORDAN, LIGAYA MANALO, PEPITO DELA PAZ, PERLITA
DIMAQUIAT, MYRNA VASQUEZ, FLORENTINA SAMPAGA, ARACELI FRAGA, MAXIMINA
FAUSTINO, MARINA TAN, OLIGARIO LOMO, PRECILA EUSEBIO, SUSAN ABOGANO,
CAROLINA MANINANG, GINA GLIFONIA, OSCAR SOTTO, CELEDONA MALIGAYA, EFREN
VELASQUEZ, DELIA ANOVER, JOSEPHINE TALIMORO, MAGDALENA TABOR, NARCISA
SARMIENTO, SUSAN MACASIEB, FELICIDAD SISON, PRICELA CARTA, MILA MACAHILIG,
CORAZON NUNALA, VISITACION ELAMBRE, ELIZABETH INOFRE, VIOLETA BARTE,
LUZVIMINDA VILLOSA, NORMA SALVADOR, ELIZABETH BOGATE, MERLYN BALBOA,
EUFRECINA SARMIENTO, SIMPLICIA SIMPLICIA BORLEO, MATERNIDAD DAVID, LAILA JOP,
POTENCIANA CULALA, LUCIVITA NAVARRO, ROLANDO BOTIN, AMELITA MAGALONA,
AGNES CENA, NOLI BARTOLAY, DANTE AQUINO, HERMINIA RILLON, CANDIDA APARIJADO,
LYDIA JIMENEZ, ELIZABETH ANOCHE, ALDA MURO, TERESA VILLANUEVA, TERESITA
RECUENCO, ELIZA SERRANO, ESTELLA POLINAR, GERTRUDES NUNEZ, FELIPE BADIOLA,
ROSLYN FERNANDEZ, OSCAR PAGUTA, NATIVIDAD BALIWAS, ELIZABETH BARCIBAL,
CYNTHIA ESTELLER, TEODORA SANTOS, ALICIA PILAR, MILA PATENO, GLORIA CATRIZ,
MILA MACAHILIG, ADELAIDA DE LEON, ROSENDO EDILO, ARSENIA ESPIRITU, NUMERIANO
CABRERA, CONCEPSION ARRIOLA, PAULINA DIMAPASOK, ANGELA SANGCO, PRESILA
ARIAS, ZENAIDA NUNES, EDITHA IGNACIO, ROSA GUIRON, TERESITA CANETA, ALICIA
ARRO, TEOFILO RUWETAS, CARLING AGCAOILI, ROSA NOLASCO, GERLIE PALALON,
CLAUDIO DIRAS, LETICIA ALBOS, AURORA ALUBOG, LOLITA ACALEN, GREGORIO ALIVIO,
GUILLERMO ANICETA, ANGELIE ANDRADA, SUSAN ANGELES, ISABELITA AURIN,
MANUELA AVELINA, CARLING AGCAOILI, TERESITA ALANO, LOLITA AURIN, EMMABETH
ARCIAGA, CRESENCIA ACUNA, LUZVIMINDA ABINES, FLORENCIA ADALID, OLIVIA
AGUSTIN, EVANGELINE ALCORAN, ROSALINA ALFERES, LORNA AMANTE, FLORENTINA
AMBITO, JULIETA AMANONCO, CARMEN AMARILLO, JOSEFINA AMBAGAN, ZENAIDA
ANAYA, MARIA ANGLO, EDITHA ANTA ZO, MARY JANE ANTE, ANDREA AQUINO, ROWENA
ARABIT, MARIETA ARAGON, REBECCA ARCENA, LYDIA ARCIDO, FERNANDO ARENAS,
GREGORIO ARGUELLES, EDITHA ARRIOLA, EMMA ATIENZA, EMMA ATIENZA, TEODY
ATIENZA, ELIZABETH AUSTRIA, DIOSA AZARES, SOLIDA AZAINA, MILAGROS BUAG, MARIA
BANADERA, EDNALYN BRAGA, OFELIA BITANGA, FREDISMINDA BUGUIS, VIOLETA
BALLESTEROS, ROSARIO BALLADJAY, BETTY BORIO, ROMANA BAUTISTA, SUSARA
BRAVO, LILIA BAHINGTING, ENIETA BALDOZA, DAMIANA BANGCORE, HERMINIA BARIL,
PETRONA BARRIOS, MILAGROS BARRAMEDA, PERLA BAUTISTA, CLARITA BAUTISTA,
ROSALINA BAUTISTA, ADELINA BELGA, CONSOLACION BENAS, MARIA BEREZO,
MERCEDES BEREBER, VIOLETA BISCOCHO, ERNESTO BRIONES, ALVINA BROSOTO,
AGUSTINA BUNYI, CARMEN BUGNOT, ERLINDA BUENAFLOR, LITA BAQUIN, CONSEJO
BABOL, CRISANTA BACOLOD, CELIA DE BACTAT, MAZIMA BAGA, ELENA BALADAD,
ROSARIO BALADJAY, AMALIA BALAGTAS, ANITA BALAGTAS, MARIA BALAKIT, RUFINA
BALATAN, REBECCA BALDERAMA, AMELIA BALLESTER, BELEN BARQUIO, BERNANDITA
BASILIDES, HELEN BATO, HELEN BAUTISTA, ROMANA BAUTISTA, ALMEDA BAYTA,
AVELINA BELAYON, NORMA DE BELEN, THELMA DE BELEN, JOCELYN BELTRAN, ELENA
BENITEZ, VIRGINIA BERNARDINO, MERLINA BINUYAG, LINA BINUYA, BLESILDA BISNAR,
SHIRLEY BOLIVAR, CRESENTACION MEDLO, JOCELYN BONIFACIO, AMELIA BORBE,
AMALIA BOROMEO, ZENAIDA BRAVO, RODRIGO BEULDA, TERESITA MENDEZ, ELENA
CAMAN, LALIANE CANDELARIA, MARRY CARUJANO, REVELINA CORANES, MARITESS
CABRERA, JUSTINA CLAZADA, APOLONIA DELA CRUZ, VICTORIA CRUZ, JOSEFINA DELA
CRUZ, MARITESS CATANGHAL, EDNA CRUZ, LUCIA DE CASTRO, JOSIE CARIASO, OFELIA
CERVANTES, MEDITA CORTADO, AMALIA CASAJEROS, LUCINA CASTILIO, EMMA CARPIO,
ANACORITA CABALES, YOLANDA CAMO, MILA CAMAZUELA, ANITA CANTO, ESTELA
CANCERAN, FEMENCIA CANCIO, CYNTHIA CAPALAD, MERLE CASTILLO, JESUSA CASTRO,
CECILIA CASTILLO, SILVERITA CASTRODES, VIVIAN CELLANO, NORMA CELINO, TERESITA
CELSO, GLORIA COLINA, EFIPANIA CONSTANTINO, SALVACION CONSULTA, MEDITA
CORTADO, AIDA CRUZ, MARISSA DELA CRUZ, EDITO CORCILLES, JELYNE CRUZ, ROSA
CORPOS, ROSITA CUGONA, ELSIE CABELLES, EMMA CADUT, VICTORIA CALANZA,
BARBARA CALATA, IMELDA CALDERON, CRISTINA CALIDGUID, EMMALINDA CAMALON,
MARIA CAMERINO, CARMENCITA CAMPO, CONNIE CANEZO, LOURDES CAPANANG, MA.
MILAGROS CAPILI, MYRNA T. CAPIRAL, FLOR SAMPAGA, SUSAN B. CARINO, ROSARIO
CARIZON, VIRGINIA DEL CARMEN, EMMA CARPIO, PRESCILA CARTA, FE CASERO, LUZ DE
CASTRO, ANNA CATARONGAN, JOSEFINA CASTISIMO, JOY MANALO, EMMIE CAWALING,
JOVITA CARA, MARINA CERBITO, MARY CAREJANO, ESTELA R. CHAVEZ, CONCEPCION
PARAJA, GINA CLAUDIO, FLORDELIZA CORALES, EDITO CORCIELER, ROSA C. CORROS,
AMELIA CRUZ, JELYNE CRUZ, WILFREDO DELA CRUZ, REINA CUEVAS, MARILOU
DEJECES, JOSEPHINE DESACULA, EDITHA DEE, EDITHA DIAZ, VIRGIE DOMONDON, CELSA
DOROPAW, VIOLETA DUMELINA, MARIBEL DIMATATAC, ELBERTO DAGANIO, LETECIA
DAGOHOY, DINDO DALUZ, ANGELITA DANTES, GLORIA DAYO, LUCIA DE CASTRO, CARLITA
DE GUZMAN, CARMEN DELA CRUZ, MERCY DE LEON, MARY DELOS REYES, MARIETA
DEPILO, MATILDE DIBLAS, JULIETA DIMAYUGA, TEODORA DIMAYUGA, YOLANDA
DOMDOM, LUCITA DONATO, NELMA DORADO, RITA DORADO, SUSAN DUNTON, HERMINIA
SAN ESTEBAN, AMALI EUGENIO, OLIVIA EUSOYA, ERNESTO ESCOBIN, EVELYN ESCUREL,
LYDIA ESCOBIN, VICENTE E. ELOIDA. ELENA EGAR, GLORIA ERENO, NORMA ESPIRIDION,
ARSENIA ESPIRITU, AURORA ESTACIO, DEMETRIA ESTONELO, MILAGROS FONSEGA,
LYDIA FLORENTINO, JULIA FARABIER, TRINIDAD FATALLA, IMELDA FLORES, JESSINA
FRANCO, MA. CRISTINA FRIJAS, ESPECTACION FERRER, BERDENA FLORES, LEONILA
FRANCISCO, BERNARDA FAUSTINO, DOLORES FACUNDO, CRETITA FAMILARAN, EMELITA
FIGUERAS, MA. VIRGINIA FLORENDO, AURORA FRANCISCO, MA. JESUSA FRANCISCO,
NENITA FUENTES, MARILOU GOLINGAN, JUANITA GUERRERO, LYDIA GUEVARRA,
SOCORRO GONZAGA, PATRICIA GOMEO, ROSALINDA GALAPIN, CARMELITA GALVEZ,
TERESA GLE, SONIA GONZALES, PRIMITA GOMEZ, THERESA GALUA, JOSEFINA GELUA,
BRENDA GONZAGA, FLORA GALLARDO, LUCINDA GRACILLA, VICTORIA GOZUM, NENITA
GAMAO, EDNA GARCIA, DANILO GARCIA, ROSARIO GIRAY, ARACELI GOMEZ, JOEMARIE
GONZAGA, NELIA GONZAGA, MARY GRANCE GOZON, CARMEN GONZALES, MERLITA
GREGORIO, HERMINIA GONZALES, CARLITA DE GUZMAN, MODESTA GABRENTINA,
EDITHA GADDI, SALVACIO GALIAS, MERLINDA GALIDO, MELINDA GAMIT, JULIETA GARCIA,
EMELITA GAVINO, CHARITO GILLIA, GENERA GONEDA, CRESTITA GONZALES, FRANCISCA
GUILING, JULIAN HERNANDEZ, HERRADURA, SUSANA HIPOLITO, NERISSA HAZ, SUSAN
HERNAEZ, APOLONIA ISON, SUSAN IBARRA, LUDIVINA IGNACIO, CHOLITA INFANTE,
JULIETA ITURRIOS, ANITA IBO, MIRASOL INGALLA, JULIO JARDINIANO, MERLITA JULAO,
JULIETA JULIAN, MARIBETH DE JOSE, JOSEPHINE JENER, IMELDA JATAP, JULIETA
JAVIER, SALOME JAVIER, VICTORIA JAVIER, SALVACION JOMOLO, EDNA JARNE, LYDIA
JIMENEZ, TERESITA DE JUAN, MARILYN LUARCA, ROSITA LOSITO, ROSALINA LUMAYAG,
LORNA LARGA, CRESTETA DE LEON, ZENAIDA LEGASPI, ADELAIDA LEON, IMELDA DE
LEON, MELITINA LUMABI, LYDIA LUMABI, ASUNCION LUMACANG, REGINA LAPIADRIO,
MELANIA LUBUGUAN, EVANGELINE LACAP, PELAGIA LACSI, LORNA LAGUI, VIRGIE
LAITAN, VIRGINIA LEE, CRESTELITA DE LEON, FELICISIMA LEONERO, DIOSA LOPE,
ANGELITA LOPEZ, TERESITA LORICA, JUANITA MENDIETA, JUANITA MARANQUEZ, JANET
MALIFERO, INAS MORADOS, MELANIE MANING, LUCENA MABANGLO, CLARITA MEJIA,
IRENE MENDOZA, LILIA MORTA, VIGINIA MARAY, CHARITO MASINAHON, FILMA MALAYA,
LILIA MORTA, VIRGINIA MARAY, CHARITO MASINAHON, FILMA MALAYA, LILIA MORTA,
ROSITA MATIBAG, LORENZA MLINA, SABINA DEL MUNDO, EDITHA MUYCO, NARCISA
MABEZA, MA. FE MACATANGAY, CONCEPCION MAGDARAOG, IMELDA MAHIYA, ELSA
MALLARI, LIGAYA MANAHAN, SOLEDA MANLAPAS, VIRGINIA MAPA, JOSEI MARCOS,
LIBRADA MARQUEZ, VIRGINIA MAZA, JULIANITA MENDIETA, EDILBERTA MENDOZA, IRENE
MERCADO, HELEN MEROY, CRISTINA MEJARES, CECILIA MILLET, EMELITA MINON,
JOSEPHINE MIRANA, PERLITA MIRANO, EVANGELINE MISBAL, ELEANOR MORALES,
TERESITA MORILLA, LYDIA NUDO, MYRIAM NAVAL, CAROLINA NOLIA, ALICIA NUNEZ,
MAGDALENA NAGUIDA, ELSA NICOL, LILIA NACIONALES, MA. LIZA MABO, REMEDIOS
NIEVES, MARGARITA NUYLAN, TERESITA NIEVES, PORFERIA NARAG, RHODORA NUCASA,
CORAZON OCRAY, LILIA OLIMPO, VERONA OVERENCIA, FERMIN OSENA, FLORENCIA
OLIVAROS, SOLEDAD OBEAS, NARISSA OLIVEROS, PELAGIA ORTEGA, SUSAN ORTEGA,
CRISTINA PRENCIPE, PURITA PENGSON, REBECCA PACERAN, EDNA PARINA, MARIETA
PINAT, EPIFANIA PAJERLAN, ROSALINA PASIBE, CECILIA DELA PAZ, LORETA PENA,
APOLONIA PALCONIT, FRANCISCO PAGUIO, LYDIA PAMINTAHON, ELSIE PACALDO,
TERESITA PADILLA, MYRNA PINEDA, MERCEIDTA PEREZ, NOVENA PORLUCAS, TERESITA
PODPOD, ADORACION PORNOBI, ALICIA PERILLO, HELEN JOY PENDAL, LOURDES
PACHECO, LUZVIMINDA PAGALA, LORETA PAGAPULAN, FRANCISCO PAGUIO, PRISCO
PALACA, FLORA PAMINTUAN, NOEMI PARISALES, JOSEPHINE PATRICIO, CRISTINA PE
BENITO, ANGELA PECO, ANGELITA PENA, ESTER PENONES, NORMA PEREZ, MAURA
PERSEVERANCIA, MARINA PETILLA, JOSIE PIA, ZULVILITA PIODO, REBECCA PACERAN,
CLARITA POLICARPIO, MAXIMO POTENTO, PORFIRIO POTENTO, FLORDELIZA PUMARAS,
FERNANDO QUEVEDO, JULIANA QUINDOZA, CHARITO QUIROZ, CARMELITA ROSINO,
RODELIA RAYONDOYON, FLORENCIA RAGOS, REBECCA ROSALES, ROSALYN RIVERO,
FRANCISCO RUIZ, FRANCIA ROSERO, EMELY RUBIO, EDILBERTO RUIO, JUANA RUBY,
RAQUEL REYES, MERCY ROBLES, ESTELA RELANO, ROSITA REYES NIMFA RENDON,
EPIFANIO RAMIRO, MURIEL REALCO, BERNARDITA RED, LEONITA RODIL, BENITA REBOLA,
DELMA REGALARIO, LENY REDILLAS, JULIETA DELA ROSA, FELICITAS DELA ROSA,
SUSAN RAFALLO, ELENA RONDINA, NORMA RACELIS, JOSEPHINE RAGEL, ESPERANZA
RAMIREZ, LUZVIMINDA RANADA, CRISTINA RAPINSAN, JOCELYN RED, ORLANDO REYES,
TERESITA REYES, ANGELITA ROBERTO, DELIA ROCHA, EDLTRUDES ROMERO, MELECIA
ROSALES, ZENAIDA ROTAO, BELEN RUBIS, FE RUEDA, SYLVIA SONGCAYAWON, CRISTINA
SANANO, NERCISA SARMIENTO, HELEN SIBAL, ESTELITA SANTOS, NORMA SILVESTRE,
DARLITA SINGSON, EUFROCINA SARMIENTO, MYRNA SAMSON, EMERLINA SADIA, LORNA
SALAZAR, AVELINA SALVADOR, NACIFORA SALAZAR, TITA SEUS, MARIFE SANTOS,
GRACIA SARMIENTO, ANGELITA SUMANGIL, ELIZABETH SICAT, MA. VICTORIA SIDELA,
ANALITA SALVADOR, MARITES SANTOS, VIRGINIA SANTOS, THELMA SARONG, NILDA
SAYAT, FANCITA SEGUNDO, FYNAIDA SAGUI, EDITHA SALAZAR, EDNA SALZAR, EMMA
SALENDARIO, SOLEDAD SAMSON, EDNA SAN DIEGO, TERESITA SAN GABRIEL,
GERTRUDES SAN JOSE, EGLECERIA OSANCHEZ, ESTRELLA SANCHEZ, CECILIA DELOS
SANTOS, LUISA SEGOVIA, JOCELYN SENDING, ELENA SONGALIA, FELICITAS SORIANO,
OFELIA TIBAYAN, AIDA TIRNIDA, MONICA TIBAYAN, CRISTETA TAMBARAN, GLORIA TACDA,
NENVINA, FELINA TEVES, ANTONINA DELA TORRE, MAXIMA TANILON, NENA TABAT,
ZOSIMA TOLOSA, MARITA TENOSO, IMELDA TANIO, LUZ TANIO, EVANGELINE TAYO,
JOSEFINA TINGTING, ARSENIA TISOY, MAGDALENA TRAJANO, JOSEFINA UBALDE, GINA
UMALI, IRMA VALENZUELA, FELY VALDEZ, PAULINA VALEZ, ROSELITA VALLENTE,
LOURDES VELASCO, AIDA VILLA, FRANCISCA VILLARITO, ZENAIDA VISMONTE, DELIA
VILLAMIEL, NENITA VASQUEZ, JOCELYN VILLASIS, FERMARGARITA VARGAS, CELIA
VALLE, MILA CONCEPCION VIRAY, DOMINGA VALDEZ, LUZVIMINDA VOCINA, MADELINE
VIVERO, RUFINA VELASCO, AUREA VIDALEON, GLORIA DEL VALLE, THELMA VALLOYAS,
CYNTHIA DELA VEGA, ADELA VILLAGOMEZ, TERESITA VINLUAN, EUFEMIA VITAN, GLORIA
VILLAFLORES, EDORACION VALDEZ, ANGELITA VALDEZ, ILUMINADA VALENCI, MYRNA
VASQUEZ, EVELNYN VEJERAMO, TEODORA VELASQUEZ, EDAN VILLANUEVA, PURITA
VILLASENOR, SALVADOR WILSON, EMELINA YU, ADELFA YU, ANA ABRIGUE, VIRGINIA
ADOBAS, VICTORIA ANTIPUESTO, MERCEDITA CASTILLO, JOCELYN CASTRO, CREMENIA
DELA CRUZ, JOSEPHINE IGNACIO, MELITA ILILANGOS, LIGAYA LUMAYAT, DELIA LUMBES,
ROSITA LIBRADO, DELIA LAGRAMADA, GEMMA MAGPANTAY, EMILY MENDOZA, FIDELA
PANGANIBAN, LEONOR RIZALDO, ILUMINDA RIVERA, DIVINA SAMBAYAN, ELMERITA
SOLAYAO, NANCY SAMALA, JOSIE SUMARAN, LUZVIMINDA ABINES, ALMA ACOL,
ROBERTO ADRIATICO, GLORIA AGUINALDO, ROSARIO ALEYO, CRISTETA ALEJANDRO,
LILIA ALMOGUERA, CARMEN AMARILLO, TRINIDAD ARDANIEL, CERINA AVENTAJADO,
ZENAIDA AVAYA, LOLITA ARABIS, MARIA ARSENIA, SOFIA AGUINALDO, SALVE ABAD,
JOSEFINA AMBANGAN EMILIA AQUINO, JOSEFINA AQUINO, JULIANA AUSAN, AMERCIANA
ACOSTA, CONCEPCION ALEROZA, DIANA ADOVOS, FELY ADVINCULA, SEOMINTA ARIAS,
JOSEPHINE ARCEDE, NORMA AMISTOSO, PRESENTACION ALONOS, EMMA ATIENZA,
LEONIDA AQUINO, ANITA ARILLON, ADELAIDA ARELLANO, NORMA AMISTOSO, JOSEPHINE
ARCEDE, SEMIONITA ARIAS, JOSEFINA BANTUG, LOLITA BARTE, HERMINIA BASCO,
MARGARITA BOTARDO, RUFINO BUGNOT, LOLITA BUSTILLO, ISABEL BALAKIT, ROSARIO
BARRERO, TESSIE BALBOS, NORMA BENISANO, GUILLERMA BRUGES, BERNADETTE
BARTOLOME, SHIRLEY BELMONTE, MERONA BELZA, AZUCENA BERNALES, JOSE BASCO,
NIMPHA BANTOG, BENILDA BUBAN, REGINA BUBAN, SALOME BARRAMEDA, IRENE
BISCO, FELICITAS BAUTISTA, VIOLETA BURA, LINA BINUYA, BIBIANA BAARDE, ELSA
BAES, ANASTACIA BELONZO, SONIA BENOYO, ELIZABETH BACUNGAN, PATRICIA
BARRAMEDA, ERLINDA BARCELONA, EMMA BANICO, APOLONIA BUNAO, LUCITA BOLEA,
PACIFICA BARCELONA, EDITHA BASIJAN, RENITA BADAMA, ELENA BALADAD,
CRESENCIA BAJO, BERNADITA BASILID, MELINDA BEATO, YOLANDA BATANES, EDITHA
BORILLA, ANITA BAS, ELSA CALIPUNDAN, MARIA CAMERINO,VIRGINIA CAMPOSANO,
MILAGROS CAPILI, CARINA CARINO, EUFEMIA CASIHAN, NENITA CASTRO, FLORENCIA
CASUBUAN, GIRLIE CENTENO, MARIANITA CHIQUITO, IMELDA DELA CRUZ, TEODOSIA
GONG, TEOFILA CARACOL, TERESITA CANTA, IRENEA CUNANAN, JULITA CANDILOSAS,
VIOLETA CIERES, MILAGROS DELA CRUZ, FLOREPES CAPULONG, CARMENCITA CAMPO,
MARILYN CARILLO, RUTH DELA CRUZ, RITA CIJAS, LYDIA CASTOR, VIRGIE CALUBAD,
EMELITA CABERA, CRISTETA CRUZ, ERLINDA COGADAS, IMELDA CALDERON, SUSIE LUZ
CEZAR, ESTELA CHAVEZ, NORMA CABRERA, ELDA DAGATAN, LEONISA DIMACUNA, ERNA
DUGTONG, FLORDELISA DIGMA, VIRGILIO DADIOS, LOLITA DAGTA, ADELAIDA DORADO,
CELSA DATUMANONG, VIRGINIA DOCTOLERO, EDNA SAN DIEGO, JULIETA DANG, JULIETA
DORANTINAO, LOLITA DAGANO, JUDITH DIAZ, MARIA ENICANE, MARITA ESCARDE,
ENRIMITA ESMAYOR, ROSARIO EPIRITU, REMEDIOS EMBOLTORIO, IRENE ESTUITA,
TERESITA ERESE, ERMELINDA ELEZO, MARIA ESTAREJA, MERLITA ESQUERRA, YOLANDA
FELICITAS, FRUTO FRANCIA, MARTHA FRUTO, LILIA FLORES, SALVACION FORTALESA,
JUDITH FAJARDO, SUSANA FERNANDO, EDWIN FRANCISCO, NENITA GREGORY, ROSA
CAMILO, MARIVIC GERRARDO, CHARITA GOREMBALEM, NORMA GRANDE, DOLORES
GUTIERREZ, CHARLIE GARCIA, LUZ GALVEZ, ADELAIDA GAMILLA, LUZ GAPULTOS,
ERLINDA GARCIA, HELEN GARCIA, ERLINDA GAUDIA, FRANCISCA GUILING, MINTA
HERRERA, ASUNCION HONOA, JUAN HERNANDEZ, LUCERIA ANNA MAE HERNANDEZ,
JULIANA HERNANDEZ, EDITHA IGNACIO, ANITA INOCENCIO, EULALIA INSORIO, ESTELITA
IRLANDA, MILAGROS IGNACIO, LINDA JABONILLO, ADELIMA JAEL, ROWENA JARABJO,
ROBERT JAVILINAR, CLARITA JOSE, CARMENCITA JUNDEZ, SOFIA LALUCIS, GLORIA
LABITORIA, ANGELITA LODES, ERLINDA LATOGA, EVELYN LEGASPI, ROMEO LIMCHOCO,
JESUS LARA, ESTRELLA DE LUNA, LORETA LAREZA, JOSEPHINE ALSCO, MERCY DE
LEON, CONSOLACION LIBAO, MARILYN LIWAG, TERESITA LIZAZO, LILIA MACAPAGAL,
SALVACION MACAREZA, AMALIA MADO, TERESITA MADRIAGA, JOVITA MAGNAYE, JEAN
MALABAD, FRANCISCA MENDOZA, NELCITA MANGANTANG, TERESITA NELLA, GENEROZA
MERCADO, CRISTETA MOJANA, BERNARDA MONGADO, LYDIA MIRANDA, ELISA
MADRILEJOS, LOIDA MAGSINO, AMELIA MALTO, JULITA MAHIBA, MYRNA MAYORES, LUISA
MARAIG, FLORENCIA MARAIG, EMMA MONZON, IMELDA MAGDANGAN, VICTORIA MARTIN,
NOEMI MANGUILLO, BASILIZA MEDINA, VICTORIO MERCADO, ESTELA MAYPA, EMILIA
MENDOZA, LINA MAGPANTAY, FELICIANA MANLOLO, ELENA MANACOP, WILMA MORENO,
JUANA MENDOZA, EVELYN DEL MUNDO, ROSIE MATUTINA, MATILDE MANALO, TERESITA
MENDEZ, FELIPINA MAGONCIA, MARIA MANZANO, LIGAYA MANALO, LETICIA MARCHA,
MARINA MANDIGMA, LETICIA MANDASOC, PRESCILLA MARTINEZ, JULIA MENDOZA,
PACITA MAGALLANES, ANGELINA MARJES, SHIRLEY MELIGRITO, IRENE MERCADO, ELISA
MAATUBANG, MARCELINA NICOLAS, AGUSTINA NICOLAS, ROSA NOLASCO, WILMA
NILAYE, VIOLETA ORACION, ANGELA OSTAYA, JUANITA OSAYOS, MAGDALENA OCAMPO,
MARDIANA OCTA, ROSELA OPAO, LIBRADA OCAMPO, YOLANDA OLIVER, MARCIA
ORLANDA, PAGDUNAN, RITA PABILONA, MYRA PALACA, BETHLEHEM PALINES, GINA
PALIGAR, NORMA PALIGAR, DELMA PEREZ, CLAUDIA PRADO, JULIE PUTONG, LUDIVINA
PAGSALINGAN, MERLYN PANALIGAN, VIOLETA PANAMBITAN, NOREN PAR, ERLINDA
PARAGAS, MILA PARINO, REBECCA PENAFLOR, IMELDA PENAMORA, JERMICILLIN
PERALTA, REBECCA PIAPES, EDITHA PILAR, MAROBETH PILLADO, DIOSCORO PIMENTEL,
AURORA LAS PINAS, EVANGELINA PINON, MA. NITA PONDOC, MA. MERCEDES PODPOD,
ANGELITO PANDEZ, LIGAYA PIGTAIN, LEONILA QUIAMBAO, ELENA QUINO, MARITESS
QUIJANO, CHOLITA REBUENO, LOLITA REYES, JOCELYN RAMOS, ROSITA RAMIREZ,
ELINORA RAMOS, ISABEL RAMOS, ANNABELLE RESURRECCION, EMMA REYES, ALILY
ROXAS, MARY GRACE DELOS REYES, JOCELYN DEL ROSARIO, JOSEFINA RABUSA,
ANGELITA ROTAIRO, SAMCETA ROSETA, EDERLINA RUIZ, ZENAIDA ROSARIO, BENITA
REBOLA, ROSITA REVILLA, ROSITA SANTOS, ROWENA SALAZAR, EMILYN SARMIENTO,
ANA SENIS, ELOISA SANTOS, NARCISA SONGLIAD, ELMA SONGALIA, AMPARA SABIO,
JESSIE SANCHEZ, VIVIAN SAMILO, GLORIA SUMALINOG, ROSALINA DELOS SANTOS,
MARIETA SOMBRERO, HELEN SERRETARIO, TEODORO SULIT, BELLA SONGUINES, LINDA
SARANTAN, ESTELLA SALABAR, MILAGROS SISON, GLORIA TALIDAGA, CECILIA
TEODORO, ROMILLA TUAZON, AMELITA TABULAO, MACARIA TORRES, LUTGARDA TUSI,
ESTELLA TORREJOS, VICTORIA TAN, MERLITA DELA VEGA, WEVINA ORENCIA, REMEDIOS
BALECHA, TERESITA TIBAR, LACHICA LEONORA, JULITA YBUT, JOSEFINA ZABALA,
WINNIE ZALDARIAGA, BENHUR ANTENERO, MARCELINA ANTENERO, ANTONINA ALAPAN,
EDITHA ANTOZO, ROWENA ARABIT, ANDRA AQUINO, TERESITA ANGULO, MARIA ANGLO,
MYRNA ALBOS, ELENITA AUSTRIA, ANNA ABRIGUE, VIRGINIA ADOBAS, VICTORIA
ANTIPUESTO, REMEDIOS BOLECHE, MACARIA BARRIOS, THELMA BELEN, ESTELLA
BARRETTO, JOCELYN CHAVEZ, VIRGINIA CAPISTRANO, BENEDICTA CINCO, YOLLY
CATPANG, REINA CUEVAS, VICTORIA CALANZA, FE CASERO, ROBERTA CATALBAS,
LOURDES CAPANANG, CLEMENCIA CRUZ, JOCELYN COSTO, MERCEDITA CASTILLO,
EDITHA DEE, LUCITA DONATO NORMA ESPIRIDION, LORETA FERNANDEZ, AURORA
FRANCISCO, VILMA FAJARDO, MODESTA GABRENTINA, TERESITA GABRIEL, SALVACION
GAMBOA, JOSEPHINE IGNACIO, SUSAN IBARRA, ESPERANZA JABSON, OSCAR JAMBARO,
ROSANNA JARDIN, CORAZON JALOCON, ZENAIDA LEGASPI, DELLA LAGRAMADA, ROSITA
LIBRANDO, LIGAYA LUMAYOT, DELIA LUMBIS, LEONORA LANCHICA, RELAGIA LACSI,
JOSEFINA LUMBO, VIOLETA DE LUNA, EVELYN MADRID, TERESITA MORILLA, GEMMA
MAGPANTAY, EMILY MENDOZA, IRENEA MEDINA, NARCISA MABEZA, ROSANNA MEDINA,
DELIA MARTINEZ, ROSARIO MAG-ISA, EDITHA MENDOZA, EDILBERTA MENDOZA, FIDELA
PANGANIBAN, OFELIA PANGANIBAN, AZUCENA POSTGO, LOURDES PACHECO, LILIA
PADILLA, MARISSA PEREZ, FLORDELIZA PUMARES, LUZ REYES, NORMA RACELIS,
LEONOR RIZALDO, JOSIE SUMASAR, NANCY SAMALA, EMERLITA SOLAYAO, MERCEDITA
SAMANIEGO, BLANDINA SIMBULAN, JOCELYN SENDING, LUISITA TABERRERO, TERESITA
TIBAR, ESTERLINA VALDEZ, GLORIA VEJERANO, ILUMINADA VALENCIA, MERLITA DELA
VEGA, VIRGIE LAITAN, JULIET VILLARAMA, LUISISTA OCAMPO, NARIO ANDRES, ANSELMA
TULFO, GLORIA MATEO, FLANIA MENDOZA, CONNIE CANGO, EDITHA SALAZAR, MYRNA
DELOS SANTOS, TERESITA SERGIO, CHARITO GILLA, FLORENTINA HERNAEZ,
BERNARDINO VIRGINIA, AMPO ANACORITA, SYLVIA POASADAS, ESTRELLA ESPIRITU,
CONCORDIA LUZURIAGA, MARINA CERBITO, EMMA REYES, NOEMI PENISALES, CLARITA
POLICARPIO, BELEN BANGUIO, HERMINIA ADVINCULA, LILIA MORTA, REGINA LAPIDARIO,
LORNA LARGA, TERESITA VINLUAN, MARITA TENOSO, NILDS SAYAT, THELMA SARONG,
DELMA REGALIS, SUSAN RAFAULO, ELENA RONDINA, MYRNA PIENDA, VIOLETA
DUMELINA, FLORENCIA ADALID, FILMA MELAYA, ERLINDA DE BAUTISTA, MATILDE DE
BLAS, DOLORES FACUNDO, REBECCA LEDAMA, MA. FE MACATANGAY, EMELITA MINON,
NORMA PAGUIO, ELIZA VASQUEZ, GLORIA VILLARINO, MA. JESUS FRANCISCO, TERESITA
GURPIDO, LIGAYA MANALO, FE PINEDA, MIRIAM OCMAR, LUISA SEGOVIA, TEODY
ATIENZA, SOLEDA AZCURE, CARMEN DELA CRUZ, DMETRIA ESTONELO, MA. FLORIDA
LOAZNO, IMELDA MAHIYA, EDILBERTA MENDOZA, SYLVIA POSADAS, SUSANA ORTEGA,
JOSEPHINE D. TALIMORO, TERESITA LORECA, ARSENIA TISOY, LIGAYA MANALO,
TERESITA GURPIO, FE PINEDA, and MARIA JESUS FRANCISCO, petitioners,
vs.
HON. CRESENCIO J. RAMOS, NATIONAL LABOR RELATIONS COMMISSION, M. GREENFIELD
(B), INC., SAUL TAWIL, CARLOS T. JAVELOSA, RENATO C. PUANGCO, WINCEL LIGOT,
MARCIANO HALOG, GODOFREDO PACENO, SR., GERVACIO CASILLANO, LORENZO ITAOC,
ATTY. GODOFREDO PACENO, JR., MARGARITO CABRERA, GAUDENCIO RACHO, SANTIAGO
IBANEZ, AND RODRIGO AGUILING,respondents.
PURISIMA, J.:
At bar is a Petition for Certiorari under Rule 65 of the Revised Rules of Court to annul the decision of
the National Labor Relations Commission in an unfair labor practice case instituted by a local union
against its employer company and the officers of its national federation.
The petitioner, Malayang Samahan ng mga Manggagawa sa M. Greenfield, Inc., (B) (MSMG),
hereinafter referred to as the "local union", is an affiliate of the private respondent, United Lumber
and General Workers of the Philippines (ULGWP), referred to as the "federation". The collective
bargaining agreement between MSMG and M. Greenfield, Inc., names the parties as follows:
This agreement made and entered into by and between:
M. GREENFIELD, INC. (B) a corporation duly organized in accordance with the laws of the
Republic of the Philippines with office address at Km. 14, Merville Road, Paraaque, Metro
Manila, represented in this act by its General manager, Mr. Carlos T. Javelosa, hereinafter
referred to as the Company;
-and-
MALAYANG SAMAHAN NG MGA MANGGAGAWA SA M. GREENFIELD (B)

(MSMG)/UNITED LUMBER AND GENERAL WORKERS OF THE PHILIPPINES (ULGWP), a
legitimate labor organization with address at Suite 404, Trinity Building, T. M. Kalaw Street,
Manila, represented in this act by a Negotiating Committee headed by its National President,
Mr. Godofredo Paceno, Sr., referred to in this Agreement as the UNION.1
The CBA includes, among others, the following pertinent provisions:
Art. II-Union Security
Sec. 1. Coverage and Scope. All employees who are covered by this Agreement and
presently members of the UNION shall remain members of the UNION for the duration of this
Agreement as a condition precedent to continued employment with the COMPANY.
xxx xxx xxx
Sec. 4. Dismissal. Any such employee mentioned in Section 2 hereof, who fails to maintain
his membership in the UNION for non-payment of UNION dues, for resignation and for
violation of UNION's Constitution and By-Laws and any new employee as defined in Section
2 of this Article shall upon written notice of such failure to join or to maintain membership in
the UNION and upon written recommendation to the COMPANY by the UNION, be
dismissed from the employment by the COMPANY; provided, however, that the UNION shall
hold the COMPANY free and blameless from any and all liabilities that may arise should the
dismissed employee question, in any manner, his dismissal; provided, further that the matter
of the employee's dismissal under this Article may be submitted as a grievance under Article
XIII and, provided, finally, that no such written recommendation shall be made upon the
COMPANY nor shall COMPANY be compelled to act upon any such recommendation within
the period of sixty (60) days prior to the expiry date of this Agreement conformably to law.
Art. IX
Sec. 4. Program Fund The Company shall provide the amount of P10,000.00 a month for
a continuing labor education program which shall be remitted to the Federation . . . 2
On September 12, 1986, a local union election was held under the auspices of the ULGWP wherein
the herein petitioner, Beda Magdalena Villanueva, and the other union officers were proclaimed as
winners. Minutes of the said election were duly filed with the Bureau of Labor Relations on
September 29, 1986.
On March 21, 1987, a Petition for Impeachment was filed with the national federation ULGWP by the
defeated candidates in the aforementioned election.
On June 16, 1987, the federation conducted an audit of the local union funds. The investigation did
not yield any unfavorable result and the local union officers were cleared of the charges of anomaly
in the custody, handling and disposition of the union funds. 1wphi1.nt
The 14 defeated candidates filed a Petition for Impeachment/Expulsion of the local union officers
with the DOLE NCR on November 5, 1987, docketed as NCR-OD-M-11-780-87. However, the same
was dismissed on March 2, 1988, by Med-Arbiter Renato Parungo for failure to substantiate the
charges and to present evidence in support of the allegations.
On April 17, 1988, the local union held a general membership meeting at the Caruncho Complex in
Pasig. Several union members failed to attend the meeting, prompting the Executive Board to create
a committee tasked to investigate the non-attendance of several union members in the said
assembly, pursuant to Sections 4 and 5, Article V of the Constitution and By-Laws of the union,
which read:
Seksyon 4. Ang mga kinukusang hindi pagdalo o hindi paglahok sa lahat ng hakbangin ng
unyon ng sinumang kasapi o pinuno ay maaaring maging sanhi ng pagtitiwalag o
pagpapataw ng multa ng hindi hihigit sa P50.00 sa bawat araw na nagkulang.
Seksyon 5. Ang sinumang dadalo na aalis ng hindi pa natatapos ang pulong ay ituturing na
pagliban at maparusahan itong alinsunod sa Article V, Seksyong 4 ng Saligang Batas na ito.
Sino mang kasapi o pisyales na mahuli and dating sa takdang oras ng di lalampas sa isang
oras ay magmumulta ng P25.00 at babawasin sa sahod sa pamamagitan ng salary
deduction at higit sa isang oras ng pagdating ng huli ay ituturing na pagliban. 3
On June 27, 1988, the local union wrote respondent company a letter requesting it to deduct the
union fines from the wages/salaries of those union members who failed to attend the general
membership meeting. A portion of the said letter stated:
xxx xxx xxx
In connection with Section 4 Article II of our existing Collective Bargaining Agreement, please
deduct the amount of P50.00 from each of the union members named in said annexes on
the payroll of July 2-8, 1988 as fine for their failure to attend said general membership
meeting.4
In a Memorandum dated July 3, 1988, the Secretary General of the national federation, Godofredo
Paceo, Jr. disapproved the resolution of the local union imposing the P50.00 fine. The union
officers protested such action by the Federation in a Reply dated July 4, 1988.
On July 11, 1988, the Federation wrote respondent company a letter advising the latter not to deduct
the fifty-peso fine from the salaries of the union members requesting that:
. . . any and all future representations by MSMG affecting a number of members be first
cleared from the federation before corresponding action by the Company. 5
The following day, respondent company sent a reply to petitioner union's request in a letter, stating
that it cannot deduct fines from the employees' salary without going against certain laws. The
company suggested that the union refer the matter to the proper government office for resolution in
order to avoid placing the company in the middle of the issue.
The imposition of P50.00 fine became the subject of bitter disagreement between the Federation
and the local union culminating in the latter's declaration of general autonomy from the former
through Resolution No. 10 passed by the local executive board and ratified by the general
membership on July 16, 1988.
In retaliation, the national federation asked respondent company to stop the remittance of the local
union's share in the education funds effective August 1988. This was objected to by the local union
which demanded that the education fund be remitted to it in full.
The company was thus constrained to file a Complaint for Interpleader with a Petition for Declaratory
Relief with the Med-Arbitration Branch of the Department of Labor and Employment, docketed as
Case No. OD-M-8-435-88. This was resolved on October 28, 1988, by Med-Arbiter Anastacio Bactin
in an Order, disposing thus:
WHEREFORE, premises considered, it is hereby ordered:

1. That the United Lumber and General Workers of the Philippines (ULGWP) through its
local union officers shall administer the collective bargaining agreement (CBA).
2. That petitioner company shall remit the P10,000.00 monthly labor education program fund
to the ULGWP subject to the condition that it shall use the said amount for its intended
purpose.
3. That the Treasurer of the MSMG shall be authorized to collect from the 356 union
members the amount of P50.00 as penalty for their failure to attend the general membership
assembly on April 17, 1988.
However, if the MSMG Officers could present the individual written authorizations of the 356
union members, then the company is obliged to deduct from the salaries of the 356 union
members the P50.00 fine.6
On appeal, Director Pura-Ferrer Calleja issued a Resolution dated February 7, 1989, which modified
in part the earlier disposition, to wit:
WHEREFORE, premises considered, the appealed portion is hereby modified to the extent
that the company should remit the amount of five thousand pesos (P5,000.00) of the
P10,000.00 monthly labor education program fund to ULGWP and the other P5,000.00 to
MSMG, both unions to use the same for its intended purpose. 7
Meanwhile, on September 2, 1988, several local unions (Top Form, M. Greenfield, Grosby, Triumph
International, General Milling, and Vander Hons chapters) filed a Petition for Audit and Examination
of the federation and education funds of ULGWP which was granted by Med-Arbiter Rasidali
Abdullah on December 25, 1988 in an Order which directed the audit and examination of the books
of account of ULGWP.
On September 30, 1988, the officials of ULGWP called a Special National Executive Board Meeting
at Nasipit, Agusan del Norte where a Resolution was passed placing the MSMG under trusteeship
and appointing respondent Cesar Clarete as administrator.
On October 27, 1988, the said administrator wrote the respondent company informing the latter of its
designation of a certain Alfredo Kalingking as local union president and "disauthorizing" the
incumbent union officers from representing the employees. This action by the national federation
was protested by the petitioners in a letter to respondent company dated November 11, 1988.
On November 13, 1988, the petitioner union officers received identical letters from the administrator
requiring them to explain within 72 hours why they should not be removed from their office and
expelled from union membership.
On November 26, 1988, petitioners replied:
(a) Questioning the validity of the alleged National Executive Board Resolution placing their
union under trusteeship;
(b) Justifying the action of their union in declaring a general autonomy from ULGWP due to
the latter's inability to give proper educational, organizational and legal services to its
affiliates and the pendency of the audit of the federation funds;
(c) Advising that their union did not commit any act of disloyalty as it has remained an affiliate
of ULGWP;
(d) Giving ULGWP a period of five (5) days to cease and desist from further committing acts
of coercion, intimidation and harassment.8
However, as early as November 21, 1988, the officers were expelled from the ULGWP. The
termination letter read:
Effective today, November 21, 1988, you are hereby expelled from UNITED LUMBER AND
GENERAL WORKERS OF THE PHILIPPINES (ULGWP) for committing acts of disloyalty
and/or acts inimical to the interest and violative to the Constitution and by-laws of your
federation.
You failed and/or refused to offer an explanation inspite of the time granted to you.
Since you are no longer a member of good standing, ULGWP is constrained to recommend
for your termination from your employment, and provided in Article II Section 4, known as
UNION SECURITY, in the Collective Bargaining agreement. 9
On the same day, the federation advised respondent company of the expulsion of the 30 union
officers and demanded their separation from employment pursuant to the Union Security Clause in
their collective bargaining agreement. This demand was reiterated twice, through letters dated
February 21 and March 4, 1989, respectively, to respondent company.
Thereafter, the Federation filed a Notice of Strike with the National Conciliation and Mediation Board
to compel the company to effect the immediate termination of the expelled union officers.
On March 7, 1989, under the pressure of a threatened strike, respondent company terminated the
30 union officers from employment, serving them identical copies of the termination letter reproduced
below:
We received a demand letter dated 21 November 1988 from the United Lumber and General
Workers of the Philippines (ULGWP) demanding for your dismissal from employment
pursuant to the provisions of Article II, Section 4 of the existing Collective Bargaining
Agreement (CBA). In the said demand letter, ULGWP informed us that as of November 21,
1988, you were expelled from the said federation "for committing acts of disloyalty and/or
acts inimical to the interest of ULGWP and violative to its Constitution and By-laws
particularly Article V, Section 6, 9, and 12, Article XIII, Section 8.
In subsequent letters dated 21 February and 4 March 1989, the ULGWP reiterated its
demand for your dismissal, pointing out that notwithstanding your expulsion from the
federation, you have continued in your employment with the company in violation of Sec. 1
and 4 of Article II of our CBA, and of existing provisions of law.
In view thereof, we are left with no alternative but to comply with the provisions of the Union
Security Clause of our CBA. Accordingly, we hereby serve notice upon you that we are
dismissing you from your employment with M. Greenfield, Inc., pursuant to Sections 1 and 4,
Article II of the CBA effective immediately.10
On that same day, the expelled union officers assigned in the first shift were physically or bodily
brought out of the company premises by the company's security guards. Likewise, those assigned to
the second shift were not allowed to report for work. This provoked some of the members of the local
union to demonstrate their protest for the dismissal of the said union officers. Some union members
left their work posts and walked out of the company premises.
On the other hand, the Federation, having achieved its objective, withdrew the Notice of Strike filed
with the NCMB.
On March 8, 1989, the petitioners filed a Notice of Strike with the NCMB, DOLE, Manila, docketed as
Case No. NCMB-NCR-NS-03-216-89, alleging the following grounds for the strike:
(a) Discrimination
(b) Interference in union activities
(c) Mass dismissal of union officers and shop stewards
(d) Threats, coercion and intimidation
(e) Union busting
The following day, March 9, 1989, a strike vote referendum was conducted and out of 2, 103 union
members who cast their votes, 2,086 members voted to declare a strike.
On March 10, 1989, the thirty (30) dismissed union officers filed an urgent petition, docketed as
Case No. NCMB-NCR-NS-03-216-89, with the Office of the Secretary of the Department of Labor
and Employment praying for the suspension of the effects of their termination from employment.
However, the petition was dismissed by then Secretary Franklin Drilon on April 11, 1989, the
pertinent portion of which stated as follows:
At this point in time, it is clear that the dispute at M. Greenfield is purely an intra-union
matter. No mass lay-off is evident as the terminations have been limited to those allegedly
leading the secessionist group leaving MSMG-ULGWP to form a union under the KMU. . . .
xxx xxx xxx
WHEREFORE, finding no sufficient jurisdiction to warrant the exercise of our extraordinary

authority under Article 277 (b) of the Labor Code, as amended, the instant Petition is hereby
DISMISSED for lack of merit.
SO ORDERED.11
On March 13 and 14, 1989, a total of 78 union shop stewards were placed under preventive
suspension by respondent company. This prompted the union members to again stage a walk-out
and resulted in the official declaration of strike at around 3:30 in the afternoon of March 14, 1989.
The strike was attended with violence, force and intimidation on both sides resulting to physical
injuries to several employees, both striking and non-striking, and damage to company properties.
The employees who participated in the strike and allegedly figured in the violent incident were
placed under preventive suspension by respondent company. The company also sent return-to-work
notices to the home addresses of the striking employees thrice successively, on March 27, April 8
and April 31, 1989, respectively. However, respondent company admitted that only 261 employees
were eventually accepted back to work. Those who did not respond to the return-to-work notice were
sent termination letters dated May 17, 1989, reproduced below:
M. Greenfield Inc., (B)
Km. 14, Merville Rd., Paraaque, M.M.
May 17, 1989
xxx xxx xxx
On March 14, 1989, without justifiable cause and without due notice, you left your
work assignment at the prejudice of the Company's operations. On March 27, April
11, and April 21, 1989, we sent you notices to report to the Company. Inspite of your
receipt of said notices, we have not heard from you up to this date.
Accordingly, for your failure to report, it is construed that you have effectively
abandoned your employment and the Company is, therefore, constrained to dismiss
you for said cause.
Very truly yours,
M. GREENFIELD, INC., (B)
By:
WENZEL STEPHEN LIGOT

Asst. HRD Manager12
On August 7, 1989, the petitioners filed a verified complaint with the Arbitration Branch, National
Capital Region, DOLE, Manila, docketed as Case No. NCR-00-09-04199-89, charging private
respondents of unfair labor practice which consists of union busting, illegal dismissal, illegal
suspension, interference in union activities, discrimination, threats, intimidation, coercion, violence,
and oppression.
After the filing of the complaint, the lease contracts on the respondent company's office and factory
at Merville Subdivision, Paraaque expired and were not renewed. Upon demand of the owners of
the premises, the company was compelled to vacate its office and factory.
Thereafter, the company transferred its administration and account/client servicing department at
AFP-RSBS Industrial Park in Taguig, Metro Manila. For failure to find a suitable place in Metro
Manila for relocation of its factory and manufacturing operations, the company was constrained to
move the said departments to Tacloban, Leyte. Hence, on April 16, 1990, respondent company
accordingly notified its employees of a temporary shutdown in operations. Employees who were
interested in relocating to Tacloban were advised to enlist on or before April 23, 1990.
The complaint for unfair labor practice was assigned to Labor Arbiter Manuel Asuncion but was
thereafter reassigned to Labor Arbiter Cresencio Ramos when respondents moved to inhibit him
from acting on the case.
On December 15, 1992, finding the termination to be valid in compliance with the union security
clause of the collective bargaining agreement, Labor Arbiter Cresencio Ramos dismissed the
complaint.
Petitioners then appealed to the NLRC. During its pendency, Commissioner Romeo Putong retired
from the service, leaving only two commissioners, Commissioner Vicente Veloso III and Hon.
Chairman Bartolome Carale in the First Division. When Commissioner Veloso inhibited himself from
the case, Commissioner Joaquin Tanodra of the Third Division was temporarily designated to sit in
the First Division for the proper disposition of the case.
The First Division affirmed the Labor Arbiter's disposition. With the denial of their motion for
reconsideration on January 28, 1994, petitioners elevated the case to this Court, attributing grave
abuse of discretion to public respondent NLRC in:
I. UPHOLDING THE DISMISSAL OF THE UNION OFFICERS BY RESPONDENT

COMPANY AS VALID;
II. HOLDING THAT THE STRIKE STAGED BY THE PETITIONERS AS ILLEGAL;
III. HOLDING THAT THE PETITIONER EMPLOYEES WERE DEEMED TO HAVE

ABANDONED THEIR WORK AND HENCE, VALIDLY DISMISSED BY RESPONDENT
COMPANY; AND
IV. NOT FINDING RESPONDENT COMPANY AND RESPONDENT FEDERATION

OFFICERS GUILTY OF ACTS OF UNFAIR LABOR PRACTICE.
Notwithstanding the several issues raised by the petitioners and respondents in the voluminous
pleadings presented before the NLRC and this Court, they revolve around and proceed from the
issue of whether or not respondent company was justified in dismissing petitioner employees merely
upon the labor federation's demand for the enforcement of the union security clause embodied in
their collective bargaining agreement.
Before delving into the main issue, the procedural flaw pointed out by the petitioners should first be
resolved.
Petitioners contend that the decision rendered by the First Division of the NLRC is not valid because
Commissioner Tanodra, who is from the Third Division, did not have any lawful authority to sit, much
less write theponencia, on a case pending before the First Division. It is claimed that a commissioner
from one division of the NLRC cannot be assigned or temporarily designated to another division
because each division is assigned a particular territorial jurisdiction. Thus, the decision rendered did
not have any legal effect at all for being irregularly issued.
Petitioners' argument is misplaced. Article 213 of the Labor Code in enumerating the powers of the
Chairman of the National Labor Relations Commission provides that:
The concurrence of two (2) Commissioners of a division shall be necessary for the
pronouncement of a judgment or resolution. Whenever the required membership in a division
is not complete and the concurrence of two (2) commissioners to arrive at a judgment or
resolution cannot be obtained, the Chairman shall designate such number of additional
Commissioners from the other divisions as may be necessary.
It must be remembered that during the pendency of the case in the First Division of the NLRC, one
of the three commissioners, Commissioner Romeo Putong, retired, leaving Chairman Bartolome
Carale and Commissioner Vicente Veloso III. Subsequently, Commissioner Veloso inhibited himself
from the case because the counsel for the petitioners was his former classmate in law school. The
First Division was thus left with only one commissioner. Since the law requires the concurrence of
two commissioners to arrive at a judgment or resolution, the Commission was constrained to
temporarily designate a commissioner from another division to complete the First Division. There is
nothing irregular at all in such a temporary designation for the law empowers the Chairman to make
temporary assignments whenever the required concurrence is not met. The law does not say that a
commissioner from the first division cannot be temporarily assigned to the second or third division to
fill the gap or vice versa. The territorial divisions do not confer exclusive jurisdiction to each division
and are merely designed for administrative efficiency.
Going into the merits of the case, the court finds that the Complaint for unfair labor practice filed by
the petitioners against respondent company which charges union busting, illegal dismissal, illegal
suspension, interference in union activities, discrimination, threats, intimidation, coercion, violence,
and oppression actually proceeds from one main issue which is the termination of several
employees by respondent company upon the demand of the labor federation pursuant to the union
security clause embodied in their collective bargaining agreement.
Petitioners contend that their dismissal from work was effected in an arbitrary, hasty, capricious and
illegal manner because it was undertaken by the respondent company without any prior
administrative investigation; that, had respondent company conducted prior independent
investigation it would have found that their expulsion from the union was unlawful similarly for lack of
prior administrative investigation; that the federation cannot recommend the dismissal of the union
officers because it was not a principal party to the collective bargaining agreement between the
company and the union; that public respondents acted with grave abuse of discretion when they
declared petitioners' dismissals as valid and the union strike as illegal and in not declaring that
respondents were guilty of unfair labor practice.
Private respondents, on the other hand, maintain that the thirty dismissed employees who were
former officers of the federation have no cause of action against the company, the termination of
their employment having been made upon the demand of the federation pursuant to the union
security clause of the CBA; the expelled officers of the local union were accorded due process of law
prior to their expulsion from their federation; that the strike conducted by the petitioners was illegal
for noncompliance with the requirements; that the employees who participated in the illegal strike
and in the commission of violence thereof were validly terminated from work; that petitioners were
deemed to have abandoned their employment when they did not respond to the three return to work
notices sent to them; that petitioner labor union has no legal personality to file and prosecute the
case for and on behalf of the individual employees as the right to do so is personal to the latter; and
that, the officers of respondent company cannot be liable because as mere corporate officers, they
acted within the scope of their authority.
Public respondent, through the Labor Arbiter, ruled that the dismissed union officers were validly and
legally terminated because the dismissal was effected in compliance with the union security clause
of the CBA which is the law between the parties. And this was affirmed by the Commission on
appeal. Moreover, the Labor Arbiter declared that notwithstanding the lack of a prior administrative
investigation by respondent company, under the union security clause provision in the CBA, the
company cannot look into the legality or illegality of the recommendation to dismiss by the union nd
the obligation to dismiss is ministerial on the part of the company.13
This ruling of the NLRC is erroneous. Although this Court has ruled that union security clauses
embodied in the collective bargaining agreement may be validly enforced and that dismissals
pursuant thereto may likewise be valid, this does not erode the fundamental requirement of due
process. The reason behind the enforcement of union security clauses which is the sanctity and
inviolability of contracts14 cannot override one's right to due process.
In the case of Cario vs. National Labor Relations Commission,15 this Court pronounced that while
the company, under a maintenance of membership provision of the collective bargaining agreement,
is bound to dismiss any employee expelled by the union for disloyalty upon its written request, this
undertaking should not be done hastily and summarily. The company acts in bad faith in dismissing a
worker without giving him the benefit of a hearing.
The power to dismiss is a normal prerogative of the employer. However, this is not without
limitation. The employer is bound to exercise caution in terminating the services of his
employees especially so when it is made upon the request of a labor union pursuant to the
Collective Bargaining Agreement, . . . Dismissals must not be arbitrary and capricious. Due
process must be observed in dismissing an employee because it affects not only his position
but also his means of livelihood. Employers should respect and protect the rights of their
employees, which include the right to labor.
In the case under scrutiny, petitioner union officers were expelled by the federation for allegedly
committing acts of disloyalty and/or inimical to the interest of ULGWP and in violation of its
Constitution and By-laws. Upon demand of the federation, the company terminated the petitioners
without conducting a separate and independent investigation. Respondent company did not inquire
into the cause of the expulsion and whether or not the federation had sufficient grounds to effect the
same. Relying merely upon the federation's allegations, respondent company terminated petitioners
from employment when a separate inquiry could have revealed if the federation had acted arbitrarily
and capriciously in expelling the union officers. Respondent company's allegation that petitioners
were accorded due process is belied by the termination letters received by the petitioners which
state that the dismissal shall be immediately effective.
As held in the aforecited case of Cario, "the right of an employee to be informed of the charges
against him and to reasonable opportunity to present his side in a controversy with either the
company or his own union is not wiped away by a union security clause or a union shop clause in a
collective bargaining agreement. An employee is entitled to be protected not only from a company
which disregards his rights but also from his own union the leadership of which could yield to the
temptation of swift and arbitrary expulsion from membership and mere dismissal from his job.
While respondent company may validly dismiss the employees expelled by the union for disloyalty
under the union security clause of the collective bargaining agreement upon the recommendation by
the union, this dismissal should not be done hastily and summarily thereby eroding the employees'
right to due process, self-organization and security of tenure. The enforcement of union security
clauses is authorized by law provided such enforcement is not characterized by arbitrariness, and
always with due process.16 Even on the assumption that the federation had valid grounds to expel
the union officers, due process requires that these union officers be accorded a separate hearing by
respondent company.
In its decision, public respondent also declared that if complainants (herein petitioners) have any
recourse in law, their right of action is against the federation and not against the company or its
officers, relying on the findings of the Labor Secretary that the issue of expulsion of petitioner union
officers by the federation is a purely intra-union matter.
Again, such a contention is untenable. While it is true that the issue of expulsion of the local union
officers is originally between the local union and the federation, hence, intra-union in character, the
issue was later on converted into a termination dispute when the company dismissed the petitioners
from work without the benefit of a separate notice and hearing. As a matter of fact, the records
reveal that the termination was effective on the same day that the termination notice was served on
the petitioners.
In the case of Liberty Cotton Mills Workers Union vs. Liberty Cotton Mills, Inc.17, the Court held the
company liable for the payment of backwages for having acted in bad faith in effecting the dismissal
of the employees.
. . . Bad faith on the part of the respondent company may be gleaned from the fact that the
petitioner workers were dismissed hastily and summarily. At best, it was guilty of a tortious
act, for which it must assume solidary liability, since it apparently chose to summarily dismiss
the workers at the union's instance secure in the union's contractual undertaking that the
union would hold it "free from any liability" arising from such dismissal.
Thus, notwithstanding the fact that the dismissal was at the instance of the federation and that it
undertook to hold the company free from any liability resulting from such a dismissal, the company
may still be held liable if it was remiss in its duty to accord the would-be dismissed employees their
right to be heard on the matter.
Anent petitioners contention that the federation was not a principal party to the collective bargaining
agreement between the company and the union, suffice it to say that the matter was already ruled
upon in the Interpleader case filed by respondent company. Med-Arbiter Anastacio Bactin thus ruled:
After a careful examination of the facts and evidences presented by the parties, this Officer
hereby renders its decision as follows:
1.) It appears on record that in Collective Bargaining Agreement (CBA) which took effect on
July 1, 1986, the contracting parties are M. Greenfield, Inc. (B) and Malayang Samahan ng
Mga Manggagawa sa M. Greenfield, Inc. (B) (MSMG)/United Lumber and General Workers
of the Philippines (ULGWP). However, MSMG was not yet registered labor organization at
the time of the signing of the CBA. Hence, the union referred to in the CBA is the ULGWP. 18
Likewise on appeal, Director Pura Ferrer-Calleja put the issue to rest as follows:
It is undisputed that ULGWP is the certified sole and exclusive collective bargaining agent of
all the regular rank-and-file workers of the company, M. Greenfield, Inc. (pages 31-32 of the
records).
It has been established also that the company and ULGWP signed a 3-year collective
bargaining agreement effective July 1, 1986 up to June 30, 1989. 19
Although the issue of whether or not the federation had reasonable grounds to expel the petitioner
union officers is properly within the original and exclusive jurisdiction of the Bureau of Labor
Relations, being an intra-union conflict, this Court deems it justifiable that such issue be nonetheless
ruled upon, as the Labor Arbiter did, for to remand the same to the Bureau of Labor Relations would
be to intolerably delay the case.
The Labor Arbiter found that petitioner union officers were justifiably expelled from the federation for
committing acts of disloyalty when it "undertook to disaffiliate from the federation by charging
ULGWP with failure to provide any legal, educational or organizational support to the local. . . . and
declared autonomy, wherein they prohibit the federation from interfering in any internal and external
affairs of the local union."20
It is well-settled that findings of facts of the NLRC are entitled to great respect and are generally
binding on this Court, but it is equally well-settled that the Court will not uphold erroneous
conclusions of the NLRC as when the Court finds insufficient or insubstantial evidence on record to
support those factual findings. The same holds true when it is perceived that far too much is
concluded, inferred or deduced from the bare or incomplete facts appearing of record. 21
In its decision, the Labor Arbiter declared that the act of disaffiliation and declaration of autonomy by
the local union was part of its "plan to take over the respondent federation." This is purely conjecture
and speculation on the part of public respondent, totally unsupported by the evidence.
A local union has the right to disaffiliate from its mother union or declare its autonomy. A local union,
being a separate and voluntary association, is free to serve the interests of all its members including
the freedom to disaffiliate or declare its autonomy from the federation to which it belongs when
circumstances warrant, in accordance with the constitutional guarantee of freedom of association. 22
The purpose of affiliation by a local union with a mother union or a federation.
. . . is to increase by collective action the bargaining power in respect of the terms and
conditions of labor. Yet the locals remained the basic units of association, free to serve their
own and the common interest of all, subject to the restraints imposed by the Constitution and
By-Laws of the Association, and free also to renounce the affiliation for mutual welfare upon
the terms laid down in the agreement which brought it into existence. 23
Thus, a local union which has affiliated itself with a federation is free to sever such affiliation anytime
and such disaffiliation cannot be considered disloyalty. In the absence of specific provisions in the
federation's constitution prohibiting disaffiliation or the declaration of autonomy of a local union, a
local may dissociate with its parent union.24
The evidence on hand does not show that there is such a provision in ULGWP's constitution.
Respondents' reliance upon Article V, Section 6, of the federation's constitution is not right because
said section, in fact, bolsters the petitioner union's claim of its right to declare autonomy:
Sec. 6. The autonomy of a local union affiliated with ULGWP shall be respected insofar as it
pertains to its internal affairs, except as provided elsewhere in this Constitution.
There is no disloyalty to speak of, neither is there any violation of the federation's constitution
because there is nothing in the said constitution which specifically prohibits disaffiliation or
declaration of autonomy. Hence, there cannot be any valid dismissal because Article II, Section 4 of
the union security clause in the CBA limits the dismissal to only three (3) grounds, to wit: failure to
maintain membership in the union (1) for non-payment of union dues, (2) for resignation; and (3) for
violation of the union's Constitution and By-Laws.
To support the finding of disloyalty, the Labor Arbiter gave weight to the fact that on February 26,
1989, the petitioners declared as vacant all the responsible positions of ULGWP, filled these
vacancies through an election and filed a petition for the registration of UWP as a national
federation. It should be pointed out, however, that these occurred after the federation had already
expelled the union officers. The expulsion was effective November 21, 1988. Therefore, the act of
establishing a different federation, entirely separate from the federation which expelled them, is but a
normal retaliatory reaction to their expulsion.
With regard to the issue of the legality or illegality of the strike, the Labor Arbiter held that the strike
was illegal for the following reasons: (1) it was based on an intra-union dispute which cannot
properly be the subject of a strike, the right to strike being limited to cases of bargaining deadlocks
and unfair labor practice (2) it was made in violation of the "no strike, no lock-out" clause in the CBA,
and (3) it was attended with violence, force and intimidation upon the persons of the company
officials, other employees reporting for work and third persons having legitimate business with the
company, resulting to serious physical injuries to several employees and damage to company
property.
On the submission that the strike was illegal for being grounded on a non-strikeable issue, that is,
the intra-union conflict between the federation and the local union, it bears reiterating that when
respondent company dismissed the union officers, the issue was transformed into a termination
dispute and brought respondent company into the picture. Petitioners believed in good faith that in
dismissing them upon request by the federation, respondent company was guilty of unfair labor
practice in that it violated the petitioner's right to self-organization. The strike was staged to protest
respondent company's act of dismissing the union officers. Even if the allegations of unfair labor
practice are subsequently found out to be untrue, the presumption of legality of the strike prevails. 25
Another reason why the Labor Arbiter declared the strike illegal is due to the existence of a no strike
no lockout provision in the CBA. Again, such a ruling is erroneous. A no strike, no lock out provision
can only be invoked when the strike is economic in nature, i.e. to force wage or other concessions
from the employer which he is not required by law to grant.26 Such a provision cannot be used to
assail the legality of a strike which is grounded on unfair labor practice, as was the honest belief of
herein petitioners. Again, whether or not there was indeed unfair labor practice does not affect the
strike.
On the allegation of violence committed in the course of the strike, it must be remembered that the
Labor Arbiter and the Commission found that "the parties are agreed that there were violent
incidents . . . resulting to injuries to both sides, the union and management." 27 The evidence on
record show that the violence cannot be attributed to the striking employees alone for the company
itself employed hired men to pacify the strikers. With violence committed on both sides, the
management and the employees, such violence cannot be a ground for declaring the strike as
illegal.
With respect to the dismissal of individual petitioners, the Labor Arbiter declared that their refusal to
heed respondent's recall to work notice is a clear indication that they were no longer interested in
continuing their employment and is deemed abandonment. It is admitted that three return to work
notices were sent by respondent company to the striking employees on March 27, April 11, and April
21, 1989 and that 261 employees who responded to the notice were admitted back to work.
However, jurisprudence holds that for abandonment of work to exist, it is essential (1) that the
employee must have failed to report for work or must have been absent without valid or justifiable
reason; and (2) that there must have been a clear intention to sever the employer-employee
relationship manifested by some overt acts.28Deliberate and unjustified refusal on the part of the
employee to go back to his work post amd resume his employment must be established. Absence
must be accompanied by overt acts unerringly pointing to the fact that the employee simply does not
want to work anymore.29 And the burden of proof to show that there was unjustified refusal to go
back to work rests on the employer.
In the present case, respondents failed to prove that there was a clear intention on the part of the
striking employees to sever their employer-employee relationship. Although admittedly the company
sent three return to work notices to them, it has not been substantially proven that these notices
were actually sent and received by the employees. As a matter of fact, some employees deny that
they ever received such notices. Others alleged that they were refused entry to the company
premises by the security guards and were advised to secure a clearance from ULGWP and to sign a
waiver. Some employees who responded to the notice were allegedly told to wait for further notice
from respondent company as there was lack of work.
Furthermore, this Court has ruled that an employee who took steps to protest his lay-off cannot be
said to have abandoned his work.30 The filing of a complaint for illegal dismissal is inconsistent with
the allegation of abandonment. In the case under consideration, the petitioners did, in fact, file a
complaint when they were refused reinstatement by respondent company.
Anent public respondent's finding that there was no unfair labor practice on the part of respondent
company and federation officers, the Court sustains the same. As earlier discussed, union security
clauses in collective bargaining agreements, if freely and voluntarily entered into, are valid and
binding. Corollary, dismissals pursuant to union security clauses are valid and legal subject only to
the requirement of due process, that is, notice and hearing prior to dismissal. Thus, the dismissal of
an employee by the company pursuant to a labor union's demand in accordance with a union
security agreement does not constitute unfair labor practice. 31
However, the dismissal was invalidated in this case because of respondent company's failure to
accord petitioners with due process, that is, notice and hearing prior to their termination. Also, said
dismissal was invalidated because the reason relied upon by respondent Federation was not valid.
Nonetheless, the dismissal still does not constitute unfair labor practice.
Lastly, the Court is of the opinion, and so holds, that respondent company officials cannot be held
personally liable for damages on account of the employees' dismissal because the employer
corporation has a personality separate and distinct from its officers who merely acted as its agents.
It has come to the attention of this Court that the 30-day prior notice requirement for the dismissal of
employees has been repeatedly violated and the sanction imposed for such violation enunciated
in Wenphil Corporation vs.NLRC32 has become an ineffective deterrent. Thus, the Court recently
promulgated a decision to reinforce and make more effective the requirement of notice and hearing,
a procedure that must be observed before termination of employment can be legally effected.
In Ruben Serrano vs. NLRC and Isetann Department Store (G.R. No. 117040, January 27, 2000),
the Court ruled that an employee who is dismissed, whether or not for just or authorized cause but
without prior notice of his termination, is entitled to full backwages from the time he was terminated
until the decision in his case becomes final, when the dismissal was for cause; and in case the
dismissal was without just or valid cause, the backwages shall be computed from the time of his
dismissal until his actual reinstatement. In the case at bar, where the requirement of notice and
hearing was not complied with, the aforecited doctrine laid down in the Serrano case applies.
WHEREFORE, the Petition is GRANTED; the decision of the National Labor Relations Commission
in Case No. NCR-00-09-04199-89 is REVERSED and SET ASIDE; and the respondent company is
hereby ordered to immediately reinstate the petitioners to their respective positions. Should
reinstatement be not feasible, respondent company shall pay separation pay of one month salary for
every year of service. Since petitioners were terminated without the requisite written notice at least
30 days prior to their termination, following the recent ruling in the case of Ruben Serrano vs.
National Labor Relations Commission and Isetann Department Store, the respondent company is
hereby ordered to pay full backwages to petitioner-employees while the Federation is also ordered to
pay full backwages to petitioner-union officers who were dismissed upon its instigation. Since the
dismissal of petitioners was without cause, backwages shall be computed from the time the herein
petitioner employees and union officers were dismissed until their actual reinstatement. Should
reinstatement be not feasible, their backwages shall be computed from the time petitioners were
terminated until the finality of this decision. Costs against the respondent company.
1wphi1.nt
SO ORDERED.
Gonzaga-Reyes, J., concur.

Melo. J., in the result.
Vitug, J., I reiterate my separate opinion in Seranno vs. NLRC (G.R. No. 114070, 27 Jan. 2000).
Panganiban, J., I reiterate my Separate Opinion in Seranno vs. NLRC. G.R. No. 117040 Jan 27,
2000.
Footnotes
1
Rollo, p. 29.
2
Ibid., p. 30-31, p. 823-824.
3
Rollo, p. 34.
4
Rollo, p. 35.
5
Ibid., p. 40.
6
Rollo, p. 47.
7
Ibid., p. 48.
8
Rollo, p. 1522-1523.
9
Ibid., 1523-1524.
10
Rollo, p. 58-59.
11
Rollo, p. 937.
12
Rollo, p. 837.
13
Decicion of the Labor Arbiter, p. 16 (p. 197 of Rollo)
14
Tanduay Distillery Labor Union vvs. NLRC, 149 SCRA 470 citing Victoria's Milling Co., Inc.
vs. Victoria's-Manapla Workers' Organization, 9 SCRA 154
15
G.R. No. 91086, 8 May 1990, 185 SCRA 177.
16
Sanyo Philippines Workers Union-PSSLU vs. Canizares, 211 SCRA 361
17
90 SCRA 391
18
Rollo, p. 199.
19
Ibid.
20
Rollo, p. 200
21
Bontia vs. NLRC, 255 SCRA 167.
22
Volkschel vs. Bureau of Labor Relations, 137 SCRA 42.
Tropical Hut Employees' Union-CGW vs. Tropical Hut Food Market Inc., 181 SCRA 173;
23
Adamson, Inc. vs. CIR, 127 SCRA 268; Liberty Cotton Mills Worker Union vs. Liberty Cotton
Mills, Inc., 66 SCRA 512.
Ferrer vs. National Labor Relations Commission, 224 SCRA 410; People's Industrial and
24
Commercial Employees and Workers Organization (FFW) vs. People's Industrial and
Commercial Corp., 112 SCRA 440
25
Master Iron Labor Union vs. National Labor Relations Commission, 219 SCRA 47.
Panay Electric Company Inc. vs. NLRC, 248 SCRA 688; Peoples' Industrial and
26
Commercial Employees and Workers Organization (FFW) vs. PIC Corp., 112 SCRA 440;
Consolidated Labor Association of the Philippines vs. Marsman and Co., Inc., 11 SCRA 589;
Master Iron Labor Union vs. NLRC, 219 SCRA 47; Phil. Metal Foundries Inc. vs. CIR, 90
SCRA 135;
27
Decision of the Labor Arbiter, Rollo, p. 203
Philippine Advertising Counselors, Inc. vs. National Labor Relations Commission, 263
28
SCRA 395; Balayan Colleges vs. National Labor Relations Commission, 255 SCRA 1.
29
Nueva Ecija I Electric Cooperative, Inc. vs. Minister of Labor, 184 SCRA 25, 30.
30
Bontia vs. National Labor Relations Commission. 255 SCRA 167; Batangas Laguna
Tayabas Bus Company vs. NLRC, 212 SCRA 792; Jackson Building Condominium
Corporation vs. NLRC, 246 SCRA 329.
31
Tanduay Distillery Labor Union vs. NLRC, 149 SCRA 470; Seno vs. Mendoza, 21 SCRA
1124.
32
170 SCRA 69 (1989)
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 98310 October 24, 1996
MATUGUINA INTEGRATED WOOD PRODUCTS, INC., petitioner,

vs.
The HON. COURT OF APPEALS, DAVAO ENTERPRISES CORPORATION, The HON. MINISTER,
(NOW SECRETARY) of NATURAL RESOURCES AND PHILLIP CO, respondents.
TORRES, JR., J.:p
Matuguina Integrated Wood Products Inc. (MIWPI, for brevity) filed this action for Prohibition,
Damages and Injunction, in order to prevent the respondent Minister (now Secretary) of Natural
Resources from enforcing its Order of Execution against it, for liability arising from an alleged
encroachment of the petitioner over the timber concession of respondent DAVENCOR located in
Mati, Davao Oriental.
The Regional Trial Court, Branch 17, Davao City, ruled in favor of the petitioner, but on appeal, was
reversed by the respondent Court of Appeals in its decision dated February 25, 1991, which found
MIWPI, as an alter ego of Milagros Matuguina and/or Matuguina Logging Enterprises (MLE), to be
liable to DAVENCOR for the illegal encroachment.
The following are the antecedent facts:
On June 28, 1973, the Acting Director of the Bureau of Forest Development issued Provisional
Timber License (PTL) No. 30, covering an area of 5,400 hectares to Ms. Milagros Matuguina who
was then doing business under the name of MLE, a sole proprietorship venture. A portion, covering
1,900 hectares, of the said area was located within the territorial boundary of Gov. Generoso in Mati,
Davao Oriental, and adjoined the timber concession of Davao Enterprises Corporation
(DAVENCOR), the private respondent in this case.
On July 10, 1974, petitioner Matuguina Integrated Wood Products, Inc. (MIWPI), was incorporated,
having an authorized capital stock of Ten Million Pesos (P10,000,000.00). 1 The
incorporators/stockholders of MIWPI, and their stock subscriptions were as follows:
Name No. Of Shares Amount of Capital

Subscribed Stock Subscribed
1. Henry Wee 1,160,000 1,160,000.00

2. Ma. Milagros Matuguina 400,000 400,000.00
3. Alejandro Chua Chun 200,000 200,000.00
4. Bernadita Chua 120,000 120,000.00
5. Domingo Herrera 40,000 40,000.00
6. Manuel Hernaez 40,000 40,000.00
7. Luis Valderama 40,000 40,000.00

2,000,000 2,000,000.00
======== =========
Milagros Matuguina became the majority stockholder of MIWPI on September 24, 1974, when the
latter's Board of Directors approved by Resolution the transfer of 1,000,000 shares from Henry Wee
to Milagros Matuguina, thus giving her seventy percent (70%) stock ownership of MIWPI.
In an undated letter 2 to the Director of Forest Development (BFD) on November 26, 1974, Milagros
Matuguina requested the Director for a change of name and transfer of management of PTL No. 30 from
a single proprietorship under her name, to that of MIWPI.
This request was favorably endorsed on December 2, 1974 3 by the BFD's Acting Director, Jose Viado
to respondent Secretary of Natural Resources, who approved the same on September 5, 1975. 4
On July 17, 1975, Milagros Matuguina and petitioner MIWPI executed a Deed of
Transfer 5 transferring all of the former's rights, interests, ownership and participation in Provincial Timber
License No. 30 to the latter for and in consideration of 148,000 shares of stocks in MIWPI.
A copy of said deed was submitted to the Director of Forest Development and petitioner MIWPI had
since been acting as holder and licensee of PTL No. 30
On July 28, 1975, pending approval of the request to transfer the PTL to MIWPI, DAVENCOR,
through its Assistant General Manager, complained to the District Forester at Mati, Davao Oriental
that Milagros Matuguina/MLE had encroached into and was conducting logging operations in
DAVENCOR's timber concession.
After investigation of DAVENCOR's complaint, the Investigating Committee which looked into
DAVENCOR's complaint submitted its report to the Director, finding that MLE had encroached on the
concession area of DAVENCOR. In line with this, the Director of Forest Development issued an
Order 6 on July 15, 1981, finding and declaring MLE to have encroached upon, and conducted illegal
logging operations within the licensed or concession area of DAVENCOR.
MLE appealed the Order to the Ministry of Natural Resources, which appeal was docketed as MNR
CASE No. 6540. During the pendency of the appealed case with the Minister of Natural Resources,
Ma. Milagros Matuguina disposed of her shares in petitioner MIWPI, thereby ceasing to be a
stockholder of the petitioner as of March 16, 1986. 7
On October 1, 1986, The Minister of Natural Resources, Hon. Ernesto M. Maceda rendered his
Decision, 8affirming the aforesaid order of the Director of Foreign Development, stating thus:
DECISION
For our Resolution is the appeal by MATUGUINA LOGGING ENTERPRISES (MLR,

for short) of the Order dated 15 July 1991 of the Director of Forest Development
finding and declaring MLE to have encroached upon, and conducted illegal logging
operations within the license or concession area of DAVAO ENTERPRISES
CORPORATION. The aforesaid Order dispositively states:
Wherefore, there being a clear and convincing proof that Matuguina

Conducted illegal operation within the license area of DAVENCOR,
above named respondent is hereby ordered to pay to the
complainant the equivalent value in pesos of 2,352.04 cubic meters
of timber based on the market price obtaining, at the logpond of the
respondent at the time of cutting, minus the cost of production, or to
restitute to the complainant equal volume of 2,352.04 cubic meters of
logs owned by respondent to be taken at respondent's logpond. The
respondent is hereby directed to comply with this Order within a
period of ninety (90) days from receipt of this Order and after the
lapse of the said period, no compliance has been made by the
respondent, its logging operations shall ipso facto become
automatically suspended until respondent shall have complied as
directed.
The Regional Director of Region II, Davao City is hereby instructed to

implement this Order and to submit his compliance report within ten
(10) days after the lapse of the ninety (90) days period within which
the respondent is directed to comply with this Order.
And that the dispositive portion of the said decision states:
WHEREFORE, the Order dated 15 July 1981 of the Director of Forest Development
is hereby AFFIRMED.
When the Decision of the Minister of Natural Resources became final and executory, Philip Co and
DAVENCOR requested the respondent Minister on October 30, 1986 to issue immediately a writ of
execution against MLE and/or MIWPI. 9 The Order of Execution 10 was issued on January 6, 1987 by the
Minister through the latter's Assistant on Legal Affairs. The said Order directed the issuance of a writ of
execution, not only against MLE, but likewise against MIWPI. The dispositive portion of the order
provides:
WHEREFORE, let a Writ of Execution be issued against Matuguina Logging

Enterprises and/or Matuguina Integrated Wood Products, Inc. For the satisfaction of
the Decision of the Bureau of Forest Development dated 15 July 1981, and the Order
of this office dated 1 October 1986.
SO ORDERED.
Subsequently, a writ of execution 11 dated January 8, 1987 was issued in favor of the respondent
DAVENCOR, which states:
The City/Provincial Sheriff

Davao City
GREETINGS:
You are hereby directed to enforce, implement and execute the Order of Execution
dated 06 June 1987 of this Office in the above-entitled case against Matuguina
Logging Enterprises and/or Matuguina Integrated Wood Products, Inc. Its officers or
any person or corporation in its behalf and conformably with the Order dated 15 July
1981 of the Director of Forest Development, stating dispositively.
xxx xxx xxx

You are hereby requested to submit your return to this Office within the period of sixty
(60) days from your receipt hereof as to action taken hereon.
SO ORDERED.
On February 11, 1987, MIWPI filed the instant complaint 12 for prohibition, damages and injunction, with
prayer for restraining order, which case was docketed as Civil Case No. 18,457-87 in the Regional Trial
Court Davao City, Branch 17. MIWPI stated its primary cause of action, the relevant portion of which
reads, viz.:
5. That plaintiff which has a distinct and separate personality of its own under the law,
and was never a party to the case between DAVENCOR and MLE, suddenly became
a party to the case after the decision became final and executory with the issuance of
Annex "B" hereof for reasons known to the defendants alone:
6. That the issuance of Annex "B" hereof (the order of execution) by the defendant
Minister has been made not only without or in excess of his authority but that the
same was issued patently without any factual or legal basis, hence, a gross violation
of plaintiff's constitutional rights under the due process clause;
7. That plaintiff, in the face of the order (Annex "B") complained of, there being no
appeal or any plain, speedy, and adequate remedy in the ordinary course of law,
does not have any alternative but to ventilate the present recourse;
8. That defendant Minister is doing, threatens or is about to do, or is procuring or

suffering to be done, some act which definitely is in violation of the plaintiff's rights
respecting the subject matter of the action, and unless said act or acts are restrained
or prohibited at least during the pendency of this case, said act or acts would
probably work not only injustice to plaintiff but would tend to render the judgment of
this Honorable Court ineffectual;
9. That the commission or continuance of the acts complained of during the present
litigation would not only cause great and irreparable injury, but will also work injustice
to the plaintiff, and would complicate, aggravate and multiply the issues in this case;
10. That the plaintiff is entitled to the relief demanded, and the whole or part of such
relief consists in restraining the commission or continuance of the acts complained
of, or in the performance of acts, either for a limited period or perpetually;
11. That great and irreparable injury would inevitably result to the plaintiff before the
matter can be heard on notice, hence, immediate issuance of a restraining order is
necessary and proper;
12. That the plaintiff is willing and able to file the necessary bond executed to the
defendants, in an amount to be fixed by the court, to the effect that the plaintiff will
pay to the defendants all damages which they may sustain by reason of the
injunction if the court should finally decide that the plaintiff was not entitled thereto.
MIWPI, likewise, alleges that in wantonly and imprudently procuring the Writ of Execution against it,
which DAVENCOR and Philip Co seek to enforce a 2.5 Million Peso liability of plaintiff, the latter has
been constrained to bring the present action, thereby incurring damages in the sum of P500,000.00
in concept of actual and compensatory damages, and P250,000.00 in attorney's fees, which amount
petitioner now seeks to recover.
The trial court issued a temporary restraining order the next day, February 12, 1987, restraining
and/or enjoining the private respondents and the Hon. Secretary of Natural Resources from
enforcing, implementing and/or carrying into effect, the decision of the respondent Secretary dated
October 1, 1986, as well as the order of execution dated January 6, 1987.
On February 17, 1987, private respondents filed a Motion to Dismiss 13 alleging that the trial court had
no jurisdiction over the case under Presidential Decree No. 705, to which Motion to Dismiss, petitioner
filed an Opposition 14 dated February 1987. On March 9, 1987, the trial court issued an order 15 denying
private respondent's Motion to Dismiss. Hence, private respondents filed their Answer 16 dated March 13,
1987 and an Amended Answer 17 dated July 16, 1987.
In the latter pleading, private respondents raised the following special and affirmative defenses:
7. That neither Milagros Matuguina nor Matuguina Integrated Wood Products, Inc.
advised defendant Davencor of the change of name, and transfer of management of
PTL No. 30 from Milagros Matuguina to Matuguina Integrated Wood Products, Inc.,
during the pendency of MNR Case No. 6540 before the Bureau of Forest
Development and the Ministry of Natural Resources, notwithstanding that the lawyer
of Matuguina Integrated Wood Products, Inc., who was also a stockholder thereof,
had appeared for Milagros Matuguina in said administrative case.
8. That plaintiff has acted in bad faith and is now in estoppel from questioning the
Writ of Execution issued against Milagros Matuguina (now Matuguina Integrated
Wood Products, Inc.) to satisfy the judgment in MNR Case No. 6540.
9. This Honorable Court has no jurisdiction over the nature and subject matter of this
action, especially because:
(a) The plaintiff has not exhausted administrative remedies available to it before
initiating this action;
(b) In the guise of entertaining an action for damages, this Court is being misled by
the plaintiff into deciding questions properly for the Department of Natural Resources
to decide exclusively in the lawful exercise of its regulatory jurisdiction;
(c) The plaintiff is now precluded and estopped from filing this action.
10. The plaintiff has no cause of action against the defendants and has not stated
any in its complaint, especially because:
(a) Having failed to exhaust administrative remedies, plaintiff is without a ripe cause
of action that can be pleaded before this Honorable Court;
(b) In substance, there is no justiciable question raised under the facts and
circumstances of this case.
Meanwhile, on June 2, 1987, the trial court issued on order 18 granting the petitioner's prayer for the
issuance of a writ of preliminary injunction against the private respondents and the Secretary of Natural
Resources, ordering them to desist, refrain and prevent from enforcing respondent Secretary's Decision
dated October 1, 1986 as well as the writ of execution dated January 8, 1987.
On May 10, 1989, the trial court rendered its Decision 19 in favor of the petitioner, disposing of the
action as follows:
WHEREFORE, in view of the foregoing, finding the evidence of plaintiff, Matuguina

Integrated Wood Products, Inc. sufficient to sustain a preponderance of evidence,
showing that the order of execution dated January 6, 1987, issued by the Minister of
Natural Resources, through Alexander C. Castro, Assistant Minister for Legal Affairs,
included therein, plaintiff Matuguina Integrated Wood Products, Inc., despite non-
inclusion of plaintiff in the decision of the then Minister of Natural Resources, dated
October 1, 1986, already final and executory before the issuance of the order and
execution, said order or execution is hereby declared null and void and without any
legal effect.
As a consequence thereof, the writ of preliminary injunction issued by this court,

dated June 2, 1987 is hereby made permanent.
Moreover, as a result of the filing of this case, defendant Philip Co and Davencor
Corporation, are ordered to jointly and severally pay the amount of P100,000.00 as
actual and compensatory damages, along with another amount of P20,000.00 as
attorney's fees and costs of this action, in favor of plaintiff Matuguina Integrated
Wood Products, Inc.
SO ORDERED.
Private respondents appealed the trial court's decision on May 19, 1989. Their notice of appeal was
approved by the trial court. The appealed case was docketed with respondent Honorable Court of
Appeals as CA-G.R. SP No. 19887.
On February 25, 1991, the respondent Court rendered its Decision, 20

reversing the lower court's
pronouncement. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, the decision appealed from is reversed and set
aside and the Order of Execution issued by the Minister of Natural Resources dated
January 6, 1987 is affirmed. Without pronouncement as to costs.
SO ORDERED.
In due time, petitioner filed a motion for reconsideration. 21 Private respondents filed their
opposition 22 to the same on April 2, 1991. In a Resolution 23 dated April 12, 1991, the motion was denied
by the respondent Court.
Not content with the court's pronouncement, petitioner is now before us on a Petition for Review
on Certiorari, 24alleging that the respondent court acted with grave abuse of discretion in rendering the
questioned decision and its companion resolution, denying the motion for reconsideration.
The reasons relied upon by the Petitioner in filing its petition are hereby restated:
I
PETITIONER WAS DENIED DUE PROCESS OF LAW WHEN IT WAS MADE
LIABLE BY RESPONDENT SECRETARY OF NATURAL RESOURCES IN HIS
ORDER OF EXECUTION DATED 06 JANUARY 1987 (EXHIBIT "B" OF
ATTACHMENT "O") ISSUED IN MNR CASE NO. 6540 DESPITE THE FACT THAT
PETITIONER WAS NEVER A PARTY NOR A PARTICIPANT IN THE SAID CASE: IN
FACT, PETITIONER NEVER HAD NOTICE OF THE PROCEEDINGS IN MNR CASE
NO. 6540.
II
THE FAILURE TO AFFORD PETITIONER THE OPPORTUNITY TO BE HEARD IN

THE ADMINISTRATIVE LEVEL (MNR CASE NO. 6540) COULD NOT HAVE BEEN
CURED BY THE INSTITUTION OF THE ACTION FOR PROHIBITION IN THE TRIAL
COURT BECAUSE SAID COURT HAD NO JURISDICTION TO DETERMINE
WHETHER PETITIONER WAS GUILTY OF ENCROACHMENT ON PRIVATE
RESPONDENT DAVENCOR'S TIMBER CONCESSION; FURTHERMORE, THE
QUESTION ON WHETHER PETITIONER WAS GUILTY OF ENCROACHMENT
WAS NEVER PUT IN ISSUE IN THE CASE BEFORE THE TRIAL COURT.
III
THE LIABILITY OF MILAGROS/MLE AS FOUND BY RESPONDENT SECRETARY

IN ITS DECISION DATED 01 OCTOBER 1986 (EXHIBIT "A" OF THE ATTACHMENT
"0") CANNOT BE IMPUTED AGAINST PETITIONER SINCE THE LATTER IS A
CORPORATION HAVING A PERSONALITY SEPARATE AND DISTINCT FROM
MILAGROS/MLE.
IV
PETITIONER CANNOT BE MADE LIABLE TO PRIVATE RESPONDENTS UNDER

THE DEED OF TRANSFER DATED 18 JULY 1975 (EXHIBIT "3" OF ATTACHMENT
"P") AND SECTION 61 OF THE REVISED FORESTRY CODE OF THE
PHILIPPINES (P.D. 705, AS AMENDED):
A. THE ALLEGED TRANSFER OF PTL NO. 30 FROM MILAGROS/MLE TO

PETITIONER NEVER BECAME BINDING AND EFFECTIVE SINCE PTL NO. 30
REMAINED IN THE NAME OF MILAGROS/MLE UNTIL ITS EXPIRATION ON 30
JUNE 1977: THIS IS DUE TO THE FACT THAT SAID TRANSFER WAS NEVER
APPROVED BY THE SECRETARY OF NATURAL RESOURCES.
B. GRANTING ARGUENDO THAT THERE WAS AN EFFECTIVE TRANSFER OF

PTL NO. 30 FROM MILAGROS/MLE TO PETITIONER, THE TRANSFER COULD
NOT MAKE PETITIONER LIABLE FOR THE ALLEGED ENCROACHMENT OF
PRIVATE RESPONDENT DAVENCOR'S TIMBER CONCESSION, SINCE:
1. SAID TRANSFER WAS EXECUTED PRIOR TO THE

COMMISSION OF THE ALLEGED ENCROACHMENT AND THE
FILING THE ADMINISTRATIVE COMPLAINT FOR
ENCROACHMENT DATED 28 JULY 1975; THUS, PETITIONER
CANNOT BE MADE LIABLE FOR OBLIGATIONS OF
MILAGROS/MLE WHICH WERE INCURRED AFTER THE DATE OF
THE SAID TRANSFER.
2. SAID TRANSFER COVERED ONLY FORESTRY CHARGES AND
OTHER GOVERNMENT FEES, AND DID NOT INCLUDE THE
PERSONAL LIABILITY OF MILAGROS/MLE THAT AROSE FROM
THE ENCROACHMENT OF THE TIMBER CONCESSION OF
RESPONDENT DAVENCOR. 25
Private Respondents DAVENCOR and the public respondent Hon. Minister (now Secretary) of
Natural Resources filed separate Comments 26 on September 5, 1991 and June 8, 1992 respectively.
The essential issues of the present controversy boil down to the following:
Was the Petitioner denied due process when it was adjudged liable with MLE for encroaching upon
the timber concession of DAVENCOR in the respondent Minister's Order of Execution?
Is the petitioner a transferee of MLE's interest, as to make it liable for the latter's illegal logging
operations in DAVENCOR's timber concession, or more specially, is it possible to pierce the veil of
MIWPI's corporate existence, making it a mere conduit or successor of MLE?
Generally accepted is the principle that no man shall be affected by any proceeding to which he is a
stranger, and strangers to a case not bound by judgment rendered by the court. In the same manner
an execution can be issued only against a party and not against one who did not have his day in
court. In Lorenzo vs. Cayetano, 78 SCRA 485 [1987], this Court held that only real parties in interest
in an action are bound by judgment therein and by writs of execution and demolition issued pursuant
thereto. 27
Indeed a judgment cannot bind persons who are not parties to the
action. 28 It is elementary that strangers to a case are not bound by the judgment rendered by the court
and such judgment is not available as an adjudication either against or in favor of such other person. A
decision of a court will not operate to divest the rights of a person who has not and has never been a
party to a litigation, either as plaintiff or as defendant. Execution of a judgment can only be issued against
one who is a party to the action, and not against one who, not being a party in the action has not yet had
his day in court. 29
The writ of execution must conform to the judgment which is to be executed, as it may not vary the
terms of the judgment it seeks to enforce. 30 Nor may it go beyond the terms of the judgment sought to
be executed. Where the execution is not in harmony with the judgment which gives it life and exceeds it, it
has pro tanto no validity. To maintain otherwise would be to ignore the constitutional provision against
depriving a person of his property without due process of law. 31
The writ of execution issued by the Secretary of Natural Resources on January 8, 1987 clearly
varies the term of his Decision of October 1, 1986, inasmuch as the Writ includes the MIWPI as party
liable whereas the Decision only mentions Milagros Matuguina/MLE.
There is no basis for the issuance of the Order of Execution against the petitioner. The same was
issued without giving the petitioner an opportunity to defend itself and oppose the request of
DAVENCOR for the issuance of a writ of execution against it. In fact, it does not appear that
petitioner was at all furnished with a copy of DAVENCOR's letter requesting for the Execution of the
Honorable Secretary's decision against it. Petitioner was suddenly made liable upon the order of
execution by the respondent Secretary's expedient conclusions that MLE and MIWPI are one and
the same, apparently on the basis merely of DAVENCOR's letter requesting for the Order, and
without hearing or impleading MIWPI. Until the issuance of the Order of execution, petitioner was not
included or mentioned in the proceedings as having any participation in the encroachment in
DAVENCOR's timber concession. This action of the respondent Secretary disregards the most basis
tenets of due process and elementary fairness.
The liberal atmosphere which pervades the procedure in administrative proceedings does not
empower the presiding officer to make conclusions of fact before hearing all the parties
concerned. 32 In Police Commission vs.Hon. Judge Lood, 33 we held that the formalities usually attendant
in court hearings need not be present in an administrative investigation, provided that the parties are
heard given the opportunity to adduce their evidence. The right to notice and hearing is essential to due
process and its non-observance will, as a rule, invalidate the administrative proceedings.
As observed by the appellate court, to writ:
the appellant should have filed a Motion with the Minister with Notice to the appellee
to include the latter as party liable for the judgment in order to afford the appellee an
opportunity to be heard on its liability for the judgment rendered against Ma. Milagros
Matuguina doing business under the name Matuguina Logging Enterprises. 34
Continuing, the said court stated further that:
Nevertheless, the failure to comply with the procedure in order to satisfy the
requirements of due process was cured by the present action for prohibition where
the liability of appellee has been ventilated.
We do not agree. Essential, Prohibition is a remedy to prevent inferior courts, corporations, boards
or persons from usurping or exercising a jurisdiction or power with which they have not been vested
by law 35 As we have held in Mafinco Trading Corporation vs. Ople, et al, 36 in a certiorari or prohibition
case, only issues affecting the jurisdiction of the tribunal, board and offices involved may be resolved on
the basis of undisputed facts.
The issue of whether or not petitioner is an alter ego of Milagros Matuguina/MLE, is one of fact, and
which should have been threshed out in the administrative proceedings, and not in the prohibition
proceedings in the trial court, where it is precisely the failure of the respondent Minister of Natural
Resources to proceed as mandated by law in the execution of its order which is under scrutiny.
Assuming, arguendo, that prohibition is the proper remedy for determining the propriety of piercing
the separate personality of petitioner with its stockholders, the evidence presented at said trial does
not warrant such action.
It is settled that a corporation is clothed with personality separate and distinct from that of the
persons composing it. It may not generally be held liable for that of the persons composing it. It may
not be held liable for the personal indebtedness of its stockholders or those of the entities connected
with it. Conversely, a stockholder cannot be made to answer for any of its financial obligations even if
he should be its president. 37 But when the juridical personality of the corporation is used to defeat
public convenience, justify wrong, protect fraud or defend crime, the corporation shall be considered as a
mere association of persons (Koppel, Inc. vs. Yatco, 77 Phil 496, Palay, Inc. vs. Clave, G.R. No. 56076,
September 21, 1983, 124 SCRA 638), and its responsible officers and/or stockholders shall be
individually liable (Namarco vs. Associated Finance Co., Inc., G.R. No. L-20886, April 27, 1967, 19 SCRA
962). For the same reasons, a corporation shall be liable for the obligations of a stockholder (Palacio vs.
Fely Transportation Co., G.R No. L-15121, August 31, 1963, 5 SCRA 1011), or a corporation and its
successor-in-interest shall be considered as one and the liability of the former shall attach to the latter. 38
But for the separate juridical personality of a corporation to be disregarded, the wrongdoing must be
clearly and convincingly established. It cannot be presumed. 39
In the case at bar, there is, insufficient basis for the appellate court's ruling that MIWPI is the same
as Matuguina. The trial court's observation is enlightening.
Despite apparently opposing evidence of both parties, the Court gathered and finds,
that defendant's attempt to pierce the veil of corporate personality of plaintiff
corporation, as to consider plaintiff corporations merely an adjunct or alter ego of
Maria Milagros Matuguina Logging Enterprises, to justify defendant's claim against
plaintiff corporation, suffers heavily from insufficiency of evidence.
It is the vehement contention of defendants, to bolster its claim, that plaintiff

corporation is the alter ego of Maria Milagros Matuguina Logging Enterprises,
because when Milagros Matuguina became the Chairman of the Board of Directors
of plaintiff corporation, she requested for the change of name and transfer of
management of PTL No. 30, from her single proprietorship, to plaintiff corporation.
Secondly, when Milagros Matuguina executed the deed of transfer, transferring her
forest concession under PTL No. 30, together with all the structures and
improvements therein, to plaintiff corporation, for a consideration of P14,800.00
representing 148,000 shares of stocks of plaintiff corporation actually all existing
shares of stocks of Milagros Matuguina, in plaintiff corporation represents 77.4%
therein; suffice to say that plaintiff corporation practically became an alter ego of
Milagros Matuguina.
Defendant's arguments on this peripheral aspect of corporate existence, do not at all

indicate that such a legal fiction, was granted.
In the first place, the alleged control of plaintiff corporation was not evident in any
particular corporate acts of plaintiff corporation, wherein Maria Milagros Matuguina
Logging Enterprises using plaintiff corporation, executed acts or powers directly
involving plaintiff corporation.
Neither was there any evidence of defendants, that Maria Milagros Matuguina
Logging Enterprises, using the facilities and resources of plaintiff corporation,
involved itself in transaction using both single proprietorship and plaintiff corporation
in such particular line of business undertakings.
As stated by this court in resolving plaintiff's prayer for issuance of a writ or

preliminary injunction, said:
There is actually, no evidence presented by defendant, showing that

sometime on March 15, 1986, to January 1987, during which period,
the subject decision of Hon. Secretary of Natural Resources and
corresponding writ of execution, Maria Milagros Matuguina was a
stockholder of plaintiff corporation in such amount or was she an
officer of plaintiff corporation in whatever capacity.
The above circumstances is relevant and significant to assume any such justification
of including plaintiff corporation in the subject writ of execution, otherwise, as
maintained by defendants, what matters most was the control of Milagros Matuguina
Logging Enterprises of plaintiff corporation in 1974 and 1975, when the
administrative case was pending, this circumstance alone without formally including
plaintiff corporation in said case, will not create any valid and sufficient justification for
plaintiff corporation, to have been supposedly included in the suit against defendants
and Maria Milagros Matuguina Logging Enterprises, in the administrative case.
Yet, granting as claimed by defendants, that in 1974 or in 1975, Maria Milagros

Matuguina became the controlling stockholder of plaintiff corporation, on account of
the change of name and transfer of management of PTL No. 30, this circumstance,
we repeat, does not of itself prove that plaintiff corporation was the alter ego of Maria
Milagros Matuguina Logging Enterprises, as enunciated in various decisions of this
Court, to writ:
It is important to bear in mind that mere ownership by a single

stockholder or by another corporation of all or nearly all of the capital
stocks of the corporation, is not itself a sufficient warrant for
disregarding the fiction of separate personality (Liddel and Co. vs.
Collector of Internal Revenue, G.R. No. 9687, June 30, 1961).
It is recognized as lawful to obtain a corporation charter, even with a single

substantial stockholder, to engage in specific activity and such activity may co-exist
with other private activities of the stockholder.
If the corporation is substantial one, conducted lawfully; without fraud on another, its
separate identity is to be respected. 40
In this jurisdiction, it is a settled rule that conclusions and findings of fact by the trial court are entitled
to great weight on appeal and should not be disturbed unless for strong and cogent reasons
because the trial court is in a better position to examine real evidence, as well as to observe the
demeanor of the witnesses while testifying in the case. 41
It is likewise improper to state that the MIWPI is the privy or the successor-in-interest of MLE, as the
liability for the encroachment over DAVENCOR's timber concession is concerned, by reason of the
transfer of interest in PTL No. 30 from MLE to MIWPI.
First of all, it does not appear indubitable that the said transfer ever became effective, since PTL No.
30 remained in the name of Milagros Matuguina/MLE until it expired on June 30, 1977. 42
More importantly, even if it is deemed that there was a valid change of name and transfer of interest
in the PTL No. 30, this only signifies a transfer of authority, from MLE to MIWPI, to conduct logging
operations in the area covered by PTL No. 30. It does not show indubitable proof that MIWPI was a
mere conduit or successor of Milagros Matuguina/MLE, as far the latter's liability for the
encroachment upon DAVENCOR's concession is concerned. This is the only conclusion which we
can discern from the language of Section 61 of P.D. 750, 43 and the letters of the Acting Minister of
Natural Resources to Milagros Matuguina/MLE and to MIWPI, on September 16, 1975. 44 In Soriano
vs. Court of Appeals, this Court stated in clear language, that
It is the general rule that the protective mantle of a corporation's separate and
distinct personality could only be pierced and liability attached directly to its officers
and/or members stockholders, when the same is used for fraudulent, unfair, or
illegal purpose. In the case at bar, there is no showing that the Association entered
into the transaction with the private respondent for the purpose of defrauding the
latter of his goods or the payment thereof. . . . Therefore, the general rule on
corporate liability, not the exception, should be applied in resolving this case. (G.R.
No. 49834, June 22, 1989)
The respondents cite Section 61 of P.D. 705 to establish MIWPI's succession to the liability of
Milagros Matuguina/MLE:
Sec. 61. Transfers. Unless authorized by the Department Head, no licensee,

lessee, or permittee may transfer, exchange, sell, or convey his license agreement,
license, lease or permit, or any of his rights or interests therein, or any of his assets
used in connection therewith.
The licensee, lessee, or permittee shall be allowed to transfer or convey his license
agreement, license, lease, or permit only if he has not violated any forestry law, rule
or regulation; has been faithfully complying with the terms and conditions of the
license agreement, license, lease or permit; the transferee has all the qualifications
and none of the disqualifications to hold a license agreement, license, lease or
permit; there is no evidence that such transfer or conveyance is being made for
purposes of speculation; and the transferee shall assume all the obligations of the
transferor.
The transferor shall forever be barred from acquiring another license agreement,
license, lease or permit.
Even if it is mandated in the abovestated provision that "the transferee shall assume all the
obligations of the transferor" this does not mean that all obligations are assumed, indiscriminately.
Invariably, it is not the letter, but the spirit of the law and intent of the legislature that is important.
When the interpretation of a statute according to the exact and literal import of its words would lead
to absurdity, it should be construed according to the spirit and reason, disregarding if necessary the
letter of the law. 45
In construing statutes, the terms used therein are generally to be given their ordinary meaning, that
is, such meaning which is ascribed to them when they are commonly used, to the end that absurdity
in the law must be avoided. 46 The term "obligations" as used in the final clause of the second paragraph
of Section 61 of P.D. 705 is construed to mean those obligations incurred by the transferor in the ordinary
course of business. It cannot be construed to mean those obligations or liabilities incurred by the
transferor as a result of transgressions of the law, as these are personal obligations of the transferor, and
could not have been included in the term "obligations" absent any modifying provision to that effect.
In the September 16, 1975 letters of Acting Director of the Bureau of Forest Development of
Milagros Matuguina and MIWPI informing them of the approval of Matuguina's request for the
change of name and transfer of management of PTL No. 30, the following statements were made by
the Acting Director:
In view hereof, (Matuguina Integrated Wood Products, Inc.) shall assume the
responsibility of paying whatever pending liabilities and/or accounts remaining
unsettled, if any, by the former licensee, Milagros Matuguina, with the government.
(Emphasis ours) 47
Accordingly, the letter's language implies that the obligations which MIWPI are to assume as
transferee of Milagros Matuguina/MLE are those obligations in favor of the government only, and not
to any other entity. Thus this would include Forestry Charges, Taxes, Fees, and similar
accountabilities.
In sum, the Court makes the following pronouncements:
(a) The respondent Honorable Minister of Natural Resources gravely abused its discretion when it
issued its Order of Execution on January 6, 1987, including therein as one of the parties liable the
petitioner Matuguina Integrated Wood Products, Inc., which was never a party to the assailed
proceeding resulting in the issuance of such Order and, without affording the same an opportunity to
be heard before it was adjudged liable.
(b) The petitioner is a corporate entity separate and distinct from Milagros Matuguina/Matuguina
Logging Enterprises, there being no clear basis for considering it as a mere conduit or alter ego of
Matuguina/MLE, and therefore, cannot be made liable for the obligations of the same for
encroachment over the timber concession of private respondent DAVENCOR.
IN VIEW OF THE FOREGOING, the Petition is hereby GRANTED, and the Decision dated February
25, 1991, is SET ASIDE. The decision of the Regional Trial Court is hereby REINSTATED, and
correspondingly, Order of Execution of the respondent Secretary of Natural Resources is declared
NULL and VOID and without effect.
No pronouncement as to costs.
SO ORDERED.
Regalado, Romero, Puno and Mendoza, JJ., concur.
Footnotes
1 Articles of Incorporation of MIWPI are on p. 232 of Rollo.
2 Rollo, p. 222.
3 Ibid., p. 227.
4 Ibid., p. 228.
5 Ibid., p.250.
6 Infra.
7 Rollo, p. 194.
8 Ibid., p. 172.
9 Ibid., 188.
10 Ibid., 93.
11 Ibid., 191.
12 Ibid., p. 77.
13 Ibid., p. 102.
14 Ibid., p. 106.
15 Ibid., p. 109.
16 Ibid., p. 117.
17 Ibid., p. 159.
18 Ibid., p. 122.
19 Ibid., p. 309.
20 Ibid., p. 63.
21 Ibid., p. 383.
22 Ibid., p. 388.
23 Ibid., p. 72.
24 Ibid., p. 10.
25 Petitioner, Rollo, 26.
26 Comment of DAVENCOR, Rollo, p. 409; Comment of respondent Minister

(Secretary) of Natural Resources, Rollo, p. 497.
27 Vda. De Medina vs. Hon. Fernando A. Cruz, etc., G.R. No. L-39272, May 4, 1988,
161 SCRA 36.
28 Buazon, et. al. vs. Court of Appeals, et. al., G.R. No. 97749, March 19, 1993, 220
SCRA 182.
29 St. Dominic Corp. vs. Intermediate Appellate Court, etc., G.R. Nos. L-70623,
L-48630, June 30, 1987, 151 SCRA 577.
30 Buan vs. Court of Appeals, et al., G.R. No. 101614, August 17, 1994, 235 SCRA
424.
31 Moran, M., Comments on the Rules of Court, 1979 ed., vol. 2, p. 278.
32 Ang Tibay vs. Court of Industrial Relations, 69 Phil. 635.
33 G.R. No. 34637, February 24, 1984, 127 SCRA 757.

34 RTC Decision, supra.
35 3 Moran, p. 183.
36 G.R. No. L-37790, March 25, 1976, 70 SCRA 139.
37 Laperal Development Corporation vs. Court of Appeals, G.R. No. 96354, June 8,
1993, 223 SCRA 261.
38 Koppel vs. Yatco, supra; Liddell & Co. vs. CIR, G.R. No. L-9687, June 30, 1961, 2
SCRA 632.
39 Del Rosario vs. NLRC, G.R. No. 85416, July 24, 1990, 187 SCRA 777.
40 RTC Decision, supra.
41 Bael, et al., vs. IAC, et al., G.R. No. 74423, January 30, 1989, 169 SCRA 617.
42 See BFD Certification to that effect, Rollo, p. 193.
43 71 O.G. No. 28, 4289, July 14, 1975.
44 Rollo, pp. 229-230.
45 Lopez vs. Court of Tax Appeals, G.R. No. 9274, February 1, 1957, 100 Phil 850.
46 82 C.J.S. p. 639, cited in Martin R., Stutory Construction, 1979 ed., p. 83.
47 Rollo, pp. 229-230.

SUPREME COURT
FIRST DIVISION
G.R. No. 120077 October 13, 2000
THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA AND
MARCELO G. SANTOS, respondents.
PARDO, J.:
The case before the Court is a petition for certiorari1 to annul the following orders of the National
Labor Relations Commission (hereinafter referred to as "NLRC") for having been issued without or
with excess jurisdiction and with grave abuse of discretion: 2
(1) Order of May 31, 1993.3 Reversing and setting aside its earlier resolution of August 28,
1992.4 The questioned order declared that the NLRC, not the Philippine Overseas
Employment Administration (hereinafter referred to as "POEA"), had jurisdiction over private
respondent's complaint;
(2) Decision of December 15, 1994.5 Directing petitioners to jointly and severally pay private
respondent twelve thousand and six hundred dollars (US$ 12,600.00) representing salaries
for the unexpired portion of his contract; three thousand six hundred dollars (US$3,600.00)
as extra four months salary for the two (2) year period of his contract, three thousand six
hundred dollars (US$3,600.00) as "14th month pay" or a total of nineteen thousand and eight
hundred dollars (US$19,800.00) or its peso equivalent and attorney's fees amounting to ten
percent (10%) of the total award; and
(3) Order of March 30, 1995.6 Denying the motion for reconsideration of the petitioners.
In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos") was an
overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of Oman.
Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing, People's Republic of
China and later terminated due to retrenchment.
Petitioners are the Manila Hotel Corporation (hereinafter referred to as "MHC") and the Manila Hotel
International Company, Limited (hereinafter referred to as "MHICL").
When the case was filed in 1990, MHC was still a government-owned and controlled corporation
duly organized and existing under the laws of the Philippines.
MHICL is a corporation duly organized and existing under the laws of Hong Kong. 7 MHC is an
"incorporator" of MHICL, owning 50% of its capital stock. 8
By virtue of a "management agreement"9 with the Palace Hotel (Wang Fu Company Limited),
MHICL10 trained the personnel and staff of the Palace Hotel at Beijing, China.
Now the facts.

During his employment with the Mazoon Printing Press in the Sultanate of Oman, respondent
Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt, General Manager, Palace
Hotel, Beijing, China. Mr. Schmidt informed respondent Santos that he was recommended by one
Nestor Buenio, a friend of his.
Mr. Shmidt offered respondent Santos the same position as printer, but with a higher monthly salary
and increased benefits. The position was slated to open on October 1, 1988. 11
On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the offer.
On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to sign employment
contract to respondent Santos. Mr. Henk advised respondent Santos that if the contract was
acceptable, to return the same to Mr. Henk in Manila, together with his passport and two additional
pictures for his visa to China.
On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective June 30,
1988, under the pretext that he was needed at home to help with the family's piggery and poultry
business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henk's letter.
Respondent Santos enclosed four (4) signed copies of the employment contract (dated June 4,
1988) and notified them that he was going to arrive in Manila during the first week of July 1988.
The employment contract of June 4, 1988 stated that his employment would commence September
1, 1988 for a period of two years.12 It provided for a monthly salary of nine hundred dollars
(US$900.00) net of taxes, payable fourteen (14) times a year.13
On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing Press.
On July 1, 1988, respondent Santos arrived in Manila.
On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the Palace
Hotel.14
Subsequently, respondent Santos signed an amended "employment agreement" with the Palace
Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace Hotel. The
Vice President (Operations and Development) of petitioner MHICL Miguel D. Cergueda signed the
employment agreement under the word "noted".
From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He returned
to China and reassumed his post on July 17, 1989.
On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a handwritten
note that respondent Santos be given one (1) month notice of his release from employment.
On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr. Shmidt
that his employment at the Palace Hotel print shop would be terminated due to business reverses
brought about by the political upheaval in China.15 We quote the letter:16
"After the unfortunate happenings in China and especially Beijing (referring to Tiannamen
Square incidents), our business has been severely affected. To reduce expenses, we will not
open/operate printshop for the time being.
"We sincerely regret that a decision like this has to be made, but rest assured this does in no
way reflect your past performance which we found up to our expectations."
"Should a turnaround in the business happen, we will contact you directly and give you
priority on future assignment."
On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos and paid
all benefits due him, including his plane fare back to the Philippines.
On October 3, 1989, respondent Santos was repatriated to the Philippines.
On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr. Shmidt,
demanding full compensation pursuant to the employment agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:17
His service with the Palace Hotel, Beijing was not abruptly terminated but we followed the
one-month notice clause and Mr. Santos received all benefits due him.
"For your information the Print Shop at the Palace Hotel is still not operational and with a low
business outlook, retrenchment in various departments of the hotel is going on which is a
normal management practice to control costs.
"When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now shows a
better approach.
"In closing, when Mr. Santos received the letter of notice, he hardly showed up for work but
still enjoyed free accommodation/laundry/meals up to the day of his departure."
On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the Arbitration
Branch, National Capital Region, National Labor Relations Commission (NLRC). He prayed for an
award of nineteen thousand nine hundred and twenty three dollars (US$19,923.00) as actual
damages, forty thousand pesos (P40,000.00) as exemplary damages and attorney's fees equivalent
to 20% of the damages prayed for. The complaint named MHC, MHICL, the Palace Hotel and Mr.
Shmidt as respondents.
The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in the
proceedings before the Labor Arbiter.18
On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners, thus: 19
"WHEREFORE, judgment is hereby rendered:
"1. directing all the respondents to pay complainant jointly and severally;
"a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries;

"b) P50,000.00 as moral damages;
"c) P40,000.00 as exemplary damages; and
"d) Ten (10) percent of the total award as attorney's fees.
"SO ORDERED."
On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC had
jurisdiction over the case.
On August 28, 1992, the NLRC promulgated a resolution, stating:20
"WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for want
of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.
"SO ORDERED."
On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted
resolution. He argued that the case was not cognizable by the POEA as he was not an "overseas
contract worker."21
On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed Labor
Arbiter Emerson Tumanon to hear the case on the question of whether private respondent was
retrenched or dismissed.22
On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the testimonial
and documentary evidence presented to and heard by him.23
Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National Capital Region,
Arbitration Branch, and the case was transferred to Labor Arbiter Jose G. de Vera. 24
On November 25, 1994, Labor Arbiter de Vera submitted his report. 25 He found that respondent
Santos was illegally dismissed from employment and recommended that he be paid actual damages
equivalent to his salaries for the unexpired portion of his contract.26
On December 15, 1994, the NLRC ruled in favor of private respondent, to wit: 27
"WHEREFORE, finding that the report and recommendations of Arbiter de Vera are
supported by substantial evidence, judgment is hereby rendered, directing the respondents
to jointly and severally pay complainant the following computed contractual benefits: (1)
US$12,600.00 as salaries for the unexpired portion of the parties' contract; (2) US$3,600.00
as extra four (4) months salary for the two (2) years period (sic) of the parties' contract; (3)
US$3,600.00 as "14th month pay" for the aforesaid two (2) years contract stipulated by the
parties or a total of US$19,800.00 or its peso equivalent, plus (4) attorney's fees of 10% of
complainant's total award.
"SO ORDERED."
On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor Arbiter de
Vera's recommendation had no basis in law and in fact. 28
On March 30, 1995, the NLRC denied the motion for reconsideration.29
Hence, this petition.30
On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a temporary
restraining order and/or writ of preliminary injunction and a motion for the annulment of the entry of
judgment of the NLRC dated July 31, 1995.31
On November 20, 1995, the Court denied petitioner's urgent motion. The Court required respondents
to file their respective comments, without giving due course to the petition. 32
On March 8, 1996, the Solicitor General filed a manifestation stating that after going over the petition
and its annexes, they can not defend and sustain the position taken by the NLRC in its assailed
decision and orders. The Solicitor General prayed that he be excused from filing a comment on
behalf of the NLRC33
On April 30,1996, private respondent Santos filed his comment. 34
On June 26, 1996, the Court granted the manifestation of the Solicitor General and required the
NLRC to file its own comment to the petition.35
On January 7, 1997, the NLRC filed its comment.
I. Forum Non-Conveniens
The NLRC was a seriously inconvenient forum.
We note that the main aspects of the case transpired in two foreign jurisdictions and the case
involves purely foreign elements. The only link that the Philippines has with the case is that
respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are foreign corporations. Not all
cases involving our citizens can be tried here.
The employment contract. Respondent Santos was hired directly by the Palace Hotel, a foreign
employer, through correspondence sent to the Sultanate of Oman, where respondent Santos was
then employed. He was hired without the intervention of the POEA or any authorized recruitment
agency of the government.36
Under the rule of forum non conveniens, a Philippine court or agency may assume jurisdiction over
the case if it chooses to do so provided: (1) that the Philippine court is one to which the parties may
conveniently resort to; (2) that the Philippine court is in a position to make an intelligent decision as
to the law and the facts; and (3) that the Philippine court has or is likely to have power to enforce its
decision.37 The conditions are unavailing in the case at bar.
Not Convenient. We fail to see how the NLRC is a convenient forum given that all the incidents of
the case from the time of recruitment, to employment to dismissal occurred outside the
Philippines. The inconvenience is compounded by the fact that the proper defendants, the Palace
Hotel and MHICL are not nationals of the Philippines. Neither .are they "doing business in the
Philippines." Likewise, the main witnesses, Mr. Shmidt and Mr. Henk are non-residents of the
Philippines.
No power to determine applicable law. Neither can an intelligent decision be made as to the law
governing the employment contract as such was perfected in foreign soil. This calls to fore the
application of the principle of lex loci contractus (the law of the place where the contract was
made).38
The employment contract was not perfected in the Philippines. Respondent Santos signified his
acceptance by writing a letter while he was in the Republic of Oman. This letter was sent to the
Palace Hotel in the People's Republic of China.
No power to determine the facts. Neither can the NLRC determine the facts surrounding the
alleged illegal dismissal as all acts complained of took place in Beijing, People's Republic of China.
The NLRC was not in a position to determine whether the Tiannamen Square incident truly
adversely affected operations of the Palace Hotel as to justify respondent Santos' retrenchment.
Principle of effectiveness, no power to execute decision. Even assuming that a proper decision
could be reached by the NLRC, such would not have any binding effect against the employer, the
Palace Hotel. The Palace Hotel is a corporation incorporated under the laws of China and was not
even served with summons. Jurisdiction over its person was not acquired.
This is not to say that Philippine courts and agencies have no power to solve controversies involving
foreign employers. Neither are we saying that we do not have power over an employment contract
executed in a foreign country. If Santos were an "overseas contract worker", a Philippine forum,
specifically the POEA, not the NLRC, would protect him.39 He is not an "overseas contract worker" a
fact which he admits with conviction.40
Even assuming that the NLRC was the proper forum, even on the merits, the NLRC's decision
cannot be sustained.
II. MHC Not Liable
Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that MHICL
was liable for Santos' retrenchment, still MHC, as a separate and distinct juridical entity cannot be
held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock. However,
this is not enough to pierce the veil of corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud or defend a crime. 41 It is done
only when a corporation is a mere alter ego or business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals,42 we held that "the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of
itself a sufficient reason for disregarding the fiction of separate corporate personalities."
The tests in determining whether the corporate veil may be pierced are: First, the defendant must
have control or complete domination of the other corporation's finances, policy and business
practices with regard to the transaction attacked. There must be proof that the other corporation had
no separate mind, will or existence with respect the act complained of. Second, control must be used
by the defendant to commit fraud or wrong. Third, the aforesaid control or breach of duty must be the
proximate cause of the injury or loss complained of. The absence of any of the elements prevents
the piercing of the corporate veil.43
It is basic that a corporation has a personality separate and distinct from those composing it as well
as from that of any other legal entity to which it may be related.44 Clear and convincing evidence is
needed to pierce the veil of corporate fiction.45 In this case, we find no evidence to show that MHICL
and MHC are one and the same entity.
III. MHICL not Liable
Respondent Santos predicates MHICL's liability on the fact that MHICL "signed" his employment
contract with the Palace Hotel. This fact fails to persuade us.
First, we note that the Vice President (Operations and Development) of MHICL, Miguel D. Cergueda
signed the employment contract as a mere witness. He merely signed under the word "noted".
When one "notes" a contract, one is not expressing his agreement or approval, as a party
would.46 In Sichangco v. Board of Commissioners of Immigration,47 the Court recognized that the
term "noted" means that the person so noting has merely taken cognizance of the existence of an
act or declaration, without exercising a judicious deliberation or rendering a decision on the matter.
Mr. Cergueda merely signed the "witnessing part" of the document. The "witnessing part" of the
document is that which, "in a deed or other formal instrument is that part which comes after the
recitals, or where there are no recitals, after the parties (emphasis ours)."48 As opposed to a party to
a contract, a witness is simply one who, "being present, personally sees or perceives a thing; a
beholder, a spectator, or eyewitness."49 One who "notes" something just makes a "brief written
statement"50 a memorandum or observation.
Second, and more importantly, there was no existing employer-employee relationship between
Santos and MHICL. In determining the existence of an employer-employee relationship, the
following elements are considered:51
"(1) the selection and engagement of the employee;
"(2) the payment of wages;
"(3) the power to dismiss; and
"(4) the power to control employee's conduct."
MHICL did not have and did not exercise any of the aforementioned powers. It did not select
respondent Santos as an employee for the Palace Hotel. He was referred to the Palace Hotel by his
friend, Nestor Buenio. MHICL did not engage respondent Santos to work. The terms of employment
were negotiated and finalized through correspondence between respondent Santos, Mr. Schmidt
and Mr. Henk, who were officers and representatives of the Palace Hotel and not MHICL. Neither did
respondent Santos adduce any proof that MHICL had the power to control his conduct. Finally, it was
the Palace Hotel, through Mr. Schmidt and not MHICL that terminated respondent Santos' services.
Neither is there evidence to suggest that MHICL was a "labor-only contractor." 52 There is no proof
that MHICL "supplied" respondent Santos or even referred him for employment to the Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the same
entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not enough to
pierce the corporate veil between MHICL and the Palace Hotel.
IV. Grave Abuse of Discretion
Considering that the NLRC was forum non-conveniens and considering further that no employer-
employee relationship existed between MHICL, MHC and respondent Santos, Labor Arbiter Ceferina
J. Diosana clearly had no jurisdiction over respondent's claim in NLRC NCR Case No. 00-02-01058-
90.
Labor Arbiters have exclusive and original jurisdiction only over the following: 53
"1. Unfair labor practice cases;
"2. Termination disputes;
"3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;
"4. Claims for actual, moral, exemplary and other forms of damages arising from employer-
employee relations;
"5. Cases arising from any violation of Article 264 of this Code, including questions involving
legality of strikes and lockouts; and
"6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement."
In all these cases, an employer-employee relationship is an indispensable jurisdictional requirement.
The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to
disputes arising from an employer-employee relationship which can be resolved by reference to the
Labor Code, or other labor statutes, or their collective bargaining agreements. 54
"To determine which body has jurisdiction over the present controversy, we rely on the sound judicial
principle that jurisdiction over the subject matter is conferred by law and is determined by the
allegations of the complaint irrespective of whether the plaintiff is entitled to all or some of the claims
asserted therein."55
The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the complaint. His
failure to dismiss the case amounts to grave abuse of discretion.56
V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the orders and
resolutions of the National Labor Relations Commission dated May 31, 1993, December 15, 1994
and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90).
No costs.
SO ORDERED.
Davide, Jr., C .J ., Puno, Kapunan, Pardo and Ynares-Santiago, JJ ., concur.
Footnotes
1
Under Rule 65, Revised Rules of Court.
2
Rollo, pp. 2-6.
3
In NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90), Commissioner
Vicente S. E. Veloso, ponente, concurred in by Commissioners Edna Bonto Perez and
Alberto R. Quimpo.
4
Penned by Commissioner V. S. E. Veloso and concurred in by Commissioners Bartolome
S. Carale and Romeo B. Putong.
5
Penned by Commissioner V. S. E. Veloso and concurred in by Commissioners B. S. Carale
and A. R. Quimpo.
6
Ibid.
7
With principal office at 18094 Swire House Charter Road, Hongkong, as shown by its
Articles of Association dated May 23, 1986.
8
MHC represented by its President Victor Sison and the Philippine Agency Limited
represented by its Director, Cheung Kwoh-Nean are MHICL's incorporators (Rollo, p. 76).
9
The management agreement was terminated on April 1, 1990.
10
Rollo, p. 71.
11
Ibid., p. 65.
12
Ibid., p. 96.
13
Rollo, p. 65.
14
Ibid., p. 97.
15
Rollo, pp. 8-14.
16
Rollo, p. 66.
17
Ibid., pp. 66-67.
18
Rollo, p. 72.
19
Ibid., p. 126.
20
Rollo, p. 99.
21
Ibid., pp. 91-92.
22
Ibid., pp. 81-83.
23
Rollo, p. 52.
24
Ibid., p. 63.
25
Ibid.
26
Ibid., pp. 78-79.
27
Ibid., pp. 79-80.
28
Rollo, pp. 51-62.
29
Rollo, pp. 49-50.
30
Filed on May 22, 1995, Rollo, pp. 42-48. On October 7, 1997, we resolved to give due
course to the petition (Rollo, p. 217). Petitioners filed their memorandum on December 1,
1997. The petition involves pure questions of law; thus, we except this case from the ruling in
San Martin Funeral Homes vs. NLRC, 295 SCRA 494 [1998]. Rather than refer the case to
the Court of Appeals, whose decision would be appealable to the Supreme Court, our ruling
would finally put an end to the litigation.
31
Rollo, pp. 127-133.
32
Rollo, p. 140.
33
Rollo, pp. 148-149.
34
Rollo, pp. 156.
35
Rollo, p. 157.
36
Rollo, p. 82.
37
Communication Materials and Design, Inc. v. Court of Appeals, 260 SCRA 673, 695 (1996).
38
Triple Eight Integrated Services, Inc. v. NLRC, 299 SCRA 608, 618 (1998).
Eastern Shipping Lines, Inc. v. POEA, 170 SCRA 54, 57 (1989), There we stated that, "the
39
POEA shall have original and exclusive jurisdiction over all cases, including money claims,
involving employer-employee relationship arising out of or by virtue of any law or contract
involving Filipino workers for overseas employment, including seamen."
40
Rollo, pp. 91-92.
41
San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631, 649-
650 (1998);Complex Electronics Employees Association v. NLRC, 310 SCRA 403, 417-418
(1999).
42
269 SCRA 15, 29-30 (1997).
43
Rufina Luy Lim v. Court of Appeals, G.R. No. 124715, January 24, 2000.
44
ARB Construction Co., Inc. v. Court of Appeals, G.R. No. 126554, May 31, 2000.
45
Laguio v. National Labor Relations Commission, 262 SCRA 715, 720-721 (1996); De La
Salle University v. De La Salle University Employees Association, G.R. Nos. 109002 and
110072, April 12, 2000.
46
Halili v. Court of Industrial Relations, 140 SCRA 73, 91 (1985).
47
94 SCRA 61, 69 (1979).
48
Black's Law Dictionary, Fifth Edition (1979), p. 1438.
49
Ibid.
50
Supra, p. 956.
51
Philippine Airlines, Inc. v. NLRC, 263 SCRA 642, 654 (1996).
52
"(a) the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machinery, work premises, among others; and
"(b) the workers recruited and placed by such person are performing activities which are
directly related to the principal business of the employer." Asia Brewery, Inc. v. NLRC, 259
SCRA 185, 189-190 (1996).
53
Labor Code of the Philippines, Article 217.
54
Coca Cola Bottlers Phils., Inc. v. Jose S. Roque, 308 SCRA 215, 220 (1999).
55
Marcina Saura v. Ramon Saura, Jr., 313 SCRA 465, 472 (1999).
56
Philippine Airlines, Inc. v. NLRC, supra, p. 657.
SUPREME COURT
Manila
FIRST DIVISION
G.R. Nos. 116124-25 November 22, 2000
BIBIANO O. REYNOSO, IV, petitioner,

vs.
HON. COURT OF APPEALS and GENERAL CREDIT CORPORATION, respondents.
DECISION
Assailed in this petition for review is the consolidated decision of the Court of Appeals dated July 7,
1994, which reversed the separate decisions of the Regional Trial Court of Pasig City and the
Regional Trial Court of Quezon City in two cases between petitioner Reynoso and respondent
General Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit Corporation (hereinafter, "CCC"), a financing
and investment firm, decided to organize franchise companies in different parts of the country,
wherein it shall hold thirty percent (30%) equity. Employees of the CCC were designated as resident
managers of the franchise companies. Petitioner Bibiano O. Reynoso, IV was designated as the
resident manager of the franchise company in Quezon City, known as the Commercial Credit
Corporation of Quezon City (hereinafter, "CCC-QC").
CCC-QC entered into an exclusive management contract with CCC whereby the latter was granted
the management and full control of the business activities of the former. Under the contract, CCC-
QC shall sell, discount and/or assign its receivables to CCC. Subsequently, however, this
discounting arrangement was discontinued pursuant to the so-called "DOSRI Rule", prohibiting the
lending of funds by corporations to its directors, officers, stockholders and other persons with related
interests therein.
On account of the new restrictions imposed by the Central Bank policy by virtue of the DOSRI Rule,
CCC decided to form CCC Equity Corporation, (hereinafter, "CCC-Equity"), a wholly-owned
subsidiary, to which CCC transferred its thirty (30%) percent equity in CCC-QC, together with two
seats in the latters Board of Directors.
Under the new set-up, several officials of Commercial Credit Corporation, including petitioner
Reynoso, became employees of CCC-Equity. While petitioner continued to be the Resident Manager
of CCC-QC, he drew his salaries and allowances from CCC-Equity. Furthermore, although an
employee of CCC-Equity, petitioner, as well as all employees of CCC-QC, became qualified
members of the Commercial Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the operations of CCC-QC and supervised its
employees. The business activities of CCC-QC pertain to the acceptance of funds from depositors
who are issued interest-bearing promissory notes. The amounts deposited are then loaned out to
various borrowers. Petitioner, in order to boost the business activities of CCC-QC, deposited his
personal funds in the company. In return, CCC-QC issued to him its interest-bearing promissory
notes.
On August 15, 1980, a complaint for sum of money with preliminary attachment, 1 docketed as Civil
Case No. Q-30583, was instituted in the then Court of First Instance of Rizal by CCC-QC against
petitioner, who had in the meantime been dismissed from his employment by CCC-Equity. The
complaint was subsequently amended in order to include Hidelita Nuval, petitioners wife, as a party
defendant.2 The complaint alleged that petitioner embezzled the funds of CCC-QC amounting to
P1,300,593.11. Out of this amount, at least P630,000.00 was used for the purchase of a house and
lot located at No. 12 Macopa Street, Valle Verde I, Pasig City. The property was mortgaged to CCC,
and was later foreclosed.
In his amended Answer, petitioner denied having unlawfully used funds of CCC-QC and asserted
that the sum of P1,300,593.11 represented his money placements in CCC-QC, as shown by twenty-
three (23) checks which he issued to the said company. 3
The case was subsequently transferred to the Regional Trial Court of Quezon City, Branch 86,
pursuant to the Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its decision, the decretal portion of which states:
Premises considered, the Court finds the complaint without merit. Accordingly, said complaint is
hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV suffered degradation, humiliation and
mental anguish.
On the counterclaim, which the Court finds to be meritorious, plaintiff corporation is hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14% interest per annum from October 2,
1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at the rate of 14% per annum from
June 24, 1981, the date of filing of Amended Answer, until fully paid; from this amount may
be deducted the remaining obligation of defendant under the promissory note of October 24,
1977, in the sum of P9,738.00 plus penalty at the rate of 1% per month from December 24,
1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;
d) to pay defendants P100,000.00 as exemplary damages;
e) to pay defendants P25,000.00 as and for attorney's fees; plus costs of the suit.
SO ORDERED.
Both parties appealed to the then Intermediate Appellate Court. The appeal of Commercial Credit
Corporation of Quezon City was dismissed for failure to pay docket fees. Petitioner, on the other
hand, withdrew his appeal.
Hence, the decision became final and, accordingly, a Writ of Execution was issued on July 24,
1989.4 However, the judgment remained unsatisfied,5 prompting petitioner to file a Motion for Alias
Writ of Execution, Examination of Judgment Debtor, and to Bring Financial Records for Examination
to Court. CCC-QC filed an Opposition to petitioners motion, 6 alleging that the possession of its
premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General Credit Corporation.
On November 22, 1991, the Regional Trial Court of Quezon City issued an Order directing General
Credit Corporation to file its comment on petitioners motion for alias writ of execution. 7 General
Credit Corporation filed a Special Appearance and Opposition on December 2, 1991, 8 alleging that it
was not a party to the case, and therefore petitioner should direct his claim against CCC-QC and not
General Credit Corporation. Petitioner filed his reply, 9 stating that the CCC-QC is an adjunct
instrumentality, conduit and agency of CCC. Furthermore, petitioner invoked the decision of the
Securities and Exchange Commission in SEC Case No. 2581, entitled,"Avelina G. Ramoso, et al.,
Petitioner versus General Credit Corp., et al., Respondents," where it was declared that General
Credit Corporation, CCC-Equity and other franchised companies including CCC-QC were declared
as one corporation.
On December 9, 1991, the Regional Trial Court of Quezon City ordered the issuance of an alias writ
of execution.10 On December 20, 1991, General Credit Corporation filed an Omnibus
Motion,11 alleging that SEC Case No. 2581 was still pending appeal, and maintaining that the levy on
properties of the General Credit Corporation by the deputy sheriff of the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner insisted that General Credit Corporation is just
the new name of Commercial Credit Corporation; hence, General Credit Corporation and
Commercial Credit Corporation should be treated as one and the same entity.
On February 13, 1992, the Regional Trial Court of Quezon City denied the Omnibus Motion. 12 On
March 5, 1992, it issued an Order directing the issuance of an alias writ of execution. 13
Previously, on February 21, 1992, General Credit Corporation instituted a complaint before the
Regional Trial Court of Pasig against Bibiano Reynoso IV and Edgardo C. Tanangco, in his capacity
as Deputy Sheriff of Quezon City,14 docketed as Civil Case No. 61777, praying that the levy on its
parcel of land located in Pasig, Metro Manila and covered by Transfer Certificate of Title No. 29940
be declared null and void, and that defendant sheriff be enjoined from consolidating ownership over
the land and from further levying on other properties of General Credit Corporation to answer for any
liability under the decision in Civil Case No. Q-30583.
The Regional Trial Court of Pasig, Branch 167, did not issue a temporary restraining order. Thus,
General Credit Corporation instituted two (2) petitions for certiorari with the Court of Appeals,
docketed as CA-G.R. SP No. 2751815 and CA-G.R. SP No. 27683. These cases were later
consolidated.
On July 7, 1994, the Court of Appeals rendered a decision in the two consolidated cases, the
dispositive portion of which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the respondent court's refusal to issue a
restraining order as having been rendered moot by our Resolution of 7 April 1992 which, by way of
injunctive relief, provided that "the respondents and their representatives are hereby enjoined from
conducting an auction sale (on execution) of petitioner's properties as well as initiating similar acts of
levying (upon) and selling on execution other properties of said petitioner". The injunction thus
granted, as modified by the words in parenthesis, shall remain in force until Civil Case No. 61777
shall have been finally terminated.
In SP No. 27683, we grant the petition for certiorari and accordingly NULLIFY and SET ASIDE, for
having been issued in excess of jurisdiction, the Order of 13 February 1992 in Civil Case No. Q-
30583 as well as any other order or process through which the petitioner is made liable under the
judgment in said Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED.16
Hence, this petition for review anchored on the following arguments:
1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27683 WHEN IT

NULLIFIED AND SET ASIDE THE 13 FEBRUARY 1992 ORDER AND OTHER ORDERS OR
PROCESS OF BRANCH 86 OF THE REGIONAL TRIAL COURT OF QUEZON CITY
THROUGH WHICH GENERAL CREDIT CORPORATION IS MADE LIABLE UNDER THE
JUDGMENT THAT WAS RENDERED IN CIVIL CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R. SP NO. 27518 WHEN IT

ENJOINED THE AUCTION SALE ON EXECUTION OF THE PROPERTIES OF GENERAL
CREDIT CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF LEVYING UPON
AND SELLING ON EXECUTION OF OTHER PROPERTIES OF GENERAL CREDIT
CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT GENERAL

CREDIT CORPORATION IS A STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD OF,
DECLARING THAT COMMERCIAL CREDIT CORPORATION OF QUEZON CITY IS THE
ALTER EGO, INSTRUMENTALITY, CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT
CORPORATION AND ITS SUCCESSOR GENERAL CREDIT CORPORATION.
At the outset, it must be stressed that there is no longer any controversy over petitioners claims
against his former employer, CCC-QC, inasmuch as the decision in Civil Case No. Q-30583 of the
Regional Trial Court of Quezon City has long become final and executory. The only issue, therefore,
to be resolved in the instant petition is whether or not the judgment in favor of petitioner may be
executed against respondent General Credit Corporation. The latter contends that it is a corporation
separate and distinct from CCC-QC and, therefore, its properties may not be levied upon to satisfy
the monetary judgment in favor of petitioner. In short, respondent raises corporate fiction as its
defense. Hence, we are necessarily called upon to apply the doctrine of piercing the veil of corporate
entity in order to determine if General Credit Corporation, formerly CCC, may be held liable for the
obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence. 17 It is an
artificial being invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related. 18 It was evolved
to make possible the aggregation and assembling of huge amounts of capital upon which big
business depends. It also has the advantage of non-dependence on the lives of those who compose
it even as it enjoys certain rights and conducts activities of natural persons.
Precisely because the corporation is such a prevalent and dominating factor in the business life of
the country, the law has to look carefully into the exercise of powers by these artificial persons it has
created.
Any piercing of the corporate veil has to be done with caution. However, the Court will not hesitate to
use its supervisory and adjudicative powers where the corporate fiction is used as an unfair device
to achieve an inequitable result, defraud creditors, evade contracts and obligations, or to shield it
from the effects of a court decision. The corporate fiction has to be disregarded when necessary in
the interest of justice.
In First Philippine International Bank v. Court of Appeals, et al., 19 we held:
When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders who compose it will be lifted to allow for
its consideration merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court has pierced the veil of corporate fiction in
numerous cases where it was used, among others, to avoid a judgment credit; 20 to avoid inclusion of
corporate assets as part of the estate of a decedent; 21 to avoid liability arising from debt;22 when
made use of as a shield to perpetrate fraud and/or confuse legitimate issues; 23 or to promote unfair
objectives or otherwise to shield them.24
In the appealed judgment, the Court of Appeals sustained respondents arguments of separateness
and its character as a different corporation which is a non-party or stranger to this case.
The defense of separateness will be disregarded where the business affairs of a subsidiary
corporation are so controlled by the mother corporation to the extent that it becomes an instrument
or agent of its parent. But even when there is dominance over the affairs of the subsidiary, the
doctrine of piercing the veil of corporate fiction applies only when such fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime.25
We stated in Tomas Lao Construction v. National Labor Relations Commission,26 that the legal fiction
of a corporation being a judicial entity with a distinct and separate personality was envisaged for
convenience and to serve justice. Therefore, it should not be used as a subterfuge to commit
injustice and circumvent the law.
Precisely for the above reasons, we grant the instant petition.
It is obvious that the use by CCC-QC of the same name of Commercial Credit Corporation was
intended to publicly identify it as a component of the CCC group of companies engaged in one and
the same business, i.e., investment and financing. Aside from CCC-Quezon City, other franchise
companies were organized such as CCC-North Manila and CCC-Cagayan Valley. The organization
of subsidiary corporations as what was done here is usually resorted to for the aggrupation of
capital, the ability to cover more territory and population, the decentralization of activities best
decentralized, and the securing of other legitimate advantages. But when the mother corporation
and its subsidiary cease to act in good faith and honest business judgment, when the corporate
device is used by the parent to avoid its liability for legitimate obligations of the subsidiary, and when
the corporate fiction is used to perpetrate fraud or promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not necessarily abrogated. It continues for
legitimate objectives. However, it is pierced in order to remedy injustice, such as that inflicted in this
case.
Factually and legally, the CCC had dominant control of the business operations of CCC-QC. The
exclusive management contract insured that CCC-QC would be managed and controlled by CCC
and would not deviate from the commands of the mother corporation. In addition to the exclusive
management contract, CCC appointed its own employee, petitioner, as the resident manager of
CCC-QC.
Petitioners designation as "resident manager" implies that he was placed in CCC-QC by a superior
authority. In fact, even after his assignment to the subsidiary corporation, petitioner continued to
receive his salaries, allowances, and benefits from CCC, which later became respondent General
Credit Corporation. Not only that. Petitioner and the other permanent employees of CCC-QC were
qualified members and participants of the Employees Pension Plan of CCC.
There are other indications in the record which attest to the applicability of the identity rule in this
case, namely: the unity of interests, management, and control; the transfer of funds to suit their
individual corporate conveniences; and the dominance of policy and practice by the mother
corporation insure that CCC-QC was an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were engaged in the same principal line of business
involving a single transaction process. Under their discounting arrangements, CCC financed the
operations of CCC-QC. The subsidiary sold, discounted, or assigned its accounts receivables to
CCC.
The testimony of Joselito D. Liwanag, accountant and auditor of CCC since 1971, shows the
pervasive and intensive auditing function of CCC over CCC-QC.27 The two corporations also shared
the same office space. CCC-QC had no office of its own.
The complaint in Civil Case No. Q-30583, instituted by CCC-QC, was even verified by the director-
representative of CCC. The lawyers who filed the complaint and amended complaint were all in-
house lawyers of CCC.
The challenged decision of the Court of Appeals states that CCC, now General Credit Corporation, is
not a formal party in the case. The reason for this is that the complaint was filed by CCC-QC against
petitioner. The choice of parties was with CCC-QC. The judgment award in this case arose from the
counterclaim which petitioner set up against CCC-QC.
The circumstances which led to the filing of the aforesaid complaint are quite revealing. As narrated
1wphi1
above, the discounting agreements through which CCC controlled the finances of its subordinates
became unlawful when Central Bank adopted the DOSRI prohibitions. Under this rule the directors,
officers, and stockholders are prohibited from borrowing from their company. Instead of adhering to
the letter and spirit of the regulations by avoiding DOSRI loans altogether, CCC used the corporate
device to continue the prohibited practice. CCC organized still another corporation, the CCC-Equity
Corporation. However, as a wholly owned subsidiary, CCC-Equity was in fact only another name for
CCC. Key officials of CCC, including the resident managers of subsidiary corporations, were
appointed to positions in CCC-Equity.
In order to circumvent the Central Banks disapproval of CCC-QCs mode of reducing its DOSRI
lender accounts and its directive to follow Central Bank requirements, resident managers, including
petitioner, were told to observe a pseudo-compliance with the phasing out orders. For his
unwillingness to satisfactorily conform to these directives and his reluctance to resort to illegal
practices, petitioner earned the ire of his employers. Eventually, his services were terminated, and
criminal and civil cases were filed against him.
Petitioner issued twenty-three checks as money placements with CCC-QC because of difficulties
faced by the firm in implementing the required phase-out program. Funds from his current account in
the Far East Bank and Trust Company were transferred to CCC-QC. These monies were alleged in
the criminal complaints against him as having been stolen. Complaints for qualified theft and estafa
were brought by CCC-QC against petitioner. These criminal cases were later dismissed. Similarly,
1wphi1
the civil complaint which was filed with the Court of First Instance of Pasig and later transferred to
the Regional Trial Court of Quezon City was dismissed, but his counterclaims were granted.
Faced with the financial obligations which CCC-QC had to satisfy, the mother firm closed CCC-QC,
in obvious fraud of its creditors. CCC-QC, instead of opposing its closure, cooperated in its own
demise. Conveniently, CCC-QC stated in its opposition to the motion for alias writ of execution that
all its properties and assets had been transferred and taken over by CCC.
Under the foregoing circumstances, the contention of respondent General Credit Corporation, the
new name of CCC, that the corporate fiction should be appreciated in its favor is without merit.
Paraphrasing the ruling in Claparols v. Court of Industrial Relations,28 reiterated in Concept Builders
Inc. v. National Labor Relations,29 it is very obvious that respondent "seeks the protective shield of a
corporate fiction whose veil the present case could, and should, be pierced as it was deliberately
and maliciously designed to evade its financial obligation of its employees."
If the corporate fiction is sustained, it becomes a handy deception to avoid a judgment debt and
work an injustice. The decision raised to us for review is an invitation to multiplicity of litigation. As we
stated in Islamic Directorate vs. Court of Appeals,30 the ends of justice are not served if further
litigation is encouraged when the issue is determinable based on the records.
A court judgment becomes useless and ineffective if the employer, in this case CCC as a mother
corporation, is placed beyond the legal reach of the judgment creditor who, after protracted litigation,
has been found entitled to positive relief. Courts have been organized to put an end to controversy.
This purpose should not be negated by an inapplicable and wrong use of the fiction of the corporate
veil.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and ASIDE. The
injunction against the holding of an auction sale for the execution of the decision in Civil Case No. Q-
30583 of properties of General Credit Corporation, and the levying upon and selling on execution of
other properties of General Credit Corporation, is LIFTED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
Footnotes
1
Rollo, pp. 60-63.
2
Ibid., pp. 64-68.
3
Id., p. 19.
4
Id., p. 297.
5
Id., p. 299.
6
Id., p. 300.
7
Id., p. 320.
8
Id., pp. 321-324.
9
Id., pp. 331-332.
10
Id., pp. 333-335.
11
Id., pp. 336-342.
12
Id., pp. 382-383.
13
Id., pp. 384-385.
14
Id., pp. 386-400.
15
Id., pp. 402-425.
16
Id., pp. 57-58.
17
CORPORATION CODE, Section 2.
18
Yu v. National Labor Relations Commission, 245 SCRA 134 [1995].
19
252 SCRA 259, 287-288 [1996].
20
Sibagat Timber Corp. v. Garcia, 216 SCRA 470 [1992]; Tan Boon Bee & Co., Inc. v.
Jarencio, 163 SCRA 205 [1988].
21
Cease v. CA, 93 SCRA 483 [1979].
Arcilla v. CA, 215 SCRA 120 [1992]; Philippine Bank of Communications v. CA, 195 SCRA
22
567 [1991].
23
Jacinto v. CA, 198 SCRA 211 [1991].
24
Villanueva v. Adre, 172 SCRA 876 [1989].
25
Union Bank of the Philippines v. Court of Appeals, 290 SCRA 198 [1998].
26
278 SCRA 716 [1997].
27
TSN, March 24, 1982; Rollo, pp. 69-150.
28
65 SCRA 613 [1975].
29
257 SCRA 149 [1996].
30
272 SCRA 454 [1997].
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 129459 September 29, 1998
SAN JUAN STRUCTURAL AND STEEL FABRICATORS, INC., petitioner,

vs.
COURT OF APPEALS, MOTORICH SALES CORPORATION, NENITA LEE GRUENBERG, ACL
DEVELOPMENT CORP. and JNM REALTY AND DEVELOPMENT CORP., respondents.
PANGANIBAN, J.:
May corporate treasurer, by herself and without any authorization from he board of directors, validly sell a parcel of land owned by the
corporation?. May the veil of corporate fiction be pierced on the mere ground that almost all of the shares of stock of the corporation are
owned by said treasurer and her husband?
The Case
These questions are answered in the negative by this Court in resolving the Petition for Review
on Certioraribefore us, assailing the March 18, 1997 Decision 1 of the Court of Appeals 2 in CA GR CV
No. 46801 which, in turn, modified the July 18, 1994 Decision of the Regional Trial Court of Makati, Metro
Manila, Branch 63 3 in Civil Case No. 89-3511. The RTC dismissed both the Complaint and the
Counterclaim filed by the parties. On the other hand, the Court of Appeals ruled:
WHEREFORE, premises considered, the appealed decision is AFFIRMED WITH

MODIFICATION ordering defendant-appellee Nenita Lee Gruenberg to REFUND or
return to plaintiff-appellant the downpayment of P100,000.00 which she received
from plaintiff-appellant. There is no pronouncement as to costs. 4
The petition also challenges the June 10, 1997 CA Resolution denying reconsideration. 5
The Facts
The facts as found by the Court of Appeals are as follows:
Plaintiff-appellant San Juan Structural and Steel Fabricators, Inc.'s amended

complaint alleged that on 14 February 1989, plaintiff-appellant entered into an
agreement with defendant-appellee Motorich Sales Corporation for the transfer to it
of a parcel of land identified as Lot 30, Block 1 of the Acropolis Greens Subdivision
located in the District of Murphy, Quezon City. Metro Manila, containing an area of
Four Hundred Fourteen (414) square meters, covered by TCT No. (362909) 2876:
that as stipulated in the Agreement of 14 February 1989, plaintiff-appellant paid the
downpayment in the sum of One Hundred Thousand (P100,000.00) Pesos, the
balance to be paid on or before March 2, 1989; that on March 1, 1989. Mr. Andres T.
Co, president of plaintiff-appellant corporation, wrote a letter to defendant-appellee
Motorich Sales Corporation requesting for a computation of the balance to be paid:
that said letter was coursed through defendant-appellee's broker. Linda Aduca, who
wrote the computation of the balance: that on March 2, 1989, plaintiff-appellant was
ready with the amount corresponding to the balance, covered by Metrobank
Cashier's Check No. 004223, payable to defendant-appellee Motorich Sales
Corporation; that plaintiff-appellant and defendant-appellee Motorich Sales
Corporation were supposed to meet in the office of plaintiff-appellant but defendant-
appellee's treasurer, Nenita Lee Gruenberg, did not appear; that defendant-appellee
Motorich Sales Corporation despite repeated demands and in utter disregard of its
commitments had refused to execute the Transfer of Rights/Deed of Assignment
which is necessary to transfer the certificate of title; that defendant ACL Development
Corp. is impleaded as a necessary party since Transfer Certificate of Title No.
(362909) 2876 is still in the name of said defendant; while defendant JNM Realty &
Development Corp. is likewise impleaded as a necessary party in view of the fact
that it is the transferor of right in favor of defendant-appellee Motorich Sales
Corporation: that on April 6, 1989, defendant ACL Development Corporation and
Motorich Sales Corporation entered into a Deed of Absolute Sale whereby the former
transferred to the latter the subject property; that by reason of said transfer, the
Registry of Deeds of Quezon City issued a new title in the name of Motorich Sales
Corporation, represented by defendant-appellee Nenita Lee Gruenberg and
Reynaldo L. Gruenberg, under Transfer Certificate of Title No. 3571; that as a result
of defendants-appellees Nenita Lee Gruenberg and Motorich Sales Corporation's
bad faith in refusing to execute a formal Transfer of Rights/Deed of Assignment,
plaintiff-appellant suffered moral and nominal damages which may be assessed
against defendants-appellees in the sum of Five Hundred Thousand (500,000.00)
Pesos; that as a result of defendants-appellees Nenita Lee Gruenberg and Motorich
Sales Corporation's unjustified and unwarranted failure to execute the required
Transfer of Rights/Deed of Assignment or formal deed of sale in favor of plaintiff-
appellant, defendants-appellees should be assessed exemplary damages in the sum
of One Hundred Thousand (P100,000.00) Pesos; that by reason of defendants-
appellees' bad faith in refusing to execute a Transfer of Rights/Deed of Assignment in
favor of plaintiff-appellant, the latter lost the opportunity to construct a residential
building in the sum of One Hundred Thousand (P100,000.00) Pesos; and that as a
consequence of defendants-appellees Nenita Lee Gruenberg and Motorich Sales
Corporation's bad faith in refusing to execute a deed of sale in favor of plaintiff-
appellant, it has been constrained to obtain the services of counsel at an agreed fee
of One Hundred Thousand (P100,000.00) Pesos plus appearance fee for every
appearance in court hearings.
In its answer, defendants-appellees Motorich Sales Corporation and Nenita Lee

Gruenberg interposed as affirmative defense that the President and Chairman of
Motorich did not sign the agreement adverted to in par. 3 of the amended complaint;
that Mrs. Gruenberg's signature on the agreement (ref: par. 3 of Amended
Complaint) is inadequate to bind Motorich. The other signature, that of Mr. Reynaldo
Gruenberg, President and Chairman of Motorich, is required: that plaintiff knew this
from the very beginning as it was presented a copy of the Transfer of Rights (Annex
B of amended complaint) at the time the Agreement (Annex B of amended complaint)
was signed; that plaintiff-appellant itself drafted the Agreement and insisted that Mrs.
Gruenberg accept the P100,000.00 as earnest money; that granting, without
admitting, the enforceability of the agreement, plaintiff-appellant nonetheless failed to
pay in legal tender within the stipulated period (up to March 2, 1989); that it was the
understanding between Mrs. Gruenberg and plaintiff-appellant that the Transfer of
Rights/Deed of Assignment will be signed only upon receipt of cash payment; thus
they agreed that if the payment be in check, they will meet at a bank designated by
plaintiff-appellant where they will encash the check and sign the Transfer of
Rights/Deed. However, plaintiff-appellant informed Mrs. Gruenberg of the alleged
availability of the check, by phone, only after banking hours.
On the basis of the evidence, the court a quo rendered the judgment appealed
from[,] dismissing plaintiff-appellant's complaint, ruling that:
The issue to be resolved is: whether plaintiff had the right to compel
defendants to execute a deed of absolute sale in accordance with the
agreement of February 14, 1989: and if so, whether plaintiff is entitled
to damage.
As to the first question, there is no evidence to show that defendant

Nenita Lee Gruenberg was indeed authorized by defendant
corporation. Motorich Sales, to dispose of that property covered by
T.C.T. No. (362909) 2876. Since the property is clearly owned by the
corporation. Motorich Sales, then its disposition should be governed
by the requirement laid down in Sec. 40. of the Corporation Code of
the Philippines, to wit:
Sec. 40, Sale or other disposition of assets. Subject to

the provisions of existing laws on illegal combination
and monopolies, a corporation may by a majority vote
of its board of directors . . . sell, lease, exchange,
mortgage, pledge or otherwise dispose of all or
substantially all of its property and assets including its
goodwill . . . when authorized by the vote of the
stockholders representing at least two third (2/3) of
the outstanding capital stock . . .
No such vote was obtained by defendant Nenita Lee Gruenberg for

that proposed sale[;] neither was there evidence to show that the
supposed transaction was ratified by the corporation. Plaintiff should
have been on the look out under these circumstances. More so,
plaintiff himself [owns] several corporations (tsn dated August 16,
1993, p. 3) which makes him knowledgeable on corporation matters.
Regarding the question of damages, the Court likewise, does not find
substantial evidence to hold defendant Nenita Lee Gruenberg liable
considering that she did not in anyway misrepresent herself to be
authorized by the corporation to sell the property to plaintiff (tsn dated
September 27, 1991, p. 8).
In the light of the foregoing, the Court hereby renders judgment

DISMISSING the complaint at instance for lack of merit.
"Defendants" counterclaim is also DISMISSED for lack of basis.
(Decision, pp. 7-8; Rollo, pp. 34-35)
For clarity, the Agreement dated February 14, 1989 is reproduced hereunder:
AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This Agreement, made and entered into by and between:
MOTORICH SALES CORPORATION, a corporation duly organized

and existing under and by virtue of Philippine Laws, with principal
office address at 5510 South Super Hi-way cor. Balderama St., Pio
del Pilar. Makati, Metro Manila, represented herein by its Treasurer,
NENITA LEE GRUENBERG, hereinafter referred to as the
TRANSFEROR;
and
SAN JUAN STRUCTURAL & STEEL FABRICATORS, a corporation

duly organized and existing under and by virtue of the laws of the
Philippines, with principal office address at Sumulong Highway, Barrio
Mambungan, Antipolo, Rizal, represented herein by its President,
ANDRES T. CO, hereinafter referred to as the TRANSFEREE.
WITNESSETH, That:
WHEREAS, the TRANSFEROR is the owner of a parcel of land identified as Lot 30

Block 1 of the ACROPOLIS GREENS SUBDIVISION located at the District of
Murphy, Quezon City, Metro Manila, containing an area of FOUR HUNDRED
FOURTEEN (414) SQUARE METERS, covered by a TRANSFER OF RIGHTS
between JNM Realty & Dev. Corp. as the Transferor and Motorich Sales Corp. as the
Transferee;
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties
have agreed as follows:
1. That the purchase price shall be at FIVE THOUSAND TWO

HUNDRED PESOS (P5,200.00) per square meter; subject to the
following terms:
a. Earnest money amounting to ONE HUNDRED

THOUSAND PESOS (P100,000.00), will be paid upon
the execution of this agreement and shall form part of
the total purchase price;
b. Balance shall be payable on or before March 2,

1989;
2. That the monthly amortization for the month of February 1989 shall
be for the account of the Transferor; and that the monthly
amortization starting March 21, 1989 shall be for the account of the
Transferee;
The transferor warrants that he [sic] is the lawful owner of the above-described
property and that there [are] no existing liens and/or encumbrances of whatsoever
nature;
In case of failure by the Transferee to pay the balance on the date specified on 1, (b),
the earnest money shall be forfeited in favor of the Transferor.
That upon full payment of the balance, the TRANSFEROR agrees to execute a
TRANSFER OF RIGHTS/DEED OF ASSIGNMENT in favor of the TRANSFEREE.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 14th day of
February, 1989 at Greenhills, San Juan, Metro Manila, Philippines.
MOTORICH SALES CORPORATION SAN JUAN STRUCTURAL & STEEL

FABRICATORS
TRANSFEROR TRANSFEREE
[SGD.] [SGD.]
By. NENITA LEE GRUENBERG By: ANDRES T. CO
Treasurer President
Signed In the presence of:
[SGD.] [SGD.]
In its recourse before the Court of Appeals, petitioner insisted:
1. Appellant is entitled to compel the appellees to execute a Deed of

Absolute Sale in accordance with the Agreement of February 14,
1989,
2. Plaintiff is entitled to damages. 7
As stated earlier, the Court of Appeals debunked petitioner's arguments and affirmed the Decision of the
RTC with the modification that Respondent Nenita Lee Gruenberg was ordered to refund P100,000 to
petitioner, the amount remitted as "downpayment" or "earnest money." Hence, this petition before us. 8
The Issues
Before this Court, petitioner raises the following issues:

I. Whether or not the doctrine of piercing the veil of corporate fiction is
applicable in the instant case
II. Whether or not the appellate court may consider matters which the
parties failed to raise in the lower court
III. Whether or not there is a valid and enforceable contract between

the petitioner and the respondent corporation
IV. Whether or not the Court of Appeals erred in holding that there is
a valid correction/substitution of answer in the transcript of
stenographic note[s].
V. Whether or not respondents are liable for damages and attorney's

fees 9
The Court synthesized the foregoing and will thus discuss them seriatim as follows:
1. Was there a valid contract of sale between petitioner and

Motorich?
2. May the doctrine of piercing the veil of corporate fiction be applied

to Motorich?
3. Is the alleged alteration of Gruenberg's testimony as recorded in

the transcript of stenographic notes material to the disposition of this
case?
4. Are respondents liable for damages and attorney's fees?
The Court's Ruling
The petition is devoid of merit.
First Issue: Validity of Agreement
Petitioner San Juan Structural and Steel Fabricators, Inc. alleges that on February 14, 1989, it
entered through its president, Andres Co, into the disputed Agreement with Respondent Motorich
Sales Corporation, which was in turn allegedly represented by its treasurer, Nenita Lee Gruenberg.
Petitioner insists that "[w]hen Gruenberg and Co affixed their signatures on the contract they both
consented to be bound by the terms thereof." Ergo, petitioner contends that the contract is binding
on the two corporations. We do not agree.
True, Gruenberg and Co signed on February 14, 1989, the Agreement, according to which a lot
owned by Motorich Sales Corporation was purportedly sold. Such contract, however, cannot bind
Motorich, because it never authorized or ratified such sale.
A corporation is a juridical person separate and distinct from its stockholders or members.
Accordingly, the property of the corporation is not the property of its stockholders or members and
may not be sold by the stockholders or members without express authorization from the
corporation's board of directors. 10 Section 23 of BP 68, otherwise known as the Corporation Code of the
Philippines, provides;
Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall be
exercised, all business conducted and all property of such corporations controlled
and held by the board of directors or trustees to be elected from among the holders
of stocks, or where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year and until their successors are elected and
qualified.
Indubitably, a corporation may act only through its board of directors or, when authorized either by its
bylaws or by its board resolution, through its officers or agents in the normal course of business. The
general principles of agency govern the relation between the corporation and its officers or agents,
subject to the articles of incorporation, bylaws, or relevant provisions of law. 11 Thus, this Court has
held that "a corporate officer or agent may represent and bind the corporation in transactions with third
persons to the extent that the authority to do so has been conferred upon him, and this includes powers
which have been intentionally conferred, and also such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers as
the corporation has caused persons dealing with the officer or agent to believe that it has conferred." 12
Furthermore, the Court has also recognized the rule that "persons dealing with an assumed agent,
whether the assumed agency be a general or special one bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in
case either is controverted, the burden of proof is upon them to establish it (Harry Keeler v. Rodriguez, 4
Phil. 19)." 13 Unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in
a sale of its assets. 14
In the case at bar, Respondent Motorich categorically denies that it ever authorized Nenita Gruenberg, its
treasurer, to sell the subject parcel of land. 15 Consequently, petitioner had the burden of proving that
Nenita Gruenberg was in fact authorized to represent and bind Motorich in the transaction. Petitioner
failed to discharge this burden. Its offer of evidence before the trial court contained no proof of such
authority. 16 It has not shown any provision of said respondent's articles of incorporation, bylaws or board
resolution to prove that Nenita Gruenberg possessed such power.
That Nenita Gruenberg is the treasurer of Motorich does not free petitioner from the responsibility of
ascertaining the extent of her authority to represent the corporation. Petitioner cannot assume that
she, by virtue of her position, was authorized to sell the property of the corporation. Selling is
obviously foreign to a corporate treasurer's function, which generally has been described as "to
receive and keep the funds of the corporation, and to disburse them in accordance with the authority
given him by the board or the properly authorized officers."17
Neither was such real estate sale shown to be a normal business activity of Motorich. The primary
purpose of Motorich is marketing, distribution, export and import in relation to a general merchandising
business. 18 Unmistakably, its treasurer is not cloaked with actual or apparent authority to buy or sell real
property, an activity which falls way beyond the scope of her general authority.
Art. 1874 and 1878 of the Civil Code of the Philippines provides:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing: otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following case:
xxx xxx xxx
(5) To enter any contract by which the ownership of an immovable is transmitted or

acquired either gratuitously or for a valuable consideration;
xxx xxx xxx.
Petitioner further contends that Respondent Motorich has ratified said contract of sale because of its
"acceptance of benefits," as evidenced by the receipt issued by Respondent Gruenberg. 19 Petitioner
is clutching at straws.
As a general rule, the acts of corporate officers within the scope of their authority are binding on the
corporation. But when these officers exceed their authority, their actions "cannot bind the
corporation, unless it has ratified such acts or is estopped from disclaiming them." 20
In this case, there is a clear absence of proof that Motorich ever authorized Nenita Gruenberg, or made it
appear to any third person that she had the authority, to sell its land or to receive the earnest money.
Neither was there any proof that Motorich ratified, expressly or impliedly, the contract. Petitioner rests its
argument on the receipt which, however, does not prove the fact of ratification. The document is a hand-
written one, not a corporate receipt, and it bears only Nenita Gruenberg's signature. Certainly, this
document alone does not prove that her acts were authorized or ratified by Motorich.
Art. 1318 of the Civil Code lists the requisites of a valid and perfected contract: "(1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; (3) cause of the
obligation which is established." As found by the trial court 21 and affirmed by the Court of
Appeals, 22 there is no evidence that Gruenberg was authorized to enter into the contract of sale, or that
the said contract was ratified by Motorich. This factual finding of the two courts is binding on this
Court. 23 As the consent of the seller was not obtained, no contract to bind the obligor was perfected.
Therefore, there can be no valid contract of sale between petitioner and Motorich.
Because Motorich had never given a written authorization to Respondent Gruenberg to sell its parcel
of land, we hold that the February 14, 1989 Agreement entered into by the latter with petitioner is
void under Article 1874 of the Civil Code. Being inexistent and void from the beginning, said contract
cannot be ratified. 24
Second Issue:
Piercing the Corporate Veil Not Justified
Petitioner also argues that the veil of corporate fiction of Motorich should be pierced, because the
latter is a close corporation. Since "Spouses Reynaldo L. Gruenberg and Nenita R. Gruenberg
owned all or almost all or 99.866% to be accurate, of the subscribed capital stock" 25 of Motorich,
petitioner argues that Gruenberg needed no authorization from the board to enter into the subject
contract. 26 It adds that, being solely owned by the Spouses Gruenberg, the company can treated as a
close corporation which can be bound by the acts of its principal stockholder who needs no specific
authority. The Court is not persuaded.
First, petitioner itself concedes having raised the issue belatedly, 27 not having done so during the trial,
but only when it filed its sur-rejoinder before the Court of Appeals. 28 Thus, this Court cannot entertain said
issue at this late stage of the proceedings. It is well-settled the points of law, theories and arguments not
brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing
court, as they cannot be raised for the first time on appeal. 29Allowing petitioner to change horses in
midstream, as it were, is to run roughshod over the basic principles of fair play, justice and due process.
Second, even if the above mentioned argument were to be addressed at this time, the Court still
finds no reason to uphold it. True, one of the advantages of a corporate form of business
organization is the limitation of an investor's liability to the amount of the investment. 30 This feature
flows from the legal theory that a corporate entity is separate and distinct from its stockholders. However,
the statutorily granted privilege of a corporate veil may be used only for legitimate purposes. 31 On
equitable considerations, the veil can be disregarded when it is utilized as a shield to commit fraud,
illegality or inequity; defeat public convenience; confuse legitimate issues; or serve as a mere alter ego or
business conduit of a person or an instrumentality, agency or adjunct of another corporation. 32
Thus, the Court has consistently ruled that "[w]hen the fiction is used as a means of perpetrating a fraud
or an illegal act or as vehicle for the evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with
which the law covers and isolates the corporation from the members or stockholders who compose it will
be lifted to allow for its consideration merely as an aggregation of individuals." 33
We stress that the corporate fiction should be set aside when it becomes a shield against liability for
fraud, illegality or inequity committed on third persons. The question of piercing the veil of corporate fiction
is essentially, then, a matter of proof. In the present case, however, the Court finds no reason to pierce
the corporate veil of Respondent Motorich. Petitioner utterly failed to establish that said corporation was
formed, or that it is operated, for the purpose of shielding any alleged fraudulent or illegal activities of its
officers or stockholders; or that the said veil was used to conceal fraud, illegality or inequity at the
expense of third persons like petitioner.
Petitioner claims that Motorich is a close corporation. We rule that it is not. Section 96 of the
Corporation Code defines a close corporation as follows:
Sec. 96. Definition and Applicability of Title. A close corporation, within the
meaning of this Code, is one whose articles of incorporation provide that: (1) All of
the corporation's issued stock of all classes, exclusive of treasury shares, shall be
held of record by not more than a specified number of persons, not exceeding twenty
(20); (2) All of the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by this Title; and (3) The corporation shall not list in
any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall be deemed not a close corporation
when at least two-thirds (2/3) of its voting stock or voting rights is owned or controlled
by another corporation which is not a close corporation within the meaning of this
Code. . . . .
The articles of incorporation 34 of Motorich Sales Corporation does not contain any provision stating that
(1) the number of stockholders shall not exceed 20, or (2) a preemption of shares is restricted in favor of
any stockholder or of the corporation, or (3) listing its stocks in any stock exchange or making a public
offering of such stocks is prohibited. From its articles, it is clear that Respondent Motorich is not a close
corporation. 35 Motorich does not become one either, just because Spouses Reynaldo and Nenita
Gruenberg owned 99.866% of its subscribed capital stock. The "[m]ere ownership by a single stockholder
or by another corporation of all or capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personalities." 36 So, too, a narrow distribution of ownership does not,
by itself, make a close corporation.
Petitioner cites Manuel R. Dulay Enterprises, Inc. v. Court of Appeals 37 wherein the Court ruled that
". . . petitioner corporation is classified as a close corporation and, consequently, a board resolution
authorizing the sale or mortgage of the subject property is not necessary to bind the corporation for the
action of its president." 38 But the factual milieu in Dulay is not on all fours with the present case. In Dulay,
the sale of real property was contracted by the president of a close corporation with the knowledge and
acquiescence of its board of directors. 39 In the present case, Motorich is not a close corporation, as
previously discussed, and the agreement was entered into by the corporate treasurer without the
knowledge of the board of directors.
The Court is not unaware that there are exceptional cases where "an action by a director, who singly
is the controlling stockholder, may be considered as a binding corporate act and a board action as
nothing more than a mere formality." 40 The present case, however, is not one of them.
As stated by petitioner, Spouses Reynaldo and Nenita Gruenberg own "almost 99.866%" of
Respondent Motorich.41 Since Nenita is not the sole controlling stockholder of Motorich, the
aforementioned exception does not apply. Grantingarguendo that the corporate veil of Motorich is to be
disregarded, the subject parcel of land would then be treated as conjugal property of Spouses Gruenberg,
because the same was acquired during their marriage. There being no indication that said spouses, who
appear to have been married before the effectivity of the Family Code, have agreed to a different property
regime, their property relations would be governed by conjugal partnership of gains. 42 As a consequence,
Nenita Gruenberg could not have effected a sale of the subject lot because "[t]here is no co-ownership
between the spouses in the properties of the conjugal partnership of gains. Hence, neither spouse can
alienate in favor of another his or interest in the partnership or in any property belonging to it; neither
spouse can ask for a partition of the properties before the partnership has been legally dissolved." 43
Assuming further, for the sake of argument, that the spouses' property regime is the absolute community
of property, the sale would still be invalid. Under this regime, "alienation of community property must have
the written consent of the other spouse or he authority of the court without which the disposition or
encumbrance is void." 44 Both requirements are manifestly absent in the instant case.
Third Issue: Challenged Portion of TSN Immaterial
Petitioner calls our attention to the following excerpt of the transcript of stenographic notes (TSN):
Q Did you ever represent to Mr. Co that you were authorized by the
corporation to sell the property?
A Yes, sir. 45
Petitioner claims that the answer "Yes" was crossed out, and, in its place was written a "No" with an initial
scribbled above it. 46 This, however, is insufficient to prove that Nenita Gruenberg was authorized to
represent Respondent Motorich in the sale of its immovable property. Said excerpt be understood in the
context of her whole testimony. During her cross-examination. Respondent Gruenberg testified:
Q So, you signed in your capacity as the treasurer?
[A] Yes, sir.
Q Even then you kn[e]w all along that you [were] not authorized?
A Yes, sir.
Q You stated on direct examination that you did not represent that
you were authorized to sell the property?
A Yes, sir.
Q But you also did not say that you were not authorized to sell the
property, you did not tell that to Mr. Co, is that correct?
A That was not asked of me.
Q Yes, just answer it.
A I just told them that I was the treasurer of the corporation and it
[was] also the president who [was] also authorized to sign on behalf
of the corporation.
Q You did not say that you were not authorized nor did you say that
you were authorized?
A Mr. Co was very interested to purchase the property and he offered

to put up a P100,000.00 earnest money at that time. That was our
first meeting. 47
Clearly then, Nenita Gruenberg did not testify that Motorich had authorized her to sell its property.
On the other hand, her testimony demonstrates that the president of Petitioner Corporation, in his
great desire to buy the property, threw caution to the wind by offering and paying the earnest money
without first verifying Gruenberg's authority to sell the lot.
Fourth Issue:
Damages and Attorney's Fees
Finally, petitioner prays for damages and attorney's fees, alleging that "[i]n an utter display of malice
and bad faith, respondents attempted and succeeded in impressing on the trial court and [the] Court
of Appeals that Gruenberg did not represent herself as authorized by Respondent Motorich despite
the receipt issued by the former specifically indicating that she was signing on behalf of Motorich
Sales Corporation. Respondent Motorich likewise acted in bad faith when it claimed it did not
authorize Respondent Gruenberg and that the contract [was] not binding, [insofar] as it [was]
concerned, despite receipt and enjoyment of the proceeds of Gruenberg's act." 48Assuming that
Respondent Motorich was not a party to the alleged fraud, petitioner maintains that Respondent
Gruenberg should be held liable because she "acted fraudulently and in bad faith [in] representing herself
as duly authorized by [R]espondent [C]orporation." 49
As already stated, we sustain the findings of both the trial and the appellate courts that the foregoing
allegations lack factual bases. Hence, an award of damages or attorney's fees cannot be justified. The
amount paid as "earnest money" was not proven to have redounded to the benefit of Respondent
Motorich. Petitioner claims that said amount was deposited to the account of Respondent Motorich,
because "it was deposited with the account of Aren Commercial c/o Motorich Sales
Corporation." 50 Respondent Gruenberg, however, disputes the allegations of petitioner. She testified as
follows:
Q You voluntarily accepted the P100,000.00, as a matter of fact, that

was encashed, the check was encashed.
A Yes. sir, the check was paid in my name and I deposit[ed] it.
Q In your account?
A Yes, sir. 51
In any event, Gruenberg offered to return the amount to petitioner ". . . since the sale did not push
through." 52
Moreover, we note that Andres Co is not a neophyte in the world of corporate business. He has been the
president of Petitioner Corporation for more than ten years and has also served as chief executive of two
other corporate entities. 53 Co cannot feign ignorance of the scope of the authority of a corporate treasurer
such as Gruenberg. Neither can he be oblivious to his duty to ascertain the scope of Gruenberg's
authorization to enter into a contract to sell a parcel of land belonging to Motorich.
Indeed, petitioner's claim of fraud and bad faith is unsubstantiated and fails to persuade the Court.
Indubitably, petitioner appears to be the victim of its own officer's negligence in entering into a
contract with and paying an unauthorized officer of another corporation.
As correctly ruled by the Court of Appeals, however, Nenita Gruenberg should be ordered to return
to petitioner the amount she received as earnest money, as "no one shall enrich himself at the
expense of another." 54 a principle embodied in Article 2154 of Civil Code. 55 Although there was no
binding relation between them, petitioner paid Gruenberg on the mistaken belief that she had the authority
to sell the property of Motorich. 56 Article 2155 of Civil Code provides that "[p]ayment by reason of a
mistake in the contruction or application of a difficult question of law may come within the scope of the
preceding article."
WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED.
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.
Footnotes
1 Rollo, pp. 54 to 65-A.
2 Sixth Division, composed of J. Eduardo G. Montenegro, ponente, and JJ. Antonio

M. Martinez, chairman (non a member of this Court); and Celia Lipana-Reyes,
member; both concurring.
3 Penned by Judge Julio R. Logarta.
4 CA Decision, p. 14; rollo, p. 65-A.
5 Rollo, p. 73.
6 Record, pp. 226-227.
7 Petitioner's Brief before the Court of Appeals, p. 4; CA rollo, p. 21.

8 This case was deemed submitted for resolution on May 15, 1998 upon receipt by
this Court of the Memorandum for the Respondents. Petitioner's Memorandum was
received earlier, on May 7, 1998.
9 Petitioner's Memorandum, pp. 3-4; rollo, pp. 212-213.
10 Traders Royal Banks v. Court of Appeals, 177 SCRA 788, 792, September 26,
1989.
11 Yao Ka Sin Trading v. Court of Appeals, 209 SCRA 763, 781, June 15,
1992; citing 19 CJS 455.
12 Ibid., pp. 781-782; citing 19 CJS 456, per Davide Jr., J.
13 BA Finance Corporation v. Court of Appeals, 211 SCRA 112, 116, July 3, 1992,
per Medialdea, J.
14 Justice Jose C. Campos, Jr. and Maria Clara Lopez-Campos, The Corporation
Code Comments, Notes and Selected Cases, Vol. I (1990), p. 386.
15 Petitioner's Memorandum, pp. 16-17; rollo, pp. 242-243.
16 See petitioner's Offer of Evidence before the RTC; Record, pp. 265-266.
17 Campos and Campos, supra, p. 386.
18 Art. of Incorporation of Motorich, pp. 1-2; CA rollo, pp. 86-87.
19 Petitioner's Memorandum, p. 11; rollo, p. 220.
20 Art. 1910, Civil Code; Campos and Campos, supra, p. 385.
21 RTC Decision, p. 7; CA rollo, p. 34.
22 CA Decision, p. 9; rollo, p. 62.
23 Fuentes v. Court of Appeals, 268 SCRA 703, 710, February 26, 1997.
24 Art. 1409, Civil Code.
25 CA Decision, pp. 4-5; rollo, pp. 213-214.
26 Ibid., p. 6; rollo, p. 215.
27 Ibid., p. 9; rollo, p. 218.
28 CA rollo, pp. 78-79.
29 First Philippine International Bank v. Court of Appeals, 252 SCRA 259, January
24, 1996; Sanchez v. Court of Appeals, GR No. 108947, p. 28, September 29,
1997; citing Medida v. Court of Appeals, 208 SCRA 887, 893, May 8, 1992 and
Caltex (Philippines), Inc. v. Court of Appeals, 212 SCRA 448, 461, August 10, 1992.
30 Campos and Campos, supra, p.1.
31 Ibid., p. 149; Justice Jose C. Vitug, Pandect of Commercial Law and

Jurisprudence (revised ed., 1990), p. 286.
32 Umali v. Court of Appeals, 189 SCRA 529, 542, September 13,

1990; citing Koppel (Philippines), Inc. v. Yatco, 77 Phil 496 (1946) and Telephone
Engineering & Service Co, Inc. v. Workmen's Compensation Commission et al., 104
SCRA 354, May 13, 1981. See also First Philippine International Bank v. Court of
Appeals, supra, 287-288 and Boyer-Roxas v. Court of Appeals, 211 SCRA 470, 484-
487, July 14, 1992.
33 First Philippine International Bank v. Court of Appeals, supra, pp. 287-288, per
Panganiban, J.;citing Villa-Rey Transit, Inc. v. Ferrer, 25 SCRA 845, 857-858,
October 29, 1968.
34 CA rollo, pp. 85-94.
35 See Abejo v. De la Cruz, 149 SCRA 654, 667, May 19, 1987.
36 Santos v. National Labor Relations Commission, 254 SCRA 673, March 13, 1996,
per Vitug J.;citing Sunio v. National Labor Commission, 127 SCRA 390, 397-398,
January 31, 1984. See alsoVitug, supra, p. 286; citing Bumet v. Clarke, 287 US 410,
L. ed. 397.
37 225 SCRA 678, August 27, 1993; cited in Memorandum for Petitioner, pp. 6-
7; rollo, pp. 215-216.
38 Ibid., p. 684, per Nocon, J.
39 Ibid., pp. 684-686.
40 Vitug, supra, p. 355.
41 Petitioner's Memorandum, p. 5; rollo, p. 214. See also Articles of Incorporation of

Motorich, p. 7; CA rollo, p. 92.
42 Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the

Philippines, Vol. I (1990), p. 408.
43 Ibid., p. 412.
44 Justice Jose C. Vitug, Compendium of Civil Law and Jurisprudence, (revised ed.,
1993), p. 177.
45 TSN, September 27, 1993, p. 8; Record, p. 360. Cited in Petitioner's

Memorandum, p. 12; rollo, p. 221.
46 Petitioner's Memorandum, p. 12; rollo, p. 221.
47 TSN, September 27, 1993, p. 16.
48 Petitioner's Memorandum, p. 14, rollo, p. 223.
49 Ibid., p. 15; rollo, p. 224.
50 Ibid., p. 11; rollo, p. 220.
51 TSN, September 27, 1993, pp. 16-17; Record, pp. 368-369.
52 Ibid., p. 17; Record, p. 369.
53 TSN, August 16, 1993, p. 3; Record, p. 341. Cited in Memorandum for

Respondents, p. 19; rollo, p. 245.
54 Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines,

Vol. V (1990), p. 581.
55 "Art. 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises."
56 See Tolentino, supra, Vol. V, p. 581.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41337 June 30, 1988
TAN BOON BEE & CO., INC., petitioner,

vs.
THE HONORABLE HILARION U. JARENCIO, PRESIDING JUDGE OF BRANCH XVIII of the
Court of First Instance of Manila, GRAPHIC PUBLISHING, INC., and PHILIPPINE AMERICAN
CAN DRUG COMPANY,respondents.
De Santos, Balgos & Perez Law Office for petitioner.
Araneta Mendoza & Papa Law Office for respondent Phil. American Drug Company.
PARAS, J.:
This is a petition for certiorari, with prayer for preliminary injunction, to annul and set aside the March
26, 1975 Order of the then Court of First Instance of Manila, Branch XXIII, setting aside the sale of
"Heidelberg" cylinder press executed by the sheriff in favor of the herein petitioner, as well as the
levy on the said property, and ordering the sheriff to return the said machinery to its owner, herein
private respondent Philippine American Drug Company.
Petitioner herein, doing business under the name and style of Anchor Supply Co., sold on credit to
herein private respondent Graphic Publishing, Inc. (GRAPHIC for short) paper products amounting
to P55,214.73. On December 20, 1972, GRAPHIC made partial payment by check to petitioner in
the total amount of P24,848.74; and on December 21, 1972, a promissory note was executed to
cover the balance of P30,365.99. In the said promissory note, it was stipulated that the amount will
be paid on monthly installments and that failure to pay any installment would make the amount
immediately demandable with an interest of 12% per annum. On September 6, 1973, for failure of
GRAPHIC to pay any installment, petitioner filed with the then Court of First Instance of Manila,
Branch XXIII, presided over by herein respondent judge, Civil Case No. 91857 for a Sum of Money
(Rollo, pp. 36-38). Respondent judge declared GRAPHIC in default for failure to file its answer within
the reglementary period and plaintiff (petitioner herein) was allowed to present its evidence ex
parte. In a Decision dated January 18, 1974 (Ibid., pp. 39-40), the trial court ordered GRAPHIC to
pay the petitioner the sum of P30,365.99 with 12% interest from March 30, 1973 until fully paid, plus
the costs of suit. On motion of petitioner, a writ of execution was issued by respondent judge; but the
aforestated writ having expired without the sheriff finding any property of GRAPHIC, an alias writ of
execution was issued on July 2, 1974.
Pursuant to the said issued alias writ of execution, the executing sheriff levied upon one (1) unit
printing machine Identified as "Original Heidelberg Cylinder Press" Type H 222, NR 78048, found in
the premises of GRAPHIC. In a Notice of Sale of Execution of Personal Property dated July 29,
1974, said printing machine was scheduled for auction sale on July 26, 1974 at 10:00 o'clock at 14th
St., Cor. Atlanta St., Port Area, Manila (lbid., p. 45); but in a letter dated July 19, 1974, herein private
respondent, Philippine American Drug Company (PADCO for short) had informed the sheriff that the
printing machine is its property and not that of GRAPHIC, and accordingly, advised the sheriff to
cease and desist from carrying out the scheduled auction sale on July 26, 1974. Notwithstanding the
said letter, the sheriff proceeded with the scheduled auction sale, sold the property to the petitioner,
it being the highest bidder, and issued a Certificate of Sale in favor of petitioner (Rollo, p. 48). More
than five (5) hours after the auction sale and the issuance of the certificate of sale, PADCO filed an
"Affidavit of Third Party Claim" with the Office of the City Sheriff (Ibid., p. 47). Thereafter, on July
30,1974, PADCO filed with the Court of First Instance of Manila, Branch XXIII, a Motion to Nullify
Sale on Execution (With Injunction) (Ibid., pp, 49-55), which was opposed by the petitioner (Ibid., pp.
5668). Respondent judge, in an Order dated March 26, 1975 (Ibid., pp. 64-69), ruled in favor of
PADCO. The decretal portion of the said order, reads:
WHEREFORE, the sale of the 'Heidelberg cylinder press executed by the Sheriff in
favor of the plaintiff as well as the levy on the said property is hereby set aside and
declared to be without any force and effect. The Sheriff is ordered to return the said
machinery to its owner, the Philippine American Drug Co.
Petitioner filed a Motion For Reconsideration (Ibid., pp. 7093) and an Addendum to Motion for
Reconsideration (Ibid., pp. 94-08), but in an Order dated August 13, 1975, the same was denied for
lack of merit (Ibid., p. 109). Hence, the instant petition.
In a Resolution dated September 12, 1975, the Second Division of this Court resolved to require the
respondents to comment, and to issue a temporary restraining order (Rollo, p. 111 ). After
submission of the parties' Memoranda, the case was submitted for decision in the Resolution of
November 28, 1975 (Ibid., p. 275).
Petitioner, to support its stand, raised two (2) issues, to wit:
THE RESPONDENT JUDGE GRAVELY EXCEEDED, IF NOT ACTED WITHOUT JURISDICTION

WHEN HE ACTED UPON THE MOTION OF PADCO, NOT ONLY BECAUSE SECTION 17, RULE
39 OF THE RULES OF COURT WAS NOT COMPLIED WITH, BUT ALSO BECAUSE THE CLAIMS
OF PADCO WHICH WAS NOT A PARTY TO THE CASE COULD NOT BE VENTILATED IN THE
CASE BEFORE HIM BUT IN INDEPENDENT PROCEEDING.
II
THE RESPONDENT JUDGE GRAVELY ABUSED HIS DISCRETION WHEN HE REFUSED TO

PIERCE THE PADCO'S (IDENTITY) AND DESPITE THE ABUNDANCE OF EVIDENCE CLEARLY
SHOWING THAT PADCO WAS CONVENIENTLY SHIELDING UNDER THE THEORY OF
CORPORATE PETITION.
Petitioner contends that respondent judge gravely exceeded, if not, acted without jurisdiction, in
nullifying the sheriffs sale not only because Section 17, Rule 39 of the Rules of Court was not
complied with, but more importantly because PADCO could not have litigated its claim in the same
case, but in an independent civil proceeding.
This contention is well-taken.
In the case of Bayer Philippines, Inc. vs. Agana (63 SCRA 355, 366-367 [1975]), this Court
categorically ruled as follows:
In other words, constitution, Section 17 of Rule 39 of the Revised Rules of Court, the
rights of third-party claimants over certain properties levied upon by the sheriff to
satisfy the judgment should not be decided inthe action where the third-party claims
have been presented, but in the separate action instituted by the claimants.
... Otherwise stated, the court issuing a writ of execution is supposed to enforce the
authority only over properties of the judgment debtor, and should a third party
appeal- to claim the property levied upon by the sheriff, the procedure laid down by
the Rules is that such claim should be the subject of a separate and independent
action.
xxx xxx xxx
... This rule is dictated by reasons of convenience, as "intervention is more likely to

inject confusion into the issues between the parties in the case . . . with which the
third-party claimant has nothing to do and thereby retard instead of facilitate the
prompt dispatch of the controversy which is the underlying objective of the rules of
pleading and practice." Besides, intervention may not be permitted after trial has
been concluded and a final judgment rendered in the case.
However, the fact that petitioner questioned the jurisdiction of the court during the initial hearing of
the case but nevertheless actively participated in the trial, bars it from questioning now the court's
jurisdiction. A party who voluntarily participated in the trial, like the herein petitioner, cannot later on
raise the issue of the court's lack of jurisdiction (Philippine National Bank vs. Intermediate Appellate
Court, 143 SCRA [1986]).
As to the second issue (the non-piercing of PADCO's corporate Identity) the decision of respondent
judge is as follows:
The plaintiff, however, contends that the controlling stockholders of the Philippine
American Drug Co. are also the same controlling stockholders of the Graphic
Publishing, Inc. and, therefore, the levy upon the said machinery which was found in
the premises occupied by the Graphic Publishing, Inc. should be upheld. This
contention cannot be sustained because the two corporations were duly incorporated
under the Corporation Law and each of them has a juridical personality distinct and
separate from the other and the properties of one cannot be levied upon to satisfy
the obligation of the other. This legal preposition is elementary and fundamental.
It is true that a corporation, upon coming into being, is invested by law with a personality separate
and distinct from that of the persons composing it as well as from any other legal entity to which it
may be related (Yutivo & Sons Hardware Company vs. Court of Tax Appeals, 1 SCRA 160 [1961];
and Emilio Cano Enterprises, Inc. vs. CIR, 13 SCRA 290 [1965]). As a matter of fact, the doctrine
that a corporation is a legal entity distinct and separate from the members and stockholders who
compose it is recognized and respected in all cases which are within reason and the law (Villa Rey
Transit, Inc. vs. Ferrer, 25 SCRA 845 [1968]). However, this separate and distinct personality is
merely a fiction created by law for convenience and to promote justice (Laguna Transportation
Company vs. SSS, 107 Phil. 833 [1960]). Accordingly, this separate personality of the corporation
may be disregarded, or the veil of corporate fiction pierced, in cases where it is used as a cloak or
cover for fraud or illegality, or to work an injustice, or where necessary to achieve equity or when
necessary for the protection of creditors (Sulo ng Bayan, Inc. vs. Araneta, Inc., 72 SCRA 347
[1976]). Corporations are composed of natural persons and the legal fiction of a separate corporate
personality is not a shield for the commission of injustice and inequity (Chenplex Philippines, Inc., et
al. vs. Hon. Pamatian et al., 57 SCRA 408 (19741). Likewise, this is true when the corporation is
merely an adjunct, business conduit or alter ego of another corporation. In such case, the fiction of
separate and distinct corporation entities should be disregarded (Commissioner of Internal Revenue
vs. Norton & Harrison, 11 SCRA 714 [1964]).
In the instant case, petitioner's evidence established that PADCO was never engaged in the printing
business; that the board of directors and the officers of GRAPHIC and PADCO were the same; and
that PADCO holds 50% share of stock of GRAPHIC. Petitioner likewise stressed that PADCO's own
evidence shows that the printing machine in question had been in the premises of GRAPHIC since
May, 1965, long before PADCO even acquired its alleged title on July 11, 1966 from Capitol
Publishing. That the said machine was allegedly leased by PADCO to GRAPHIC on January 24,
1966, even before PADCO purchased it from Capital Publishing on July 11, 1966, only serves to
show that PADCO's claim of ownership over the printing machine is not only farce and sham but also
unbelievable.
Considering the aforestated principles and the circumstances established in this case, respondent
judge should have pierced PADCO's veil of corporate Identity.
Respondent PADCO argues that if respondent judge erred in not piercing the veil of its corporate
fiction, the error is merely an error of judgment and not an error of jurisdiction correctable by appeal
and not by certiorari.
To this argument of respondent, suffice it to say that the same is a mere technicality. In the case
of Rubio vs. Mariano (52 SCRA 338, 343 [1973]), this Court ruled:
While We recognize the fact that these movants the MBTC, the Phillips spouses,
the Phillips corporation and the Hacienda Benito, Inc. did raise in their respective
answers the issue as to the propriety of the instant petition for certiorari on the
ground that the remedy should have been appeal within the reglementary period, We
considered such issue as a mere technicality which would have accomplished
nothing substantial except to deny to the petitioner the right to litigate the matters he
raised ...
Litigations should, as much as possible, be decided on their merits and not on technicality (De las
Alas vs. Court of Appeals, 83 SCRA 200, 216 [1978]). Every party-litigant must be afforded the
amplest opportunity for the proper and just determination of his cause, free from the unacceptable
plea of technicalities (Heirs of Ceferino Morales vs. Court of Appeals, 67 SCRA 304, 310 [1975]).
PREMISES CONSIDERED, the March 26,1975 Order of the then Court of First Instance of Manila,
is ANNULLED and SET ASIDE, and the Temporary Restraining Order issued is hereby made
permanent.
SO ORDERED.
Yap, C. J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 93397 March 3, 1997
TRADERS ROYAL BANK, petitioner,

vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL
BANK of the PHILIPPINES, respondents.
TORRES, JR., J.:
Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals
dated January 29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness
(CBCI) No. D891, 2 with a face value of P500,000.00, from the Philippine Underwriters Finance
Corporation (Philfinance) to the petitioner Trader's Royal Bank (TRB), under a Repurchase
Agreement 3 dated February 4, 1981, and a Detached Assignment 4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action
was originally filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the
Central Bank of the Philippines to register the transfer of the subject CBCI to petitioner Traders Royal
Bank (TRB).
In the said petition, TRB stated that:
3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters)

executed a "Detached Assignment" . . ., whereby Filriters, as registered owner, sold,
transferred, assigned and delivered unto Philippine Underwriters Finance
Corporation (Philfinance) all its rights and title to Central Bank Certificates of
Indebtedness of PESOS: FIVE HUNDRED THOUSAND (P500,000) and having an
aggregate value of PESOS: THREE MILLION FIVE HUNDRED THOUSAND
(P3,500,000.00);
4. The aforesaid Detached Assignment (Annex "A") contains an express

authorization executed by the transferor intended to complete the assignment
through the registration of the transfer in the name of PhilFinance, which
authorization is specifically phrased as follows: '(Filriters) hereby irrevocably
authorized the said issuer (Central Bank) to transfer the said bond/certificates on the
books of its fiscal agent;
5. On February 4, 1981, petitioner entered into a Repurchase Agreement with

PhilFinance . . ., whereby, for and in consideration of the sum of PESOS: FIVE
HUNDRED THOUSAND (P500,000.00), PhilFinance sold, transferred and delivered
to petitioner CBCI 4-year, 8th series, Serial No. D891 with a face value of
P500,000.00 . . ., which CBCI was among those previously acquired by PhilFinance
from Filriters as averred in paragraph 3 of the Petition;
6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed

to repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS:
FIVE HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100
(P519,361.11) on April 27, 1981;
7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27,
1981, when the checks it issued in favor of petitioner were dishonored for insufficient
funds;
8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of

the Petitioner to enable the latter to have its title completed and registered in the
books of the respondent. And by means of said Detachment, Philfinance transferred
and assigned all, its rights and title in the said CBCI (Annex "C") to petitioner and,
furthermore, it did thereby "irrevocably authorize the said issuer (respondent herein)
to transfer the said bond/certificate on the books of its fiscal agent." . . .
9. Petitioner presented the CBCI (Annex "C"), together with the two (2)
aforementioned Detached Assignments (Annexes "B" and "D"), to the Securities
Servicing Department of the respondent, and requested the latter to effect the
transfer of the CBCI on its books and to issue a new certificate in the name of
petitioner as absolute owner thereof;
10. Respondent failed and refused to register the transfer as requested, and
continues to do so notwithstanding petitioner's valid and just title over the same and
despite repeated demands in writing, the latest of which is hereto attached as Annex
"E" and made an integral part hereof;
11. The express provisions governing the transfer of the CBCI were substantially
complied with the petitioner's request for registration, to wit:
"No transfer thereof shall be valid unless made at said office (where
the Certificate has been registered) by the registered owner hereof, in
person or by his attorney duly authorized in writing, and similarly
noted hereon, and upon payment of a nominal transfer fee which may
be required, a new Certificate shall be issued to the transferee of the
registered holder thereof."
and, without a doubt, the Detached Assignments presented to respondent were

sufficient authorizations in writing executed by the registered owner, Filriters, and its
transferee, PhilFinance, as required by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the ministerial duties of
registering a transfer of ownership over the CBCI and issuing a new certificate to the
transferee devolves upon the respondent;
Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its
name.
On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central
Bank of the Philippines' Motion for Admission of Amended Answer with Counter Claim for
Interpleader 6 thereby calling to fore the respondent Filriters Guaranty Assurance Corporation (Filriters),
the registered owner of the subject CBCI as respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI No. 891;
12. The CBCI constitutes part of the reserve investment against liabilities required of
respondent as an insurance company under the Insurance Code;
13. Without any consideration or benefit whatsoever to Filriters, in violation of law

and the trust fund doctrine and to the prejudice of policyholders and to all who have
present or future claim against policies issued by Filriters, Alfredo Banaria, then
Senior Vice-President-Treasury of Filriters, without any board resolution, knowledge
or consent of the board of directors of Filriters, and without any clearance or
authorization from the Insurance Commissioner, executed a detached assignment
purportedly assigning CBCI No. 891 to Philfinance;
xxx xxx xxx
14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar

Jacobe, Vice-President-Treasury of Filriters (both of whom were holding the same
positions in Philfinance), without any consideration or benefit redounding to Filriters
and to the grave prejudice of Filriters, its policy holders and all who have present or
future claims against its policies, executed similar detached assignment forms
transferring the CBCI to plaintiff;
xxx xxx xxx
15. The detached assignment is patently void and inoperative because the
assignment is without the knowledge and consent of directors of Filriters, and not
duly authorized in writing by the Board, as requiring by Article V, Section 3 of CB
Circular No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria
and not the corporate act of Filriters and such null and void;
a) The assignment was executed without consideration and for that reason, the
assignment is void from the beginning (Article 1409, Civil Code);
b) The assignment was executed without any knowledge and consent of the board of
directors of Filriters;
c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a
requirement under the Insurance Code for its existence as an insurance company
and the pursuit of its business operations. The assignment of the CBCI is illegal act
in the sense of malum in se or malum prohibitum, for anyone to make, either as
corporate or personal act;
d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited

by law, is immoral and against public policy;
e) The assignment of the CBCI has resulted in the capital impairment and in the
solvency deficiency of Filriters (and has in fact helped in placing Filriters under
conservatorship), an inevitable result known to the officer who executed assignment.
17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of
the assignment.
a) The CBCI No. 891 is not a negotiable instrument and as a certificate of

indebtedness is not payable to bearer but is a registered in the name of Filriters;
b) The provision on transfer of the CBCIs provides that the Central Bank shall
treat the registered owner as the absolute owner and that the value of the registered
certificates shall be payable only to the registered owner; a sufficient notice to plaintiff
that the assignments do not give them the registered owner's right as absolute owner
of the CBCI's;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs)

provides that the registered certificates are payable only to the registered owner
(Article II, Section 1).
18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by
Filriters is not a regular transaction made in the usual of ordinary course of business;
a) The CBCI constitutes part of the reserve investments of Filriters against liabilities
requires by the Insurance Code and its assignment or transfer is expressly prohibited
by law. There was no attempt to get any clearance or authorization from the
Insurance Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or
regular course of its business;
c) The CBCI involved substantial amount and its assignment clearly constitutes
disposition of "all or substantially all" of the assets of Filriters, which requires the
affirmative action of the stockholders (Section 40, Corporation [sic] Code. 7
In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the
assignment of CBCI No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI
by Philfinance in favor of Traders Royal Bank null and void and of no force and effect. The dispositive
portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters

Guaranty Assurance Corporation and against the plaintiff Traders Royal Bank:
(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the
subsequent assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal
Bank as null and void and of no force and effect;
(b) Ordering the respondent Central Bank of the Philippines to disregard the said
assignment and to pay the value of the proceeds of the CBCI No. D891 to the
Filriters Guaranty Assurance Corporation;
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty
Assurance Corp. The sum of P10,000 as attorney's fees; and
(d) to pay the costs.
SO ORDERED. 9
The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals
likewise failed. The findings of the fact of the said court are hereby reproduced:
The records reveal that defendant Filriters is the registered owner of CBCI No. D891.
Under a deed of assignment dated November 27, 1971, Filriters transferred CBCI
No. D891 to Philippine Underwriters Finance Corporation (Philfinance).
Subsequently, Philfinance transferred CBCI No. D891, which was still registered in
the name of Filriters, to appellant Traders Royal Bank (TRB). The transfer was made
under a repurchase agreement dated February 4, 1981, granting Philfinance the right
to repurchase the instrument on or before April 27, 1981. When Philfinance failed to
buy back the note on maturity date, it executed a deed of assignment, dated April 27,
1981, conveying to appellant TRB all its right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of
CBCI No. D891 in its name before the Security and Servicing Department of the
Central Bank (CB). Central Bank, however, refused to effect the transfer and
registration in view of an adverse claim filed by defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the
Central Bank in the Regional Trial Court of Manila. The suit, however, was
subsequently treated by the lower court as a case of interpleader when CB prayed in
its amended answer that Filriters be impleaded as a respondent and the court
adjudge which of them is entitled to the ownership of CBCI No. D891. Failing to get a
favorable judgment. TRB now comes to this Court on appeal. 11
In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and
having acquired the said certificate from Philfinance as a holder in due course, its possession of the
same is thus free fro any defect of title of prior parties and from any defense available to prior parties
among themselves, and it may thus, enforce payment of the instrument for the full amount thereof
against all parties liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the
instrument clearly stated that it was payable to Filriters, the registered owner, whose name was
inscribed thereon, and that the certificate lacked the words of negotiability which serve as an
expression of consent that the instrument may be transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made
without consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better
known as the "Rules and Regulations Governing Central Bank Certificates of Indebtedness", which
provided that any "assignment of registered certificates shall not be valid unless made . . . by the
registered owner thereof in person or by his representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was
inexistent, having acquired the certificate through simulation. What happened was Philfinance
merely borrowed CBCI No. D891 from Filriters, a sister corporation, to guarantee its financing
operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment
purportedly for and on behalf of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act for the latter. For lack of
such authority, the assignment did not therefore bind Filriters and violated as the
same time Central Bank Circular No. 769 which has the force and effect of a law,
resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could
assign or transfer to Traders Royal Bank and which the latter can register with the
Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against

plaintiff-appellant.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters
equity and the two corporations have identical corporate officers, thus demanding the application of
the doctrine or piercing the veil of corporate fiction, as to give validity to the transfer of the CBCI from
registered owner to petitioner TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as
actual payment to Filriters. Thus, there is no merit to the lower court's ruling that the transfer of the CBCI
from Filriters to Philfinance was null and void for lack of consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability
within the meaning of the negotiable instruments law (Act 2031).
The pertinent portions of the subject CBCI read:
xxx xxx xxx
The Central Bank of the Philippines (the Bank) for value received, hereby promises
to pay bearer, of if this Certificate of indebtedness be registered, to FILRITERS
GUARANTY ASSURANCE CORPORATION, the registered owner hereof, the
principal sum of FIVE HUNDRED THOUSAND PESOS.
xxx xxx xxx

Properly understood, a certificate of indebtedness pertains to certificates for the creation and
maintenance of a permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202).
Being equivalent to a bond, it is properly understood as acknowledgment of an obligation to pay a
fixed sum of money. It is usually used for the purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance
Corporation, the registered owner hereof." Very clearly, the instrument is payable
only to Filriters, the registered owner, whose name is inscribed thereon. It lacks the
words of negotiability which should have served as an expression of consent that the
instrument may be transferred by negotiation. 15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY
ASSURANCE CORPORATION, and to no one else, thus, discounting the petitioner's submission
that the same is a negotiable instrument, and that it is a holder in due course of the certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is its
freedom to circulate as a substitute for money. Hence, freedom of negotiability is the touchtone
relating to the protection of holders in due course, and the freedom of negotiability is the foundation
for the protection which the law throws around a holder in due course (11 Am. Jur. 2d, 32). This
freedom in negotiability is totally absent in a certificate indebtedness as it merely to pay a sum of
money to a specified person or entity for a period of time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:
The accepted rule is that the negotiability or non-negotiability of an instrument is

determined from the writing, that is, from the face of the instrument itself. In the
construction of a bill or note, the intention of the parties is to control, if it can be
legally ascertained. While the writing may be read in the light of surrounding
circumstance in order to more perfectly understand the intent and meaning of the
parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its
stead. The duty of the court in such case is to ascertain, not what the parties may
have secretly intended as contradistinguished from what their words express, but
what is the meaning of the words they have used. What the parties meant must be
determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not
governed by the negotiable instruments law. The pertinent question then is, was the transfer of the
CBCI from Filriters to Philfinance and subsequently from Philfinance to TRB, in accord with existing
law, so as to entitle TRB to have the CBCI registered in its name with the Central Bank?
The following are the appellate court's pronouncements on the matter:
Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is
defective since it acquired the instrument from Filriters fictitiously. Although the deed
of assignment stated that the transfer was for "value received", there was really no
consideration involved. What happened was Philfinance merely borrowed CBCI No.
D891 from Filriters, a sister corporation. Thus, for lack of any consideration, the
assignment made is a complete nullity.
What is more, We find that the transfer made by Filriters to Philfinance did not
conform to Central Bank Circular No. 769, series of 1980, otherwise known as the
"Rules and Regulations Governing Central Bank Certificates of Indebtedness", under
which the note was issued. Published in the Official Gazette on November 19, 1980,
Section 3 thereof provides that any assignment of registered certificates shall not be
valid unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment
purportedly for and on behalf of Filriters, did not have the necessary written
authorization from the Board of Directors of Filriters to act for the latter. For lack of
such authority, the assignment did not therefore bind Filriters and violated at the
same time Central Bank Circular No. 769 which has the force and effect of a law,
resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could
assign or transfer to Traders Royal Bank and which the latter can register with the
Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent
Filriters and Philfinance, though separate corporate entities on paper, have used their corporate
fiction to defraud TRB into purchasing the subject CBCI, which purchase now is refused registration
by the Central Bank.
Says the petitioner;
Since Philfinance own about 90% of Filriters and the two companies have the same
corporate officers, if the principle of piercing the veil of corporate entity were to be
applied in this case, then TRB's payment to Philfinance for the CBCI purchased by it
could just as well be considered a payment to Filriters, the registered owner of the
CBCI as to bar the latter from claiming, as it has, that it never received any payment
for that CBCI sold and that said CBCI was sold without its authority.
xxx xxx xxx
We respectfully submit that, considering that the Court of Appeals has held that the
CBCI was merely borrowed by Philfinance from Filriters, a sister corporation, to
guarantee its (Philfinance's) financing operations, if it were to be consistent
therewith, on the issued raised by TRB that there was a piercing a veil of corporate
entity, the Court of Appeals should have ruled that such veil of corporate entity was,
in fact, pierced, and the payment by TRB to Philfinance should be construed as
payment to Filriters. 17
We disagree with Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an
equitable remedy, and may be awarded only in cases when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere
alter ego or business conduit of a person. 18
Peiercing the veil of corporate entity requires the court to see through the protective shroud which
exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguished one
corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do
this, the court must be sure that the corporate fiction was misused, to such an extent that injustice,
fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the
protection of the interests of innocent third persons dealing with the corporate entity which the law
aims to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners
insistence on the contrary. For one, other than the allegation that Filriters is 90% owned by
Philfinance, and the identity of one shall be maintained as to the other, there is nothing else which
could lead the court under circumstance to disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a
juridical personality separate from its stockholders and from other corporations may be
disregarded, 19 in the absence of such grounds, the general rule must upheld. The fact that Filfinance
owns majority shares in Filriters is not by itself a ground to disregard the independent corporate status of
Filriters. In Liddel & Co., Inc. vs. Collector of Internal Revenue, 20 the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself
a sufficient reason for disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it
acquired the subject certificate of indebtedness from Philfinance.
On its face the subject certificates states that it is registered in the name of Filriters. This should
have put the petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over
the same or its authority to assign the certificate. As it is, there is no showing to the effect that
petitioner had any dealings whatsoever with Filriters, nor did it make inquiries as to the ownership of
the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER. This Certificate shall pass by delivery unless it is registered in the

owner's name at any office of the Bank or any agency duly authorized by the Bank,
and such registration is noted hereon. After such registration no transfer thereof shall
be valid unless made at said office (where the Certificates has been registered) by
the registered owner hereof, in person, or by his attorney, duly authorized in writing
and similarly noted hereon and upon payment of a nominal transfer fee which may
be required, a new Certificate shall be issued to the transferee of the registered
owner thereof. The bank or any agency duly authorized by the Bank may deem and
treat the bearer of this Certificate, or if this Certificate is registered as herein
authorized, the person in whose name the same is registered as the absolute owner
of this Certificate, for the purpose of receiving payment hereof, or on account hereof,
and for all other purpose whether or not this Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require
Philfinance to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-
owner was disposing of the registered CBCI owned by another entity was a good reason for
petitioner to verify of inquire as to the title Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules
and Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which
provides that:
Sec. 3. Assignment of Registered Certificates. Assignment of registered

certificates shall not be valid unless made at the office where the same have been
issued and registered or at the Securities Servicing Department, Central Bank of the
Philippines, and by the registered owner thereof, in person or by his representative,
duly authorized in writing. For this purpose, the transferee may be designated as the
representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its
requirements. An entity which deals with corporate agents within circumstances showing that the
agents are acting in excess of corporate authority, may not hold the corporation liable. 22 This is only
fair, as everyone must, in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith. 23
The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which
for all intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who
had signed the deed of assignment from Filriters to Philfinance, purportedly for and in favor of
Filriters, did not have the necessary written authorization from the Board of Directors of Filriters to
act for the latter. As it is, the sale from Filriters to Philfinance was fictitious, and therefore void and
inexistent, as there was no consideration for the same. This is fatal to the petitioner's cause, for then,
Philfinance had no title over the subject certificate to convey the Traders Royal Bank. Nemo potest
nisi quod de jure potest no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves,
which are required by law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia,
Manager-in-Charge of respondent Filriters, in his testimony given before the court on May 30, 1986.
Q Do you know this Central Bank Certificate of Indebtedness, in

short, CBCI No. D891 in the face value of P5000,000.00 subject of
this case?
A Yes, sir.
Q Why do you know this?
A Well, this was CBCI of the company sought to be examined by the

Insurance Commission sometime in early 1981 and this CBCI No.
891 was among the CBCI's that were found to be missing.
Q Let me take you back further before 1981. Did you have the
knowledge of this CBCI No. 891 before 1981?
A Yes, sir. This CBCI is an investment of Filriters required by the

Insurance Commission as legal reserve of the company.
Q Legal reserve for the purpose of what?

A Well, you see, the Insurance companies are required to put up legal
reserves under Section 213 of the Insurance Code equivalent to 40
percent of the premiums receipt and further, the Insurance
Commission requires this reserve to be invested preferably in
government securities or government binds. This is how this CBCI
came to be purchased by the company.
It cannot, therefore, be taken out of the said funds, without violating the requirements of the law.
Thus, the anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind
the said corporation, not without the approval of its Board of Directors, and the maintenance of the
required reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over
the claimed interest of Traders Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990
is hereby AFFIRMED.
SO ORDERED.
Regalado, Romero and Mendoza, JJ., concur.
Puno, J., took no part.
Footnotes
1 Justice Ricardo L. Pronove, Jr., ponente; concurred in by Justices Alfredo L.

Benipayo and Serafain V.C. Guingona, p. 18, Rollo.
2 P. 143, Record.
3 Ibid. at p. 146.
4 Ibid., at p. 148.
5 P. 1, Record.
6 P. 75, Record.
7 Answer, p. 97, Record.
8 P. 315, Record.
9 Pp. 16-17, RTC Decision, p. 330, Rollo.
10 Annex "A". Petition, supra.
11 Court of Appeals Decision, pp. 18-19, Rollo.
12 Section 57. Negotiable Instruments Law.

13 Petition, Annex "A", pp. 21-22, Rollo.
14 Ibid.
15 Campos and Campos, Negotiable Instruments Law, p. 38, 1971 ed.
16 G.R. No. 97753, August 10, 1992, 212 SCRA 448.
17 Petition
18 Yu vs. National Labor Relations Commission 245 SCRA 134.
19 Guatson International Travel and Tours, Inc. vs. National Labor Relations
Commission, 230 SCRA 815.
20 2 SCRA 632.
21 Official Gazette 9370.
22 See Article 1883, Civil Code.
23 See Article 19, Civil Code.
24 Sec. 213 Every insurance company, other than life, shall maintain a reserve fro
unearned premiums on its policies in force, which shall be charged as a liability in
any determination of its financial condition. Such reserve shall be equal to forty per
centum of the gross permiums, less returns and cancellations, received on policies or
risks having more than a year to run; Provided That for marine cargo risks, the
reserve shall be equal to forty per centum of the premiums written in the policies
upon yearly risks, and the full amount of premiums written during the last two months
of the calendar year upon all other marine risks not terminated. Presidential Decree
No. 612 (The Insurance Code of the Philippines).
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28694 May 13, 1981
TELEPHONE ENGINEERING & SERVICE COMPANY, INC., petitioner,

vs.
WORKMEN'S COMPENSATION COMMISSION, PROVINCIAL SHERIFF OF RIZAL and LEONILA
SANTOS GATUS, for herself and in behalf of her minor children, Teresita, Antonina and
Reynaldo, all surnamed GATUS, respondents.
MELENCIO-HERRERA, J.: 1wph1.t
These certiorari proceedings stem from the award rendered against petitioner Telephone
Engineering and Services, Co., Inc. (TESCO) on October 6, 1967 by the Acting Referee of Regional
Office No. 4, Quezon City Sub-Regional Office, Workmen's Compensation Section, in favor of
respondent Leonila S. Gatus and her children, dependents of the deceased employee Pacifico L.
Gatus. The principal contention is that the award was rendered without jurisdiction as there was no
employer-employee relationship between petitioner and the deceased.
Petitioner is a domestic corporation engaged in the business of manufacturing telephone equipment

with offices at Sheridan Street, Mandaluyong, Rizal. Its Executive Vice-President and General
Manager is Jose Luis Santiago. It has a sister company, the Utilities Management Corporation
(UMACOR), with offices in the same location. UMACOR is also under the management of Jose Luis
Santiago.
On September 8, 1964, UMACOR employed the late Pacifica L. Gatus as Purchasing Agent. On
May 16, 1965, Pacifico L. Gatus was detailed with petitioner company. He reported back to
UMACOR on August 1, 1965. On January 13, 1967, he contracted illness and although he retained
to work on May 10, 1967, he died nevertheless on July 14, 1967 of "liver cirrhosis with malignant
degeneration."
On August 7, 1967, his widow, respondent Leonila S. Gatus, filed a "Notice and Claim for
Compensation" with Regional Office No. 4, Quezon City Sub-Regional Office, Workmen's
Compensation Section, alleging therein that her deceased husband was an employee of TESCO,
and that he died of liver cirrhosis. 1 On August 9, 1967, and Office wrote petitioner transmitting the
Notice and for Compensation, and requiring it to submit an Employer's Report of Accident or Sickness
pursuant to Section 37 of the Workmen's Compensation Act (Act No. 3428). 2 An "Employer's Report of
Accident or Sickness" was thus submitted with UMACOR indicated as the employer of the deceased. The
Report was signed by Jose Luis Santiago. In answer to questions Nos. 8 and 17, the employer stated that
it would not controvert the claim for compensation, and admitted that the deceased employee contracted
illness "in regular occupation." 3 On the basis of this Report, the Acting Referee awarded death benefits in
the amount of P5,759.52 plus burial expenses of P200.00 in favor of the heirs of Gatus in a letter-award
dated October 6, 1967 4 against TESCO.
Replying on October 27, 1967, TESCO, through Jose Luis Santiago, informed the Acting Referee
that it would avail of the 15-days-notice given to it to state its non-conformity to the award and
contended that the cause of the illness contracted by Gatus was in no way aggravated by the nature
of his work. 5
On November 6, 1967, TESCO requested for an extension of ten days within which to file a Motion
for Reconsideration, 6 and on November 15, 1967, asked for an additional extension of five
days. 7 TESCO filed its "Motion for Reconsideration and/or Petition to Set Aside Award" on November 18,
1967, alleging as grounds therefor, that the admission made in the "Employer's Report of Accident or
Sickness" was due to honest mistake and/or excusable negligence on its part, and that the illness for
which compensation is sought is not an occupational disease, hence, not compensable under the
law. 8 The extension requested was denied. The Motion for Reconsideration was likewise denied in an
Order issued by the Chief of Section of the Regional Office dated December 28, 1967 9 predicated on two
grounds: that the alleged mistake or negligence was not excusable, and that the basis of the award was
not the theory of direct causation alone but also on that of aggravation. On January 28, 1968, an Order of
execution was issued by the same Office.
On February 3, 1968, petitioner filed an "Urgent Motion to Compel Referee to Elevate the Records to
the Workmen's Compensation Commission for Review." 10 Meanwhile, the Provincial Sheriff of Rizal
levied on and attached the properties of TESCO on February 17, 1968, and scheduled the sale of the
same at public auction on February 26, 1968. On February 28, 1968, the Commission issued an Order
requiring petitioner to submit verified or true copies of the Motion for Reconsideration and/or Petition to
Set Aside Award and Order of December 28, 1967, and to show proof that said Motion for
Reconsideration was filed within the reglementary period, with the warning that failure to comply would
result in the dismissal of the Motion. However, before this Order could be released, TESCO filed with this
Court, on February 22, 1968, The present petition for "Certiorari with Preliminary Injunction" seeking to
annul the award and to enjoin the Sheriff from levying and selling its properties at public auction.
On February 29, 1968, this Court required respondents to answer the Petition but denied
Injunction. 11 TESCO'S Urgent Motion dated April 2, 1968, for the issuance of a temporary restraining
order to enjoin the Sheriff from proceeding with the auction sale of its properties was denied in our
Resolution dated May 8, 1968.
TESCO asserts: 1wph1.t
I. That the respondent Workmen's Compensation Commission has no jurisdiction nor

authority to render the award (Annex 'D', Petition) against your petitioner there being
no employer-employee relationship between it and the deceased Gatus;
II. That petitioner can never be estopped from questioning the jurisdiction of
respondent commission especially considering that jurisdiction is never conferred by
the acts or omission of the parties;
III. That this Honorable Court has jurisdiction to nullify the award of respondent
commission.
TESCO takes the position that the Commission has no jurisdiction to render a valid award in this suit
as there was no employer-employee relationship between them, the deceased having been an
employee of UMACOR and not of TESCO. In support of this contention, petitioner submitted
photostat copies of the payroll of UMACOR for the periods May 16-31, 1967 and June 1-15,
1967 12 showing the name of the deceased as one of the three employees listed under the Purchasing
Department of UMACOR. It also presented a photostat copy of a check of UMACOR payable to the
deceased representing his salary for the period June 14 to July 13, 1967. 13
Both public and private respondents contend, on the other hand, that TESCO is estopped from
claiming lack of employer employee relationship.
To start with, a few basic principles should be re-stated the existence of employer-employee
relationship is the jurisdictional foundation for recovery of compensation under the Workmen's
Compensation Law. 14 The lack of employer-employee relationship, however, is a matter of defense that
the employer should properly raise in the proceedings below. The determination of this relationship
involves a finding of fact, which is conclusive and binding and not subject to review by this Court. 15
Viewed in the light of these criteria, we note that it is only in this Petition before us that petitioner
denied, for the first time, the employer-employee relationship. In fact, in its letter dated October 27,
1967 to the Acting Referee, in its request for extension of time to file Motion for Reconsideration, in
its "Motion for Reconsideration and/or Petition to Set Aside Award," and in its "Urgent Motion to
Compel the Referee to Elevate Records to the Commission for Review," petitioner represented and
defended itself as the employer of the deceased. Nowhere in said documents did it allege that it was
not the employer. Petitioner even admitted that TESCO and UMACOR are sister companies
operating under one single management and housed in the same building. Although respect for the
corporate personality as such, is the general rule, there are exceptions. In appropriate cases, the veil
of corporate fiction may be pierced as when the same is made as a shield to confuse the legitimate
issues. 16
While, indeed, jurisdiction cannot be conferred by acts or omission of the parties, TESCO'S denial at
this stage that it is the employer of the deceased is obviously an afterthought, a devise to defeat the
law and evade its obligations. 17 This denial also constitutes a change of theory on appeal which is not
allowed in this jurisdiction. 18Moreover, issues not raised before the Workmen's Compensation
Commission cannot be raised for the first time on appeal. 19 For that matter, a factual question may not be
raised for the first time on appeal to the Supreme Court. 20
This certiorari proceeding must also be held to have been prematurely brought. Before a petition for
certiorari can be instituted, all remedies available in the trial Court must be exhausted
first. 21 certiorari cannot be resorted to when the remedy of appeal is present. 22 What is sought to be
annulled is the award made by the Referee. However, TESCO did not pursue the remedies available to it
under Rules 23, 24 and 25 of the Rules of the Workmen's Compensation Commission, namely, an appeal
from the award of the Referee, within fifteen days from notice, to the Commission; a petition for
reconsideration of the latter's resolution, if adverse, to the Commission en banc; and within ten days from
receipt of an unfavorable decision by the latter, an appeal to this Court. As petitioner had not utilized these
remedies available to it, certiorari win not he, it being prematurely filed. As this Court ruled in the case
of Manila Jockey Club, Inc. vs. Del Rosario, 2 SCRA 462 (1961). 1wph1.t
An aggrieved party by the decision of a Commissioner should seek a reconsideration

of the decision by the Commission en banc. If the decision is adverse to him, he may
appeal to the Supreme Court. An appeal brought to the Supreme Court without first
resorting to the remedy referred to is premature and may be dismissed.
Although this rule admits of exceptions, as where public welfare and the advancement of public
policy so dictate, the broader interests of justice so require, or where the Orders complained of were
found to be completely null and void or that the appeal was not considered the appropriate
remedy, 23 the case at bar does not fan within any of these exceptions. WHEREFORE, this Petition is
hereby dismissed.
SO ORDERED.
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur. 1wph1.t
Footnotes 1wph1.t
1 page 9, Rollo
2 page 10, Ibid
3 page 11, Ibid
4 page 13, Ibid
5 page 24, Ibid.
6 page 38, Ibid
7 pap 41, Ibid.
8 pages 25-27, Ibid.
11 page 18, Ibid.
13 page 92, Ibid.
14 Madrigal Shipping Co. vs. Melad, 7 SCRA 330 (1963).
15 Abong vs. WCC, 54 SCRA 379 (1973).
16 Santos vs. Vasquez, 22 SCRA 1156 (1968).
17 see La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa La

Campana (KKM), 93 Phil. 160 (1953).
18 Carantes vs. Court of Appeals, 76 SCRA 514 (1977).

19 Buenaventura vs. WCC, 76 SCRA 485 (1977).
20 Gonzales-Precilla vs. Rosario, 33 SCRA 228 (1970).
21 De Gala-Sison vs. Maddela, 67 SCRA 478 (1975).
22 Fernando vs. Vasquez, 31 SCRA 288 (1970).
23 Fernando vs. Vasquez, supra.

SUPREME COURT
FIRST DIVISION
G.R. No. 120077 October 13, 2000
THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA AND
MARCELO G. SANTOS, respondents.
PARDO, J.:
The case before the Court is a petition for certiorari1 to annul the following orders of the National
Labor Relations Commission (hereinafter referred to as "NLRC") for having been issued without or
with excess jurisdiction and with grave abuse of discretion: 2
(1) Order of May 31, 1993.3 Reversing and setting aside its earlier resolution of August 28,
1992.4 The questioned order declared that the NLRC, not the Philippine Overseas
Employment Administration (hereinafter referred to as "POEA"), had jurisdiction over private
respondent's complaint;
(2) Decision of December 15, 1994.5 Directing petitioners to jointly and severally pay private
respondent twelve thousand and six hundred dollars (US$ 12,600.00) representing salaries
for the unexpired portion of his contract; three thousand six hundred dollars (US$3,600.00)
as extra four months salary for the two (2) year period of his contract, three thousand six
hundred dollars (US$3,600.00) as "14th month pay" or a total of nineteen thousand and eight
hundred dollars (US$19,800.00) or its peso equivalent and attorney's fees amounting to ten
percent (10%) of the total award; and
(3) Order of March 30, 1995.6 Denying the motion for reconsideration of the petitioners.
In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos") was an
overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of Oman.
Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing, People's Republic of
China and later terminated due to retrenchment.
Petitioners are the Manila Hotel Corporation (hereinafter referred to as "MHC") and the Manila Hotel
International Company, Limited (hereinafter referred to as "MHICL").
When the case was filed in 1990, MHC was still a government-owned and controlled corporation
duly organized and existing under the laws of the Philippines.
MHICL is a corporation duly organized and existing under the laws of Hong Kong. 7 MHC is an
"incorporator" of MHICL, owning 50% of its capital stock. 8
By virtue of a "management agreement"9 with the Palace Hotel (Wang Fu Company Limited),
MHICL10 trained the personnel and staff of the Palace Hotel at Beijing, China.
Now the facts.
During his employment with the Mazoon Printing Press in the Sultanate of Oman, respondent
Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt, General Manager, Palace
Hotel, Beijing, China. Mr. Schmidt informed respondent Santos that he was recommended by one
Nestor Buenio, a friend of his.
Mr. Shmidt offered respondent Santos the same position as printer, but with a higher monthly salary
and increased benefits. The position was slated to open on October 1, 1988. 11
On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the offer.
On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to sign employment
contract to respondent Santos. Mr. Henk advised respondent Santos that if the contract was
acceptable, to return the same to Mr. Henk in Manila, together with his passport and two additional
pictures for his visa to China.
On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective June 30,
1988, under the pretext that he was needed at home to help with the family's piggery and poultry
business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henk's letter.
Respondent Santos enclosed four (4) signed copies of the employment contract (dated June 4,
1988) and notified them that he was going to arrive in Manila during the first week of July 1988.
The employment contract of June 4, 1988 stated that his employment would commence September
1, 1988 for a period of two years.12 It provided for a monthly salary of nine hundred dollars
(US$900.00) net of taxes, payable fourteen (14) times a year.13
On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing Press.
On July 1, 1988, respondent Santos arrived in Manila.
On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the Palace
Hotel.14
Subsequently, respondent Santos signed an amended "employment agreement" with the Palace
Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace Hotel. The
Vice President (Operations and Development) of petitioner MHICL Miguel D. Cergueda signed the
employment agreement under the word "noted".
From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He returned
to China and reassumed his post on July 17, 1989.
On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a handwritten
note that respondent Santos be given one (1) month notice of his release from employment.
On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr. Shmidt
that his employment at the Palace Hotel print shop would be terminated due to business reverses
brought about by the political upheaval in China.15 We quote the letter:16
"After the unfortunate happenings in China and especially Beijing (referring to Tiannamen
Square incidents), our business has been severely affected. To reduce expenses, we will not
open/operate printshop for the time being.
"We sincerely regret that a decision like this has to be made, but rest assured this does in no
way reflect your past performance which we found up to our expectations."
"Should a turnaround in the business happen, we will contact you directly and give you
priority on future assignment."
On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos and paid
all benefits due him, including his plane fare back to the Philippines.
On October 3, 1989, respondent Santos was repatriated to the Philippines.
On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr. Shmidt,
demanding full compensation pursuant to the employment agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:17
His service with the Palace Hotel, Beijing was not abruptly terminated but we followed the
one-month notice clause and Mr. Santos received all benefits due him.
"For your information the Print Shop at the Palace Hotel is still not operational and with a low
business outlook, retrenchment in various departments of the hotel is going on which is a
normal management practice to control costs.
"When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now shows a
better approach.
"In closing, when Mr. Santos received the letter of notice, he hardly showed up for work but
still enjoyed free accommodation/laundry/meals up to the day of his departure."
On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the Arbitration
Branch, National Capital Region, National Labor Relations Commission (NLRC). He prayed for an
award of nineteen thousand nine hundred and twenty three dollars (US$19,923.00) as actual
damages, forty thousand pesos (P40,000.00) as exemplary damages and attorney's fees equivalent
to 20% of the damages prayed for. The complaint named MHC, MHICL, the Palace Hotel and Mr.
Shmidt as respondents.
The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in the
proceedings before the Labor Arbiter.18
On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners, thus: 19
"WHEREFORE, judgment is hereby rendered:
"1. directing all the respondents to pay complainant jointly and severally;
"a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries;
"b) P50,000.00 as moral damages;
"c) P40,000.00 as exemplary damages; and
"d) Ten (10) percent of the total award as attorney's fees.
"SO ORDERED."
On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC had
jurisdiction over the case.
On August 28, 1992, the NLRC promulgated a resolution, stating:20
"WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for want
of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.
"SO ORDERED."
On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted
resolution. He argued that the case was not cognizable by the POEA as he was not an "overseas
contract worker."21
On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed Labor
Arbiter Emerson Tumanon to hear the case on the question of whether private respondent was
retrenched or dismissed.22
On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the testimonial
and documentary evidence presented to and heard by him.23
Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National Capital Region,
Arbitration Branch, and the case was transferred to Labor Arbiter Jose G. de Vera. 24
On November 25, 1994, Labor Arbiter de Vera submitted his report. 25 He found that respondent
Santos was illegally dismissed from employment and recommended that he be paid actual damages
equivalent to his salaries for the unexpired portion of his contract.26
On December 15, 1994, the NLRC ruled in favor of private respondent, to wit: 27
"WHEREFORE, finding that the report and recommendations of Arbiter de Vera are
supported by substantial evidence, judgment is hereby rendered, directing the respondents
to jointly and severally pay complainant the following computed contractual benefits: (1)
US$12,600.00 as salaries for the unexpired portion of the parties' contract; (2) US$3,600.00
as extra four (4) months salary for the two (2) years period (sic) of the parties' contract; (3)
US$3,600.00 as "14th month pay" for the aforesaid two (2) years contract stipulated by the
parties or a total of US$19,800.00 or its peso equivalent, plus (4) attorney's fees of 10% of
complainant's total award.
"SO ORDERED."
On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor Arbiter de
Vera's recommendation had no basis in law and in fact. 28
On March 30, 1995, the NLRC denied the motion for reconsideration.29
Hence, this petition.30
On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a temporary
restraining order and/or writ of preliminary injunction and a motion for the annulment of the entry of
judgment of the NLRC dated July 31, 1995.31
On November 20, 1995, the Court denied petitioner's urgent motion. The Court required respondents
to file their respective comments, without giving due course to the petition. 32
On March 8, 1996, the Solicitor General filed a manifestation stating that after going over the petition
and its annexes, they can not defend and sustain the position taken by the NLRC in its assailed
decision and orders. The Solicitor General prayed that he be excused from filing a comment on
behalf of the NLRC33
On April 30,1996, private respondent Santos filed his comment. 34
On June 26, 1996, the Court granted the manifestation of the Solicitor General and required the
NLRC to file its own comment to the petition.35
On January 7, 1997, the NLRC filed its comment.
I. Forum Non-Conveniens
The NLRC was a seriously inconvenient forum.
We note that the main aspects of the case transpired in two foreign jurisdictions and the case
involves purely foreign elements. The only link that the Philippines has with the case is that
respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are foreign corporations. Not all
cases involving our citizens can be tried here.
The employment contract. Respondent Santos was hired directly by the Palace Hotel, a foreign
employer, through correspondence sent to the Sultanate of Oman, where respondent Santos was
then employed. He was hired without the intervention of the POEA or any authorized recruitment
agency of the government.36
Under the rule of forum non conveniens, a Philippine court or agency may assume jurisdiction over
the case if it chooses to do so provided: (1) that the Philippine court is one to which the parties may
conveniently resort to; (2) that the Philippine court is in a position to make an intelligent decision as
to the law and the facts; and (3) that the Philippine court has or is likely to have power to enforce its
decision.37 The conditions are unavailing in the case at bar.
Not Convenient. We fail to see how the NLRC is a convenient forum given that all the incidents of
the case from the time of recruitment, to employment to dismissal occurred outside the
Philippines. The inconvenience is compounded by the fact that the proper defendants, the Palace
Hotel and MHICL are not nationals of the Philippines. Neither .are they "doing business in the
Philippines." Likewise, the main witnesses, Mr. Shmidt and Mr. Henk are non-residents of the
Philippines.
No power to determine applicable law. Neither can an intelligent decision be made as to the law
governing the employment contract as such was perfected in foreign soil. This calls to fore the
application of the principle of lex loci contractus (the law of the place where the contract was
made).38
The employment contract was not perfected in the Philippines. Respondent Santos signified his
acceptance by writing a letter while he was in the Republic of Oman. This letter was sent to the
Palace Hotel in the People's Republic of China.
No power to determine the facts. Neither can the NLRC determine the facts surrounding the
alleged illegal dismissal as all acts complained of took place in Beijing, People's Republic of China.
The NLRC was not in a position to determine whether the Tiannamen Square incident truly
adversely affected operations of the Palace Hotel as to justify respondent Santos' retrenchment.
Principle of effectiveness, no power to execute decision. Even assuming that a proper decision
could be reached by the NLRC, such would not have any binding effect against the employer, the
Palace Hotel. The Palace Hotel is a corporation incorporated under the laws of China and was not
even served with summons. Jurisdiction over its person was not acquired.
This is not to say that Philippine courts and agencies have no power to solve controversies involving
foreign employers. Neither are we saying that we do not have power over an employment contract
executed in a foreign country. If Santos were an "overseas contract worker", a Philippine forum,
specifically the POEA, not the NLRC, would protect him.39 He is not an "overseas contract worker" a
fact which he admits with conviction.40
Even assuming that the NLRC was the proper forum, even on the merits, the NLRC's decision
cannot be sustained.
II. MHC Not Liable
Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that MHICL
was liable for Santos' retrenchment, still MHC, as a separate and distinct juridical entity cannot be
held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock. However,
this is not enough to pierce the veil of corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud or defend a crime. 41 It is done
only when a corporation is a mere alter ego or business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals,42 we held that "the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of
itself a sufficient reason for disregarding the fiction of separate corporate personalities."
The tests in determining whether the corporate veil may be pierced are: First, the defendant must
have control or complete domination of the other corporation's finances, policy and business
practices with regard to the transaction attacked. There must be proof that the other corporation had
no separate mind, will or existence with respect the act complained of. Second, control must be used
by the defendant to commit fraud or wrong. Third, the aforesaid control or breach of duty must be the
proximate cause of the injury or loss complained of. The absence of any of the elements prevents
the piercing of the corporate veil.43
It is basic that a corporation has a personality separate and distinct from those composing it as well
as from that of any other legal entity to which it may be related.44 Clear and convincing evidence is
needed to pierce the veil of corporate fiction.45 In this case, we find no evidence to show that MHICL
and MHC are one and the same entity.
III. MHICL not Liable
Respondent Santos predicates MHICL's liability on the fact that MHICL "signed" his employment
contract with the Palace Hotel. This fact fails to persuade us.
First, we note that the Vice President (Operations and Development) of MHICL, Miguel D. Cergueda
signed the employment contract as a mere witness. He merely signed under the word "noted".
When one "notes" a contract, one is not expressing his agreement or approval, as a party
would.46 In Sichangco v. Board of Commissioners of Immigration,47 the Court recognized that the
term "noted" means that the person so noting has merely taken cognizance of the existence of an
act or declaration, without exercising a judicious deliberation or rendering a decision on the matter.
Mr. Cergueda merely signed the "witnessing part" of the document. The "witnessing part" of the
document is that which, "in a deed or other formal instrument is that part which comes after the
recitals, or where there are no recitals, after the parties (emphasis ours)."48 As opposed to a party to
a contract, a witness is simply one who, "being present, personally sees or perceives a thing; a
beholder, a spectator, or eyewitness."49 One who "notes" something just makes a "brief written
statement"50 a memorandum or observation.
Second, and more importantly, there was no existing employer-employee relationship between
Santos and MHICL. In determining the existence of an employer-employee relationship, the
following elements are considered:51
"(1) the selection and engagement of the employee;
"(2) the payment of wages;
"(3) the power to dismiss; and
"(4) the power to control employee's conduct."
MHICL did not have and did not exercise any of the aforementioned powers. It did not select
respondent Santos as an employee for the Palace Hotel. He was referred to the Palace Hotel by his
friend, Nestor Buenio. MHICL did not engage respondent Santos to work. The terms of employment
were negotiated and finalized through correspondence between respondent Santos, Mr. Schmidt
and Mr. Henk, who were officers and representatives of the Palace Hotel and not MHICL. Neither did
respondent Santos adduce any proof that MHICL had the power to control his conduct. Finally, it was
the Palace Hotel, through Mr. Schmidt and not MHICL that terminated respondent Santos' services.
Neither is there evidence to suggest that MHICL was a "labor-only contractor." 52 There is no proof
that MHICL "supplied" respondent Santos or even referred him for employment to the Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the same
entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not enough to
pierce the corporate veil between MHICL and the Palace Hotel.
IV. Grave Abuse of Discretion
Considering that the NLRC was forum non-conveniens and considering further that no employer-
employee relationship existed between MHICL, MHC and respondent Santos, Labor Arbiter Ceferina
J. Diosana clearly had no jurisdiction over respondent's claim in NLRC NCR Case No. 00-02-01058-
90.
Labor Arbiters have exclusive and original jurisdiction only over the following: 53
"1. Unfair labor practice cases;
"2. Termination disputes;
"3. If accompanied with a claim for reinstatement, those cases that workers may file involving
wages, rates of pay, hours of work and other terms and conditions of employment;
"4. Claims for actual, moral, exemplary and other forms of damages arising from employer-
employee relations;
"5. Cases arising from any violation of Article 264 of this Code, including questions involving
legality of strikes and lockouts; and
"6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement."
In all these cases, an employer-employee relationship is an indispensable jurisdictional requirement.
The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to
disputes arising from an employer-employee relationship which can be resolved by reference to the
Labor Code, or other labor statutes, or their collective bargaining agreements. 54
"To determine which body has jurisdiction over the present controversy, we rely on the sound judicial
principle that jurisdiction over the subject matter is conferred by law and is determined by the
allegations of the complaint irrespective of whether the plaintiff is entitled to all or some of the claims
asserted therein."55
The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the complaint. His
failure to dismiss the case amounts to grave abuse of discretion.56
V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the orders and
resolutions of the National Labor Relations Commission dated May 31, 1993, December 15, 1994
and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90).
No costs.
SO ORDERED.
Davide, Jr., C .J ., Puno, Kapunan, Pardo and Ynares-Santiago, JJ ., concur.
Footnotes
1
Under Rule 65, Revised Rules of Court.
2
Rollo, pp. 2-6.
3
In NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90), Commissioner
Vicente S. E. Veloso, ponente, concurred in by Commissioners Edna Bonto Perez and
Alberto R. Quimpo.
4
Penned by Commissioner V. S. E. Veloso and concurred in by Commissioners Bartolome
S. Carale and Romeo B. Putong.
5
Penned by Commissioner V. S. E. Veloso and concurred in by Commissioners B. S. Carale
and A. R. Quimpo.
6
Ibid.
7
With principal office at 18094 Swire House Charter Road, Hongkong, as shown by its
Articles of Association dated May 23, 1986.
8
MHC represented by its President Victor Sison and the Philippine Agency Limited
represented by its Director, Cheung Kwoh-Nean are MHICL's incorporators (Rollo, p. 76).
9
The management agreement was terminated on April 1, 1990.
10
Rollo, p. 71.
11
Ibid., p. 65.
12
Ibid., p. 96.
13
Rollo, p. 65.
14
Ibid., p. 97.
15
Rollo, pp. 8-14.
16
Rollo, p. 66.
17
Ibid., pp. 66-67.
18
Rollo, p. 72.
19
Ibid., p. 126.
20
Rollo, p. 99.
21
Ibid., pp. 91-92.
22
Ibid., pp. 81-83.
23
Rollo, p. 52.
24
Ibid., p. 63.
25
Ibid.
26
Ibid., pp. 78-79.
27
Ibid., pp. 79-80.
28
Rollo, pp. 51-62.
29
Rollo, pp. 49-50.
30
Filed on May 22, 1995, Rollo, pp. 42-48. On October 7, 1997, we resolved to give due
course to the petition (Rollo, p. 217). Petitioners filed their memorandum on December 1,
1997. The petition involves pure questions of law; thus, we except this case from the ruling in
San Martin Funeral Homes vs. NLRC, 295 SCRA 494 [1998]. Rather than refer the case to
the Court of Appeals, whose decision would be appealable to the Supreme Court, our ruling
would finally put an end to the litigation.
31
Rollo, pp. 127-133.
32
Rollo, p. 140.
33
Rollo, pp. 148-149.
34
Rollo, pp. 156.
35
Rollo, p. 157.
36
Rollo, p. 82.
37
Communication Materials and Design, Inc. v. Court of Appeals, 260 SCRA 673, 695 (1996).
38
Triple Eight Integrated Services, Inc. v. NLRC, 299 SCRA 608, 618 (1998).
39
Eastern Shipping Lines, Inc. v. POEA, 170 SCRA 54, 57 (1989), There we stated that, "the
POEA shall have original and exclusive jurisdiction over all cases, including money claims,
involving employer-employee relationship arising out of or by virtue of any law or contract
involving Filipino workers for overseas employment, including seamen."
40
Rollo, pp. 91-92.
41
San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals, 296 SCRA 631, 649-
650 (1998);Complex Electronics Employees Association v. NLRC, 310 SCRA 403, 417-418
(1999).
42
269 SCRA 15, 29-30 (1997).
43
Rufina Luy Lim v. Court of Appeals, G.R. No. 124715, January 24, 2000.
44
ARB Construction Co., Inc. v. Court of Appeals, G.R. No. 126554, May 31, 2000.
45
Laguio v. National Labor Relations Commission, 262 SCRA 715, 720-721 (1996); De La
Salle University v. De La Salle University Employees Association, G.R. Nos. 109002 and
110072, April 12, 2000.
46
Halili v. Court of Industrial Relations, 140 SCRA 73, 91 (1985).
47
94 SCRA 61, 69 (1979).
48
Black's Law Dictionary, Fifth Edition (1979), p. 1438.
49
Ibid.
50
Supra, p. 956.
51
Philippine Airlines, Inc. v. NLRC, 263 SCRA 642, 654 (1996).
52
"(a) the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machinery, work premises, among others; and
"(b) the workers recruited and placed by such person are performing activities which are
directly related to the principal business of the employer." Asia Brewery, Inc. v. NLRC, 259
SCRA 185, 189-190 (1996).
53
Labor Code of the Philippines, Article 217.
54
Coca Cola Bottlers Phils., Inc. v. Jose S. Roque, 308 SCRA 215, 220 (1999).
55
Marcina Saura v. Ramon Saura, Jr., 313 SCRA 465, 472 (1999).
56
Philippine Airlines, Inc. v. NLRC, supra, p. 657.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 89561 September 13, 1990
BUENAFLOR C. UMALI, MAURICIA M. VDA. DE CASTILLO, VICTORIA M. CASTILLO,

BERTILLA C. RADA, MARIETTA C. ABAEZ, LEOVINA C. JALBUENA and SANTIAGO M.
RIVERA, petitioners,
vs.
COURT OF APPEALS, BORMAHECO, INC. and PHILIPPINE MACHINERY PARTS
MANUFACTURING CO., INC., respondents.
Edmundo T. Zepeda for petitioners.
Martin M. De Guzman for respondent BORMAHECO, Inc.
Renato J. Robles for P.M. Parts Manufacturing Co., Inc.
REGALADO, J.:
This is a petition to review the decision of respondent Court of Appeals, dated August 3, 1989, in CA-
GR CV No. 15412, entitled "Buenaflor M. Castillo Umali, et al. vs. Philippine Machinery Parts
Manufacturing Co., Inc., et al.," 1the dispositive portion whereof provides:
WHEREFORE, viewed in the light of the entire record, the judgment appealed from
must be, as it is hereby REVERSED. In lieu thereof, a judgment is hereby rendered-
1) Dismissing the complaint, with cost against plaintiffs;
2) Ordering plaintiffs-appellees to vacate the subject properties; and
3) Ordering plaintiffs-appellees to pay upon defendants' counterclaims:
a) To defendant-appellant PM Parts: (i) damages consisting of the

value of the fruits in the subject parcels of land of which they were
deprived in the sum of P26,000.00 and (ii) attorney's fees of
P15,000.00
b) To defendant-appellant Bormaheco: (i) expenses of litigation in the
amount of P5,000.00 and (ii) attorney's fees of P15,000.00.
SO ORDERED.
The original complaint for annulment of title filed in the court a quo by herein petitioners included as
party defendants the Philippine Machinery Parts Manufacturing Co., Inc. (PM Parts), Insurance
Corporation of the Philippines (ICP), Bormaheco, Inc., (Bormaheco) and Santiago M. Rivera
(Rivera). A Second Amended Complaint was filed, this time impleading Santiago M. Rivera as party
plaintiff.
During the pre-trial conference, the parties entered into the following stipulation of facts:
As between all parties: Plaintiff Buenaflor M. Castillo is the judicial

administratrix of the estate of Felipe Castillo in Special Proceeding
No. 4053, pending before Branch IX, CFI of Quezon (per Exhibit A)
which intestate proceedings was instituted by Mauricia Meer Vda. de
Castillo, the previous administratrix of the said proceedings prior to
1970 (per exhibits A-1 and A-2) which case was filed in Court way
back in 1964;
b) The four (4) parcels of land described in paragraph 3 of the

Complaint were originally covered by TCT No. T-42104 and Tax Dec.
No. 14134 with assessed value of P3,100.00; TCT No. T 32227 and
Tax Dec. No. 14132, with assessed value of P5,130,00; TCT No. T-
31762 and Tax Dec. No. 14135, with assessed value of P6,150.00;
and TCT No. T-42103 with Tax Dec. No. 14133, with assessed value
of P3,580.00 (per Exhibits A-2 and B, B-1 to B-3 C, C-1 -to C3
c) That the above-enumerated four (4) parcels of land were the

subject of the Deed of Extra-Judicial Partition executed by the heirs of
Felipe Castillo (per Exhibit D) and by virtue thereof the titles thereto
has (sic) been cancelled and in lieu thereof, new titles in the name of
Mauricia Meer Vda. de Castillo and of her children, namely:
Buenaflor, Bertilla, Victoria, Marietta and Leovina, all surnamed
Castillo has (sic) been issued, namely: TCT No. T-12113 (Exhibit E );
TCT No. T-13113 (Exhibit F); TCT No. T-13116 (Exhibit G ) and TCT
No. T13117 (Exhibit H )
d) That mentioned parcels of land were submitted as guaranty in the

Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage
executed on 24 October 1970 between Insurance Corporation of the
Philippines and Slobec Realty Corporation represented by Santiago
Rivera (Exhibit 1);
e) That based on the Certificate of Sale issued by the Sheriff of the

Province of Quezon in favor of Insurance Corporation of the
Philippines it was able to transfer to itself the titles over the lots in
question, namely: TCT No. T-23705 (Exhibit M), TCT No. T 23706
(Exhibit N ), TCT No. T-23707 (Exhibit 0) and TCT No. T 23708
(Exhibit P);
f) That on 10 April 1975, the Insurance Corporation of the Philippines
sold to PM Parts the immovables in question (per Exhibit 6 for PM
Parts) and by reason thereof, succeeded in transferring unto itself the
titles over the lots in dispute, namely: per TCT No. T-24846 (Exhibit Q
), per TCT No. T-24847 (Exhibit R ), TCT No. T-24848 (Exhibit), TCT
No. T-24849 (Exhibit T );
g) On 26 August l976, Mauricia Meer Vda. de Castillo' genther letter

to Modesto N. Cervantes stating that she and her children refused to
comply with his demands (Exhibit V-2);
h) That from at least the months of October, November and

December 1970 and January 1971, Modesto N. Cervantes was the
Vice-President of Bormaheco, Inc. later President thereof, and also
he is one of the Board of Directors of PM Parts; on the other hand,
Atty. Martin M. De Guzman was the legal counsel of Bormaheco, Inc.,
later Executive Vice-President thereof, and who also is the legal
counsel of Insurance Corporation of the Philippines and PM Parts;
that Modesto N. Cervantes served later on as President of PM Parts,
and that Atty. de Guzman was retained by Insurance Corporation of
the Philippines specifically for foreclosure purposes only;
i) Defendant Bormaheco, Inc. on November 25, 1970 sold to Slobec

Realty and Development, Inc., represented by Santiago Rivera,
President, one (1) unit Caterpillar Tractor D-7 with Serial No. 281114
evidenced by a contract marked Exhibit J and Exhibit I for
Bormaheco, Inc.;
j) That the Surety Bond No. 14010 issued by co-defendant ICP was
likewise secured by an Agreement with Counter-Guaranty with Real
Estate Mortgage executed by Slobec Realty & Development, Inc.,
Mauricia Castillo Meer, Buenaflor Castillo, Bertilla Castillo, Victoria
Castillo, Marietta Castillo and Leovina Castillo, as mortgagors in favor
of ICP which document was executed and ratified before notary
public Alberto R. Navoa of the City of Manila on October 24,1970;
k) That the property mortgaged consisted of four (4) parcels of land

situated in Lucena City and covered by TCT Nos. T-13114, T13115,
T-13116 and T-13117 of the Register of Deeds of Lucena City;
l) That the tractor sold by defendant Bormaheco, Inc. to Slobec

Realty & Development, Inc. was delivered to Bormaheco, Inc. on or
about October 2,1973, by Mr. Menandro Umali for purposes of repair;
m) That in August 1976, PM Parts notified Mrs. Mauricia Meer about

its ownership and the assignment of Mr. Petronilo Roque as caretaker
of the subject property;
n) That plaintiff and other heirs are harvest fruits of the property
(daranghita) which is worth no less than Pl,000.00 per harvest.
As between plaintiffs and
defendant Bormaheco, Inc
o) That on 25 November 1970, at Makati, Rizal, Same Rivera, in

representation of the Slobec Realty & Development Corporation
executed in favor of Bormaheco, Inc., represented by its Vice-
President Modesto N. Cervantes a Chattel Mortgage concerning one
unit model CAT D7 Caterpillar Crawler Tractor as described therein
as security for the payment in favor of the mortgagee of the amount
of P180,000.00 (per Exhibit K) that Id document was superseded by
another chattel mortgage dated January 23, 1971 (Exhibit 15);
p) On 18 December 1970, at Makati, Rizal, the Bormaheco, Inc.,

represented by its Vice-President Modesto Cervantes and Slobec
Realty Corporation represented by Santiago Rivera executed the
sales agreement concerning the sale of one (1) unit Model CAT D7
Caterpillar Crawler Tractor as described therein for the amount of
P230,000.00 (per Exhibit J) which document was superseded by the
Sales Agreement dated January 23,1971 (Exhibit 16);
q) Although it appears on the document entitled Chattel Mortgage

(per Exhibit K) that it was executed on 25 November 1970, and in the
document entitled Sales Agreement (per Exhibit J) that it was
executed on 18 December 1970, it appears in the notarial register of
the notary public who notarized them that those two documents were
executed on 11 December 1970. The certified xerox copy of the
notarial register of Notary Public Guillermo Aragones issued by the
Bureau of Records Management is hereto submitted as Exhibit BB
That said chattel mortgage was superseded by another document
dated January 23, 1971;
r) That on 23 January 1971, Slobec Realty Development Corporation,

represented by Santiago Rivera, received from Bormaheco, Inc. one
(1) tractor Caterpillar Model D-7 pursuant to Invoice No. 33234
(Exhibits 9 and 9-A, Bormaheco, Inc.) and delivery receipt No. 10368
(per Exhibits 10 and 10-A for Bormaheco, Inc
s) That on 28 September 1973, Atty. Martin M. de Guzman, as

counsel of Insurance Corporation of the Philippines purchased at
public auction for said corporation the four (4) parcels of land subject
of tills case (per Exhibit L), and which document was presented to the
Register of Deeds on 1 October 1973;
t) Although it appears that the realties in issue has (sic) been sold by
Insurance Corporation of the Philippines in favor of PM Parts on 1 0
April 1975, Modesto N. Cervantes, formerly Vice- President and now
President of Bormaheco, Inc., sent his letter dated 9 August 1976 to
Mauricia Meer Vda. de Castillo (Exhibit V), demanding that she and
her children should vacate the premises;
u) That the Caterpillar Crawler Tractor Model CAT D-7 which was
received by Slobec Realty Development Corporation was actually
reconditioned and repainted. " 2
We cull the following antecedents from the decision of respondent Court of Appeals:
Plaintiff Santiago Rivera is the nephew of plaintiff Mauricia Meer Vda. de Castillo.
The Castillo family are the owners of a parcel of land located in Lucena City which
was given as security for a loan from the Development Bank of the Philippines. For
their failure to pay the amortization, foreclosure of the said property was about to be
initiated. This problem was made known to Santiago Rivera, who proposed to them
the conversion into subdivision of the four (4) parcels of land adjacent to the
mortgaged property to raise the necessary fund. The Idea was accepted by the
Castillo family and to carry out the project, a Memorandum of Agreement (Exh. U p.
127, Record) was executed by and between Slobec Realty and Development, Inc.,
represented by its President Santiago Rivera and the Castillo family. In this
agreement, Santiago Rivera obliged himself to pay the Castillo family the sum of
P70,000.00 immediately after the execution of the agreement and to pay the
additional amount of P400,000.00 after the property has been converted into a
subdivision. Rivera, armed with the agreement, Exhibit U , approached Mr. Modesto
Cervantes, President of defendant Bormaheco, and proposed to purchase from
Bormaheco two (2) tractors Model D-7 and D-8 Subsequently, a Sales Agreement
was executed on December 28,1970 (Exh. J, p. 22, Record).
On January 23, 1971, Bormaheco, Inc. and Slobec Realty and Development, Inc.,
represented by its President, Santiago Rivera, executed a Sales Agreement over one
unit of Caterpillar Tractor D-7 with Serial No. 281114, as evidenced by the contract
marked Exhibit '16'. As shown by the contract, the price was P230,000.00 of which
P50,000.00 was to constitute a down payment, and the balance of P180,000.00
payable in eighteen monthly installments. On the same date, Slobec, through Rivera,
executed in favor of Bormaheco a Chattel Mortgage (Exh. K, p. 29, Record) over the
said equipment as security for the payment of the aforesaid balance of P180,000.00.
As further security of the aforementioned unpaid balance, Slobec obtained from
Insurance Corporation of the Phil. a Surety Bond, with ICP (Insurance Corporation of
the Phil.) as surety and Slobec as principal, in favor of Bormaheco, as borne out by
Exhibit '8' (p. 111, Record). The aforesaid surety bond was in turn secured by an
Agreement of Counter-Guaranty with Real Estate Mortgage (Exhibit I, p. 24, Record)
executed by Rivera as president of Slobec and Mauricia Meer Vda. de Castillo,
Buenaflor Castillo Umali, Bertilla Castillo-Rada, Victoria Castillo, Marietta Castillo and
Leovina Castillo Jalbuena, as mortgagors and Insurance Corporation of the
Philippines (ICP) as mortgagee. In this agreement, ICP guaranteed the obligation of
Slobec with Bormaheco in the amount of P180,000.00. In giving the bond, ICP
required that the Castillos mortgage to them the properties in question, namely, four
parcels of land covered by TCTs in the name of the aforementioned mortgagors,
namely TCT Nos. 13114, 13115, 13116 and 13117 all of the Register of Deeds for
Lucena City.
On the occasion of the execution on January 23, 1971, of the Sales Agreement
Exhibit '16', Slobec, represented by Rivera received from Bormaheco the subject
matter of the said Sales Agreement, namely, the aforementioned tractor Caterpillar
Model D-7 as evidenced by Invoice No. 33234 (Exhs. 9 and 9-A, p. 112, Record) and
Delivery Receipt No. 10368 (Exhs. 10 and 10-A, p. 113). This tractor was known by
Rivera to be a reconditioned and repainted one [Stipulation of Facts, Pre-trial Order,
par. (u)].
Meanwhile, for violation of the terms and conditions of the Counter-Guaranty

Agreement (Exh. 1), the properties of the Castillos were foreclosed by ICP As the
highest bidder with a bid of P285,212.00, a Certificate of Sale was issued by the
Provincial Sheriff of Lucena City and Transfer Certificates of Title over the subject
parcels of land were issued by the Register of Deeds of Lucena City in favor of ICP
namely, TCT Nos. T-23705, T 23706, T-23707 and T-23708 (Exhs. M to P, pp. 38-45).
The mortgagors had one (1) year from the date of the registration of the certificate of
sale, that is, until October 1, 1974, to redeem the property, but they failed to do so.
Consequently, ICP consolidated its ownership over the subject parcels of land
through the requisite affidavit of consolidation of ownership dated October 29, 1974,
as shown in Exh. '22'(p. 138, Rec.). Pursuant thereto, a Deed of Sale of Real Estate
covering the subject properties was issued in favor of ICP (Exh. 23, p. 139, Rec.).
On April 10, 1975, Insurance Corporation of the Phil. ICP sold to Phil. Machinery
Parts Manufacturing Co. (PM Parts) the four (4) parcels of land and by virtue of said
conveyance, PM Parts transferred unto itself the titles over the lots in dispute so that
said parcels of land are now covered by TCT Nos. T-24846, T-24847, T-24848 and T-
24849 (Exhs. Q-T, pp. 46-49, Rec.).
Thereafter, PM Parts, through its President, Mr. Modesto Cervantes, sent a letter
dated August 9,1976 addressed to plaintiff Mrs. Mauricia Meer Castillo requesting
her and her children to vacate the subject property, who (Mrs. Castillo) in turn sent
her reply expressing her refusal to comply with his demands.
On September 29, 1976, the heirs of the late Felipe Castillo, particularly plaintiff
Buenaflor M. Castillo Umali as the appointed administratrix of the properties in
question filed an action for annulment of title before the then Court of First Instance
of Quezon and docketed thereat as Civil Case No. 8085. Thereafter, they filed an
Amended Complaint on January 10, 1980 (p. 444, Record). On July 20, 1983,
plaintiffs filed their Second Amended Complaint, impleading Santiago M. Rivera as a
party plaintiff (p. 706, Record). They contended that all the aforementioned
transactions starting with the Agreement of Counter-Guaranty with Real Estate
Mortgage (Exh. I), Certificate of Sale (Exh. L) and the Deeds of Authority to Sell, Sale
and the Affidavit of Consolidation of Ownership (Annexes F, G, H, I) as well as the
Deed of Sale (Annexes J, K, L and M) are void for being entered into in fraud and
without the consent and approval of the Court of First Instance of Quezon, (Branch
IX) before whom the administration proceedings has been pending. Plaintiffs pray
that the four (4) parcels of land subject hereof be declared as owned by the estate of
the late Felipe Castillo and that all Transfer Certificates of Title Nos.
13114,13115,13116,13117, 23705, 23706, 23707, 23708, 24846, 24847, 24848 and
24849 as well as those appearing as encumbrances at the back of the certificates of
title mentioned be declared as a nullity and defendants to pay damages and
attorney's fees (pp. 71071 1, Record).
In their amended answer, the defendants controverted the complaint and alleged, by
way of affirmative and special defenses that the complaint did not state facts
sufficient to state a cause of action against defendants; that plaintiffs are not entitled
to the reliefs demanded; that plaintiffs are estopped or precluded from asserting the
matters set forth in the Complaint; that plaintiffs are guilty of laches in not asserting
their alleged right in due time; that defendant PM Parts is an innocent purchaser for
value and relied on the face of the title before it bought the subject property (p. 744,
Record). 3
After trial, the court a quo rendered judgment, with the following decretal portion:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants, declaring the following documents:
Agreement of Counter-Guaranty with Chattel-Real Estate Mortgage

dated October 24,1970 (Exhibit 1);
Sales Agreement dated December 28, 1970 (Exhibit J)
Chattel Mortgage dated November 25, 1970 (Exhibit K)
Sales Agreement dated January 23, 1971 (Exhibit 16);
Chattel Mortgage dated January 23, 1971 (Exhibit 17);
Certificate of Sale dated September 28, 1973 executed by the

Provincial Sheriff of Quezon in favor of Insurance Corporation of the
Philippines (Exhibit L);
null and void for being fictitious, spurious and without consideration. Consequently,
Transfer Certificates of Title Nos. T 23705, T-23706, T23707 and T-23708 (Exhibits
M, N, O and P) issued in the name of Insurance Corporation of the Philippines, are
likewise null and void.
The sale by Insurance Corporation of the- Philippines in favor of defendant Philippine

Machinery Parts Manufacturing Co., Inc., over Id four (4) parcels of land and Transfer
Certificates of Title Nos. T 24846, T-24847, T-24848 and T-24849 subsequently
issued by virtue of said sale in the name of Philippine Machinery Parts Manufacturing
Co., Inc., are similarly declared null and void, and the Register of Deeds of Lucena
City is hereby directed to issue, in lieu thereof, transfer certificates of title in the
names of the plaintiffs, except Santiago Rivera.
Orders the defendants jointly and severally to pay the plaintiffs moral damages in the
sum of P10,000.00, exemplary damages in the amount of P5,000.00, and actual
litigation expenses in the sum of P6,500.00.
Defendants are likewise ordered to pay the plaintiffs, jointly and severally, the sum of
P10,000.00 for and as attomey's fees. With costs against the defendants.
SO ORDERED. 4
As earlier stated, respondent court reversed the aforequoted decision of the trial court and rendered
the judgment subject of this petition-
Petitioners contend that respondent Court of Appeals erred:

1. In holding and finding that the actions entered into between petitioner Rivera with
Cervantes are all fair and regular and therefore binding between the parties thereto;
2. In reversing the decision of the lower court, not only based on erroneous
conclusions of facts, erroneous presumptions not supported by the evidence on
record but also, holding valid and binding the supposed payment by ICP of its
obligation to Bormaheco, despite the fact that the surety bond issued it had already
expired when it opted to foreclose extrajudically the mortgage executed by the
petitioners;
3. In aside the finding of the lower court that there was necessity to pierce the veil of
corporate existence; and
4. In reversing the decision of the lower court of affirming the same 5
I. Petitioners aver that the transactions entered into between Santiago M. Rivera, as President of
Slobec Realty and Development Company (Slobec) and Mode Cervantes, as Vice-President of
Bormaheco, such as the Sales Agreement, 6 Chattel Mortgage 7 and the Agreement of Counter-
Guaranty with Chattel/Real Estate Mortgage, 8 are all fraudulent and simulated and should, therefore, be
declared nun and void. Such allegation is premised primarily on the fact that contrary to the stipulations
agreed upon in the Sales Agreement (Exhibit J), Rivera never made any advance payment, in the alleged
amount of P50,000.00, to Bormaheco; that the tractor was received by Rivera only on January 23, 1971
and not in 1970 as stated in the Chattel Mortgage (Exhibit K); and that when the Agreement of Counter-
Guaranty with Chattel/Real Estate Mortgage was executed on October 24, 1970, to secure the obligation
of ICP under its surety bond, the Sales Agreement and Chattel Mortgage had not as yet been executed,
aside from the fact that it was Bormaheco, and not Rivera, which paid the premium for the surety bond
issued by ICP
At the outset, it will be noted that petitioners submission under the first assigned error hinges purely
on questions of fact. Respondent Court of Appeals made several findings to the effect that the
questioned documents are valid and binding upon the parties, that there was no fraud employed by
private respondents in the execution thereof, and that, contrary to petitioners' allegation, the
evidence on record reveals that petitioners had every intention to be bound by their undertakings in
the various transactions had with private respondents. It is a general rule in this jurisdiction that
findings of fact of said appellate court are final and conclusive and, thus, binding on this Court in the
absence of sufficient and convincing proof, inter alia, that the former acted with grave abuse of
discretion. Under the circumstances, we find no compelling reason to deviate from this long-standing
jurisprudential pronouncement.
In addition, the alleged failure of Rivera to pay the consideration agreed upon in the Sales
Agreement, which clearly constitutes a breach of the contract, cannot be availed of by the guilty
party to justify and support an action for the declaration of nullity of the contract. Equity and fair play
dictates that one who commits a breach of his contract may not seek refuge under the protective
mantle of the law.
The evidence of record, on an overall calibration, does not convince us of the validity of petitioners'
contention that the contracts entered into by the parties are either absolutely simulated or downright
fraudulent.
There is absolute simulation, which renders the contract null and void, when the parties do not
intend to be bound at all by the same. 9 The basic characteristic of this type of simulation of contract is
the fact that the apparent contract is not really desired or intended to either produce legal effects or in any
way alter the juridical situation of the parties. The subsequent act of Rivera in receiving and making use of
the tractor subject matter of the Sales Agreement and Chattel Mortgage, and the simultaneous issuance
of a surety bond in favor of Bormaheco, concomitant with the execution of the Agreement of Counter-
Guaranty with Chattel/Real Estate Mortgage, conduce to the conclusion that petitioners had every
intention to be bound by these contracts. The occurrence of these series of transactions between
petitioners and private respondents is a strong indication that the parties actually intended, or at least
expected, to exact fulfillment of their respective obligations from one another.
Neither will an allegation of fraud prosper in this case where petitioners failed to show that they were
induced to enter into a contract through the insidious words and machinations of private respondents
without which the former would not have executed such contract. To set aside a document solemnly
executed and voluntarily delivered, the proof of fraud must be clear and convincing. 10 We are not
persuaded that such quantum of proof exists in the case at bar.
The fact that it was Bormaheco which paid the premium for the surety bond issued by ICP does
not per se affect the validity of the bond. Petitioners themselves admit in their present petition that
Rivera executed a Deed of Sale with Right of Repurchase of his car in favor of Bormaheco and
agreed that a part of the proceeds thereof shall be used to pay the premium for the bond. 11 In effect,
Bormaheco accepted the payment of the premium as an agent of ICP The execution of the deed of sale
with a right of repurchase in favor of Bormaheco under such circumstances sufficiently establishes the
fact that Rivera recognized Bormaheco as an agent of ICP Such payment to the agent of ICP is,
therefore, binding on Rivera. He is now estopped from questioning the validity of the suretyship contract.
II. Under the doctrine of piercing the veil of corporate entity, when valid grounds therefore exist, the
legal fiction that a corporation is an entity with a juridical personality separate and distinct from its
members or stockholders may be disregarded. In such cases, the corporation will be considered as
a mere association of persons. The members or stockholders of the corporation will be considered
as the corporation, that is, liability will attach directly to the officers and stockholders. 12 The doctrine
applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, 13 or when it is made as a shield to confuse the legitimate issues 14 or where a corporation is
the mere alter ego or business conduit of a person, or where the corporation is so organized and
controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation. 15
In the case at bar, petitioners seek to pierce the V621 Of corporate entity of Bormaheco, ICP and PM
Parts, alleging that these corporations employed fraud in causing the foreclosure and subsequent
sale of the real properties belonging to petitioners While we do not discount the possibility of the
existence of fraud in the foreclosure proceeding, neither are we inclined to apply the doctrine
invoked by petitioners in granting the relief sought. It is our considered opinion that piercing the veil
of corporate entity is not the proper remedy in order that the foreclosure proceeding may be declared
a nullity under the circumstances obtaining in the legal case at bar.
In the first place, the legal corporate entity is disregarded only if it is sought to hold the officers and
stockholders directly liable for a corporate debt or obligation. In the instant case, petitioners do not
seek to impose a claim against the individual members of the three corporations involved; on the
contrary, it is these corporations which desire to enforce an alleged right against petitioners.
Assuming that petitioners were indeed defrauded by private respondents in the foreclosure of the
mortgaged properties, this fact alone is not, under the circumstances, sufficient to justify the piercing
of the corporate fiction, since petitioners do not intend to hold the officers and/or members of
respondent corporations personally liable therefor. Petitioners are merely seeking the declaration of
the nullity of the foreclosure sale, which relief may be obtained without having to disregard the
aforesaid corporate fiction attaching to respondent corporations. Secondly, petitioners failed to
establish by clear and convincing evidence that private respondents were purposely formed and
operated, and thereafter transacted with petitioners, with the sole intention of defrauding the latter.
The mere fact, therefore, that the businesses of two or more corporations are interrelated is not a
justification for disregarding their separate personalities, 16 absent sufficient showing that the corporate
entity was purposely used as a shield to defraud creditors and third persons of their rights.
III. The main issue for resolution is whether there was a valid foreclosure of the mortgaged
properties by ICP Petitioners argue that the foreclosure proceedings should be declared null and
void for two reasons, viz.: (1) no written notice was furnished by Bormaheco to ICP anent the failure
of Slobec in paying its obligation with the former, plus the fact that no receipt was presented to show
the amount allegedly paid by ICP to Bormaheco; and (b) at the time of the foreclosure of the
mortgage, the liability of ICP under the surety bond had already expired.
Respondent court, in finding for the validity of the foreclosure sale, declared:
Now to the question of whether or not the foreclosure by the ICP of the real estate
mortgage was in the exercise of a legal right, We agree with the appellants that the
foreclosure proceedings instituted by the ICP was in the exercise of a legal right.
First, ICP has in its favor the legal presumption that it had indemnified Bormaheco by
reason of Slobec's default in the payment of its obligation under the Sales
Agreement, especially because Bormaheco consented to ICPs foreclosure of the
mortgage. This presumption is in consonance with pars. R and Q Section 5, Rule 5, *
New Rules of Court which provides that it is disputably presumed that private
transactions have been fair and regular. likewise, it is disputably presumed that the
ordinary course of business has been followed: Second, ICP had the right to proceed
at once to the foreclosure of the mortgage as mandated by the provisions of Art.
2071 Civil Code for these further reasons: Slobec, the principal debtor, was
admittedly insolvent; Slobec's obligation becomes demandable by reason of the
expiration of the period of payment; and its authorization to foreclose the mortgage
upon Slobec's default, which resulted in the accrual of ICPS liability to Bormaheco.
Third, the Agreement of Counter-Guaranty with Real Estate Mortgage (Exh. 1)
expressly grants to ICP the right to foreclose the real estate mortgage in the event of
'non-payment or non-liquidation of the entire indebtedness or fraction thereof upon
maturity as stipulated in the contract'. This is a valid and binding stipulation in the
absence of showing that it is contrary to law, morals, good customs, public order or
public policy. (Art. 1306, New Civil Code). 17
1. Petitioners asseverate that there was no notice of default issued by Bormaheco to ICP which
would have entitled Bormaheco to demand payment from ICP under the suretyship contract.
Surety Bond No. B-1401 0 which was issued by ICP in favor of Bormaheco, wherein ICP and Slobec
undertook to guarantee the payment of the balance of P180,000.00 payable in eighteen (18) monthly
installments on one unit of Model CAT D-7 Caterpillar Crawler Tractor, pertinently provides in part as
follows:
1. The liability of INSURANCE CORPORATION OF THE PHILIPPINES, under this

BOND will expire Twelve (I 2) months from date hereof. Furthermore, it is hereby
agreed and understood that the INSURANCE CORPORATION OF THE
PHILIPPINES will not be liable for any claim not presented in writing to the
Corporation within THIRTY (30) DAYS from the expiration of this BOND, and that the
obligee hereby waives his right to bring claim or file any action against Surety and
after the termination of one (1) year from the time his cause of action accrues. 18
The surety bond was dated October 24, 1970. However, an annotation on the upper part
thereof states: "NOTE: EFFECTIVITY DATE OF THIS BOND SHALL BE ON JANUARY 22,
1971." 19
On the other hand, the Sales Agreement dated January 23, 1971 provides that the balance of
P180,000.00 shall be payable in eighteen (18) monthly installments. 20 The Promissory Note executed
by Slobec on even date in favor of Bormaheco further provides that the obligation shall be payable on or
before February 23, 1971 up to July 23, 1972, and that non-payment of any of the installments when due
shall make the entire obligation immediately due and demandable. 21
It is basic that liability on a bond is contractual in nature and is ordinarily restricted to the obligation
expressly assumed therein. We have repeatedly held that the extent of a surety's liability is
determined only by the clause of the contract of suretyship as well as the conditions stated in the
bond. It cannot be extended by implication beyond the terms the contract. 22
Fundamental likewise is the rule that, except where required by the provisions of the contract, a
demand or notice of default is not required to fix the surety's liability. 23 Hence, where the contract of
suretyship stipulates that notice of the principal's default be given to the surety, generally the failure to
comply with the condition will prevent recovery from the surety. There are certain instances, however,
when failure to comply with the condition will not extinguish the surety's liability, such as a failure to give
notice of slight defaults, which are waived by the obligee; or on mere suspicion of possible default; or
where, if a default exists, there is excuse or provision in the suretyship contract exempting the surety for
liability therefor, or where the surety already has knowledge or is chargeable with knowledge of the
default. 24
In the case at bar, the suretyship contract expressly provides that ICP shag not be liable for any
claim not filed in writing within thirty (30) days from the expiration of the bond. In its decision dated
May 25 1987, the court a quocategorically stated that '(n)o evidence was presented to show that
Bormaheco demanded payment from ICP nor was there any action taken by Bormaheco on the
bond posted by ICP to guarantee the payment of plaintiffs obligation. There is nothing in the records
of the proceedings to show that ICP indemnified Bormaheco for the failure of the plaintiffs to pay
their obligation. " 25 The failure, therefore, of Bormaheco to notify ICP in writing about Slobec's supposed
default released ICP from liability under its surety bond. Consequently, ICP could not validly foreclose that
real estate mortgage executed by petitioners in its favor since it never incurred any liability under the
surety bond. It cannot claim exemption from the required written notice since its case does not fall under
any of the exceptions hereinbefore enumerated.
Furthermore, the allegation of ICP that it has paid Bormaheco is not supported by any documentary
evidence. Section 1, Rule 131 of the Rules of Court provides that the burden of evidence lies with
the party who asserts an affirmative allegation. Since ICP failed to duly prove the fact of payment,
the disputable presumption that private transactions have been fair and regular, as erroneously
relied upon by respondent Court of Appeals, finds no application to the case at bar.
2. The liability of a surety is measured by the terms of his contract, and, while he is liable to the full
extent thereof, such liability is strictly limited to that assumed by its terms. 26 While ordinarily the
termination of a surety's liability is governed by the provisions of the contract of suretyship, where the
obligation of a surety is, under the terms of the bond, to terminate at a specified time, his obligation
cannot be enlarged by an unauthorized extension thereof. 27 This is an exception to the general rule that
the obligation of the surety continues for the same period as that of the principal debtor. 28
It is possible that the period of suretyship may be shorter than that of the principal obligation, as
where the principal debtor is required to make payment by installments. 29 In the case at bar, the
surety bond issued by ICP was to expire on January 22, 1972, twelve (1 2) months from its effectivity
date, whereas Slobec's installment payment was to end on July 23, 1972. Therefore, while ICP
guaranteed the payment by Slobec of the balance of P180,000.00, such guaranty was valid only for and
within twelve (1 2) months from the date of effectivity of the surety bond, or until January 22, 1972.
Thereafter, from January 23, 1972 up to July 23, 1972, the liability of Slobec became an unsecured
obligation. The default of Slobec during this period cannot be a valid basis for the exercise of the right to
foreclose by ICP since its surety contract had already been terminated. Besides, the liability of ICP was
extinguished when Bormaheco failed to file a written claim against it within thirty (30) days from the
expiration of the surety bond. Consequently, the foreclosure of the mortgage, after the expiration of the
surety bond under which ICP as surety has not incurred any liability, should be declared null and void.
3. Lastly, it has been held that where The guarantor holds property of the principal as collateral
surety for his personal indemnity, to which he may resort only after payment by himself, until he has
paid something as such guarantor neither he nor the creditor can resort to such collaterals. 30
The Agreement of Counter-Guaranty with Chattel/Real Estate Mortgage states that it is being issued
for and in consideration of the obligations assumed by the Mortgagee-Surety Company under the
terms and conditions of ICP Bond No. 14010 in behalf of Slobec Realty Development Corporation
and in favor of Bormaheco, Inc. 31 There is no doubt that said Agreement of Counter-Guaranty is issued
for the personal indemnity of ICP Considering that the fact of payment by ICP has never been
established, it follows, pursuant to the doctrine above adverted to, that ICP cannot foreclose on the
subject properties,
IV. Private respondent PM Parts posits that it is a buyer in good faith and, therefore, it acquired a
valid title over the subject properties. The submission is without merit and the conclusion is specious
We have stated earlier that the doctrine of piercing the veil of corporate fiction is not applicable in
this case. However, its inapplicability has no bearing on the good faith or bad faith of private
respondent PM Parts. It must be noted that Modesto N. Cervantes served as Vice-President of
Bormaheco and, later, as President of PM Parts. On this fact alone, it cannot be said that PM Parts
had no knowledge of the aforesaid several transactions executed between Bormaheco and
petitioners. In addition, Atty. Martin de Guzman, who is the Executive Vice-President of Bormaheco,
was also the legal counsel of ICP and PM Parts. These facts were admitted without qualification in
the stipulation of facts submitted by the parties before the trial court. Hence, the defense of good
faith may not be resorted to by private respondent PM Parts which is charged with knowledge of the
true relations existing between Bormaheco, ICP and herein petitioners. Accordingly, the transfer
certificates of title issued in its name, as well as the certificate of sale, must be declared null and void
since they cannot be considered altogether free of the taint of bad faith.
WHEREFORE, the decision of respondent Court of Appeals is hereby REVERSED and SET ASIDE,
and judgment is hereby rendered declaring the following as null and void: (1) Certificate of Sale,
dated September 28,1973, executed by the Provincial Sheriff of Quezon in favor of the Insurance
Corporation of the Philippines; (2) Transfer Certificates of Title Nos. T-23705, T-23706, T-23707 and
T-23708 issued in the name of the Insurance Corporation of the Philippines; (3) the sale by
Insurance Corporation of the Philippines in favor of Philippine Machinery Parts Manufacturing Co.,
Inc. of the four (4) parcels of land covered by the aforesaid certificates of title; and (4) Transfer
Certificates of Title Nos. T-24846, T-24847, T-24848 and T24849 subsequently issued by virtue of
said sale in the name of the latter corporation.
The Register of Deeds of Lucena City is hereby directed to cancel Transfer Certificates of Title Nos.
T-24846, T-24847, T24848 and T-24849 in the name of Philippine Machinery Parts Manufacturing
Co., Inc. and to issue in lieu thereof the corresponding transfer certificates of title in the name of
herein petitioners, except Santiago Rivera.
The foregoing dispositions are without prejudice to such other and proper legal remedies as may be
available to respondent Bormaheco, Inc. against herein petitioners.
SO ORDERED.
Melencio-Herrera (Chairman), Paras and Padilla, JJ., concur.
Sarmiento, J., is on leave.
Footnotes
1 Associate Justice Bienvenido C. Ejercito, ponente; Associate
Justices Felipe B. Kalalo and Luis L. Victor, concurring; Petition,

Annex B Rollo, 60-74.
2 Rollo, 45-49.
3 Ibid., 61-64.
4 Ibid, 58-59.
5 Ibid., 14.
6 Exh. 15-Bormaheco; Original Record, 481.
7 Exh. 16-Bormaheco; Ibid., 482.
8 Exh. 1; Folder of Exhibits, 24.
9 Arts. 1345 and 1346, Civil Code
10 Arroyo etc. vs. Granada, et al., 18 Phil. 484 (1911).
11 Rollo, 17.
12 Agbayani, Laws of the Philippines, Vol. 3,1988 Ed., 18.
13 Koppel(Philippines), Inc. vs. Yatco, etc., 77 Phil. 496(1946).
14 Telephone Engineering & Service Co., Inc. vs. Workmen's Compensation

Commission, et al., 104 SCRA 354(1981).
15 Koppel (Philippines), Inc. vs. Yatco, etc., ante.

16 Diatagon Labor Federation vs. Ople, et al., 101 SCRA 534 (1980).
* This should be Pars. (p) and (q), Sec. 5 (now Sec. 3), Rule 131.
17 Rollo, 72-73.
18 Exh. 8-Bormaheco; Folder of Exhibits, 111.
19 Id., Ibid.
20 Exh. 16-Bormaheco; Ibid., 482.
21 Id., Ibid., 484.
22 Philippine Commercial & Industrial Bank vs. The Hon. Court of Appeals, et al.,
159 SCRA 24 (1988).
23 72 C.J.S. 577.
24 72 C.J.S. 636.
25 Original Record, 1016.
26 72 C.J.S. 569.
27 Op cit 597.
28 Op cit 588.
29 Tolentino, Civil Code of the Philippines, Vol. V, 1959 Ed., 436.
30 Osborn vs. Noble, 46 Miss, 449, cited in 38 C.J.S. 1263.
31 Exh I; Folder of Exhibits, 24-25.

SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 121662-64 July 6, 1999
VLASON ENTERPRISES CORPORATION, petitioner,

vs.
COURT OF APPEALS and DURAPROOF SERVICES, represented by its General Manager,
Cesar Urbino Sr.,respondents.
PANGANIBAN, J.:
Summons to a domestic or resident corporation should be served on officers, agents or employees,

who are responsible enough to warrant the presumption that they will transmit to the corporation
notice of the filing of the action against it. Rules on the service of motions should be liberally
construed in order to promote the ends of substantial justice. A rigid application that will result in the
manifest injustice should be avoided. A default judgment against several defendants cannot affect
the rights of one who was never declared in default. In any event, such judgment cannot include
award not prayed for in the complaint, even if proven ex parte.
The Case
These principles were used by this Court in resolving this Petition for Review on Certiorari before us,
assailing the July 19, 1993 Decision 1 and the August 15 Resolution 2 promulgated by the Court of
Appeals. The assailed Decision disposed as follows: 3
ACCORDINGLY, in view of the foregoing disquisitions, all the three (3) consolidated
petitions forcertiorari are hereby GRANTED.
THE assailed Order of respondent Judge Arsenio Gonong of the Regional Trial Court
of Manila, Branch 8, dated April 5, 1991, in the first petition for certiorari (CA-G.R. SP
No. 24669); the assailed Order of Judge Bernardo Pardo, Executive Judge of the
Regional Trial Court of Manila, Branch 8, dated July 6, 1992, in the second petition
for certiorari (CA-G.R. SP No. 28387); and finally, the assailed order or Resolution en
banc of the respondent Court of Tax Appeals Judges Ernesto Acosta, Ramon de
Veyra and Manuel Gruba, under date of October 5, 1992, in the third petition
forcertiorari (CA-G.R. SP No. 29317) are all hereby NULLIFIED and SET ASIDE
thereby giving way to the entire decision dated February 18, 1991 of the respondent
Regional Trial Court of Manila, Branch 8, in Civil Case No. 89-51451 which
remains valid, final and executory, if not yet wholly executed.
THE writ of preliminary injunction heretofore issued by this Court on March 6, 1992
and reiterated on July 22, 1992 and this date against the named respondents
specified in the dispositive portion of the judgment of the respondent Regional Trial
Court of Manila, Branch 8 in the first petition for certiorari, which remains valid,
existing and enforceable, is hereby MADE PERMANENT without prejudice (1) to the
[private respondent's] remaining unpaid obligations to the herein party-intervenor in
accordance with the Compromise Agreement or in connection with the decision of
the respondent lower court in CA-G.R. SP No. 24669 and (2) to the government, in
relation to the forthcoming decision of the respondent Court of Tax Appeals on the
amount of taxes, charges, assessments or obligations that are due, as totally
secured and fully guaranteed payment by the [private respondent's] bond, subject to
the relevant rulings of the Department of Finance and other prevailing laws and
jurisprudence.
The assailed Resolution ruled:
ACCORDINGLY, in the light of the foregoing disquisitions, as well as considering

these clarifications, the three (3) motions aforementioned are hereby DENIED.
The Facts
Poro Point Shipping Services, then acting as the local agent of Omega Sea Transport Company of
Honduras & Panama, a Panamanian company, (hereafter referred to as Omega), requested
permission for its vessel M/V Star Ace, which had engine trouble, to unload its cargo and to store it
at the Philippine Ports Authority (PPA) compound in San Fernando, La Union while awaiting
transshipment to Hongkong. The request was approved by the Bureau of Customs. 4 Despite the
approval, the customs personnel boarded the vessel when it docked on January 7, 1989, on
suspicion that it was the hijacked M/V Silver Med owned by Med Line Philippines Co., and that its
cargo would be smuggled into the country. 5 The district customs collector seized said vessel and its
cargo pursuant to Section 2301, Tariff and Customs Code. A notice of hearing of SFLU Seizure
Identification No. 3-89 was served on its consignee, Singkong Trading Co. of Hongkong, and its
shipper, Dusit International Co., Ltd. of Thailand.
While seizure proceedings were ongoing, La Union was hit by three typhoons, and the vessel ran
aground and was abandoned. On June 8, 1989, its authorized representative, Frank Cadacio,
entered into a salvage agreement with private respondent to secure and repair the vessel at the
agreed consideration of $1 million and "fifty percent (50%) [of] the cargo after all expenses, cost and
taxes." 6
Finding that no fraud was committed, the District Collector of Customs, Aurelio M. Quiray, lifted the
warrant of seizure on July 16, 1989. 7 However, in a Second Indorsement dated November 11, 1989,
then Customs Commissioner Salvador M. Mison declined to issue a clearance for Quiray's Decision;
instead, he forfeited the vessel and its cargo in accordance with Section 2530 of the Tariff and
Customs Code. 8 Accordingly, acting District Collector of Customs John S. Sy issued a Decision
decreeing the forfeiture and the sale of the cargo in favor of the government. 9
To enforce its preferred salvor's lien, herein Private Respondent Duraproof Services filed with the
Regional Trial Court of Manila a Petition for Certiorari, Prohibition and Mandamus 10 assailing the
actions of Commissioner Mison and District Collector Sy. Also impleaded as respondents were PPA
Representative Silverio Mangaoang and Med Line Philippines, Inc.
On January 10, 1989, private respondent amended its Petition 11 to include former District Collector
Quiray; PPA Port Manager Adolfo Ll. Amor Jr; Petitioner Vlason Enterprises as represented by its
president, Vicente Angliongto; Singkong Trading Company as represented by Atty. Eddie
Tamondong; Banco Du Brasil; Dusit International Co., Inc.; Thai-Nan Enterprises Ltd. and Thai-
United Trading Co., Ltd. 12 In both Petitions, private respondent plainly failed to include any allegation
pertaining to petitioner, or any prayer for relief against it.
1wphi1.nt
Summonses for the amended Petition were served on Atty. Joseph Capuyan for Med Line
Philippines: Angliongto (through his secretary, Betty Bebero), Atty. Tamondong and Commissioner
Mison. 13 Upon motion of the private respondent, the trial court allowed summons by publication to
be served upon the alien defendants who were not residents and had no direct representatives in
the country. 14
On January 29, 1990, private respondent moved to declare respondents in default, but the trial court
denied the motion in its February 23, 1990 Order, 15 because Mangaoang and Amor had jointly filed a
Motion to Dismiss, while Mison and Med Line had moved separately for an extension to file a similar
motion. 16 Later it rendered an Order dated July 2, 1990, giving due course to the motions to dismiss
filed by Mangaoang and Amor on the ground of litis pendentia, and by the commissioner and district
collector of customs on the ground of lack of jurisdiction. 17 In another Order, the trial court dismissed
the action against Med Line Philippines on the ground oflitis pendentia. 18
On two other occasions, private respondent again moved to declare the following in default:
petitioner, Quiray, Sy and Mison on March 26, 1990; 19 and Banco Du Brazil, Dusit International Co.,
Inc., Thai-Nan Enterprises Ltd. and Thai-United Trading Co., Ltd. on August 24, 1990. 20 There is no
record, however, that the trial court acted upon the motions. On September 18, 1990, petitioner filed
another Motion for leave to amend the petition, 21alleging that its counsel failed to include the
following "necessary and/or indispensable parties": Omega represented by Cadacio; and M/V Star
Ace represented by Capt. Nahon Rada, relief captain. Aside from impleading these additional
respondents, private respondent also alleged in the Second (actually, third) Amended
Petition 22 that the owners of the vessel intended to transfer and alienate their rights and interests
over the vessel and its cargo, to the detriment of the private respondent.
The trial court granted leave to private respondent to amend its Petition, but only to exclude the
customs commissioner and the district collector. 23 Instead, private respondent filed the "Second
Amended Petition with Supplemental Petition" against Singkong Trading Company; and Omega and
M/V Star Ace, 24 to which Cadacio and Rada filed a Joint Answer. 25
Declared in default in an Order issued by the trial court on January 23, 1991, were the following:
Singkong Trading Co., Commissioner Mison, M/V Star Ace and Omega. 26 Private respondent filed,
and the trial court granted, an ex parte Motion to present evidence against the defaulting
respondents. 27 Only private respondent, Atty. Tamondong, Commissioner Mison, Omega and M/V
Star Ace appeared in the next pretrial hearing; thus, the trial court declared the other respondents in
default and allowed private respondent to present evidence against them. 28 Cesar Urbino, general
manager of private respondent, testified and adduced evidence against the other respondents,
including herein petitioner. As regards petitioner, he declared: "Vlason Enterprises represented by
Atty. Sy and Vicente Angliongto thru constant intimidation and harassment of utilizing the PPA
Management of San Fernando, La Union . . . further delayed, and [private respondent] incurred
heavy overhead expenses due to direct and incidental expenses . . . causing irreparable damages of
about P3,000,000 worth of ship tackles, rigs, and appurtenances including radar antennas and
apparatuses, which were taken surreptitiously by persons working for Vlason Enterprises or its
agents[.] 29
On December 29, 1990, private respondent and Rada, representing Omega, entered into a
Memorandum of Agreement stipulating that Rada would write and notify Omega regarding the
demand for salvage fees of private respondent; and that if Rada did not receive any instruction from
his principal, he would assign the vessel in favor of the salvor. 30
On February 18, 1991, the trial court disposed as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, based on the allegations, prayer

and evidence adduced, both testimonial and documentary, the Court is convinced,
that, indeed, defendants/respondents are liable to [private respondent] in the amount
as prayed for in the petition for which it renders judgment as follows:
1. Respondent M/V Star Ace, represented by Capt. Nahum Rada, [r]elief [c]aptain of
the vessel and Omega Sea Transport Company, Inc., represented by Frank
Cadacio[,] is ordered to refrain from alienating or transferring the vessel M/V Star Ace
to any third parties;
2. Singkong Trading Company to pay the following:
a. Taxes due the government;
b. Salvage fees on the vessel in the amount of $1,000,000.00 based

on . . . Form of Salvage Agreement;
c. Preservation, securing and guarding fees on the vessel in the

amount of $225,000.00;
d. Maintenance fees in the amount P2,685,000.00;
e. Salaries of the crew from August 16, 1989 to December 1989 in

the amount of $43,000.00 and unpaid salaries from January 1990 up
to the present.
f. Attorney's fees in the amount of P656,000.00;
3. [Vlason] Enterprises to pay [private respondent] in the amount of P3,000,000.00

for damages;
4. Banco [Du] Brazil to pay [private respondent] in the amount of $300,000.00 in

damages; and finally,
5. Costs of [s]uit.
Subsequently, upon the motion of Omega, Singkong Trading Co. and private respondent, the trial
court approved a Compromise Agreement 31 among the movants, reducing by 20 percent the
amounts adjudged. For their part, respondents-movants agreed not to appeal the Decision. 32 On
March 8, 1991, private respondent moved for the execution of judgment, claiming that the trial court
Decision had already become final and executory. 33 The Motion was granted 34 and a Writ of
Execution was issued. 35 To satisfy the Decision, Sheriffs Jorge Victorino, Amado Sevilla and Dionisio
Camagon were deputized on March 13, 1991 to levy and to sell on execution the defendant's
vessel and personal property.
On March 14, 1991, petitioner filed, by special appearance, a Motion for Reconsideration on the
grounds that it was allegedly not impleaded as a defendant, served summons or declared in default;
that private respondent was not authorized to present evidence against it in default; that the
judgment in default was fatally defective, because private respondent had not paid filing fees for the
award; and that private respondent had not prayed for such award. 36 Private respondent opposed
the Motion, arguing that it was a mere scrap of paper due to its defective notice of hearing.
On March 18, 1991, the Bureau of Customs also filed an ex parte Motion to recall the execution, and
to quash the notice of levy and the sale on execution. 37 Despite this Motion, the auction sale was
conducted on March 21, 1991 by Sheriff Camagon, with private respondent submitting the winning
bid. 38 The trial court ordered the deputy sheriffs to cease and desist from implementing the Writ of
Execution and from levying on the personal property of the defendants. 39 Nevertheless, Sheriff
Camagon issued the corresponding Certificate of Sale on March 27, 1991. 40
On April 12, 1991, 41 private respondent filed with the Court of Appeals (CA) a Petition
for Certiorari and Prohibition to nullify the cease and desist orders of the trial court. 42 Respondent
Court issued on April 26, 1991 a Resolution which reads: 43
MEANWHILE, in order to preserve the status quo and so as not to render the present
petition moot and academic, a TEMPORARY RESTRAINING ORDER is hereby
ISSUED enjoining the respondent Judge, the Honorable Arsenio M. Gonong, from
enforcing and/or implementing the Orders dated 22 March 1991 and 5 April 1991
which ordered respondent Sheriff to cease and desist from implementing the writ of
execution and the return thereof, the quashing of the levy . . . on [the] execution [and
sale] of the properties levied upon and sold at public auction by the Sheriff, for
reason of grave abuse of discretion and in excess of jurisdiction, until further orders
from this Court.
WITHIN ten (10) days from notice hereof, respondents [petitioner included] are also
required to SHOW CAUSE why the prayer for a writ of preliminary injunction should
not be granted.
On May 8, 1991, petitioner received from Camagon a notice to pay private respondent P3 million to
satisfy the trial court Decision. Not having any knowledge of the CA case to which it was not
impleaded, petitioner filed with the trial court a Motion to Dismiss ex abutandi ad cautelam on the
grounds that (1) the Petition of private respondent stated no cause of action against it, (2) the trial
court had no jurisdiction over the case, and (3) litis pendentia barred the suit. 44
On May 10, 1991, Camagon levied on petitioner's properties, which were scheduled for auction
later on May 16, 1991. Specific descriptions of the properties are as follows: 45
a) Motor Tugboat "DEN DEN" ex Emerson-l.

Length: 35.67 ms. Breadth: 7.33 ms.
Depth: 3.15 ms Gross Tons: 205.71
Net tons: 67.48 ms Official Number: 213551
Material: Steel Class license: CWL
License No. 4424
b) Barge "FC99" ex YD-153
Length: 34.15 ms. Breadth: 15.85 m.s.
Depth: 2.77 m.s. Gross Tons: 491.70
Net Tons: 491.70 Official Number: 227236
Material: Steel Class License: CWL
License No. 83-0012
c) Barge "LAWIN" ex "Sea Lion 2".
Length: 66.92 ms. Breadth: 11.28 ms.
Depth: 4.52 m.s. Gross Tons: 1,029.56
Net Tons: 1,027/43 Official Number: 708069
Material: Steel Class License: Coastwise
License No. 81-0059
Petitioner also filed a special appearance before the CA. It prayed for the lifting of the levy on its
properties or, alternatively, for a temporary restraining order against their auction until its Motion for
Reconsideration was resolved by the trial court. 46
Acting on petitioner's Motion for Reconsideration, the trial court reversed its Decision of February 18,
1991, holding in its May 22, 1991 Resolution as follows: 47
. . . [T]hat . . . Motion for Reconsideration [of petitioner] was filed on March 14, 1991
(see: page 584, records, Vol. 2) indubitably showing that it was seasonably filed
within the 15-day time-frame. Therefore, . . . said default-judgment ha[d] not yet
become final and executory when the Writ of Execution was issued on March 13,
1991 . . . The rules [provide] that [the e]xecution shall issue as a matter of right upon
the expiration of the period of appeal from a judgment if no appeal has been duly
perfected (Sec. 1, R-39, RRC). That being the case, VEC has all the right to file as it
did . . . the aforementioned reconsideration motion calling [the] attention of the Court
and pointing therein its supposed error and its correction if, indeed, any [error was]
committed. It is in this light that this Court made an in-depth reflection and
assessment of the premises or reasons raised by [petitioner], and after a re-
examination of the facts and evidence spread on the records, it has come to the
considered conclusion that the questioned default-judgment has been improvidently
issued. By the records, the claim of [private respondent] that his January 29,
1990 Ex-Parte Motion To Declare Defendants In Default (pp. 174-177, records, Vol.
1) including VEC had been granted is belied by the February 23, 1990 Order (pp.
214-215, records, ibid) par. 2, thereof, reading to wit:
By the foregoing, for reasons stated thereunder respectively, this

Court, in the exercise of its judicious discretion, in the sense that the
rules should be liberally construed in order to promote their object
and to assist the parties, resolves to DENY petitioner's Motion to
have the Commissioner of Customs AND OTHER ENUMERATED
RESPONDENTS DECLARED IN DEFAULT. [Emphasis ours].
Not even [private respondent's] November 23, 1990 "Ex-Parte Motion To Present
[Evidence] Against Defaulting Defendants" (page 489, records, Vol. 2) [can] be
deemed as a remedy of the fact that there never was issued an order of default
against respondents including [petitioner] VEC. Having thus established that there
[had] been no order of default against VEC as contemplated by Sec. 1, Rule 18, in
relation to Sec. 9, Rule 13, Revised Rules of Court, there could not have been any
valid default-judgment rendered against it. The issuance of an order of default is a
condition sine qua nonin order [that] a judgment by default be clothed with validity.
Further, records show that this Court never had authorized [private respondent] to
adduce evidence ex-parte against [petitioner] VEC. In sum, the February 18, 1991
decision by default is null and void as against [petitioner] VEC. With this considered
conclusion of nullity of said default judgment in question, this Court feels there is no
more need for it to resolve Arguments I-A & I-B, as well as III-A & III-B, of the March
14, 1991 Motion for Reconsideration. The Court agrees, however, with said
discussions on the non-compliance [with] Sec. 2, Rule 7 (Title of Complaint) and Sec.
I, Rule 8 on the requirement of indicating in the complaint the ultimate facts on which
the party pleading relies for his claim of defense [--] which is absent in the January 9,
Amended Petition (pp. 122-141, records, Vol. I) [--] for it merely mentioned
[petitioner] VEC in par. 5 thereof and no more. It abides, likewise, with [Argument] III-
B that the Decision in suit award[ed] amounts never asked for in instant petition as
regards VEC (Sec. 5, Rule 18, RRC). . . . .
WHEREFORE, in view of the foregoing consideration, and as prayed for, the

February 18, 1991 Judgment by Default is hereby reconsidered and SET ASIDE.
On June 26, 1992, then Executive Judge Bernardo P. Pardo 48 of the Regional Trial Court of Manila
issued an Order 49 annulling the Sheriff's Report/Return dated April 1, 1991, and all proceedings
taken by Camagon.
The CA granted private respondent's Motion to file a Supplemental Petition impleading petitioner in
CA-GR 24669. 50 In view of the rampant pilferage of the cargo deposited at the PPA compound,
private respondent obtained from the appellate court a Writ of Preliminary Injunction dated March 6,
1992. The Writ: reads: 51
ACCORDINGLY, in view of the foregoing disquisitions, the urgent verified motion for
preliminary injunction dated February 11, 1992 is hereby GRANTED. Therefore, let a
writ of preliminary injunction forthwith issue against the respondents and all persons
or agents acting in their behalf, enjoining them not to interfere in the transferring of
the aforementioned vessel and its cargoes, or in removing said cargoes . . . from
[the] PPA compound.
On September 15, 1992, Sheriff Amado Sevilla seized petitioner's motor tugboat Den Den by virtue
of the Order52 dated April 3, 1992, issued by the RTC of Manila, Branch 26. 53
On August 6, 1992, the CA consolidated CA-GR SP No. 28387 54 with CA-GR SP No. 24669. 55 The
Court of Tax Appeals issued on October 5, 1992, a Resolution in CTA Case Nos. 4492, 4494 and
4500, which disposed as follows:
Confirming the order in open court on October 5, 1992, the Court hereby RESOLVES
to:
1. Order Respondent Commissioner of Customs to assign or detail [a] sufficient

number of customs police and guards aboard, and around the vicinity of, the vessel
"M/V Star Ace" now in anchor at Mariveles, Bataan or elsewhere, in order to ensure
its safety during the pendency of these cases;
2. Direct him to assign personnel and/or representatives to conduct an inventory of

part of the vessel's cargo now in the possession of Mr. Cesar S. Urbino, Sr. at 197
Heroes del "96 Street, Caloocan City, which inventory may be participated in by all
the parties interested in said cargo."
To enjoin the CTA from enforcing said Order, private respondent filed before the Court of Appeals
another Petition for Certiorari, 56 which was later also consolidated with CA-GR SP No. 24669.
On July 19, 1993, the CA rendered the assailed Decision. Petitioner filed (1) a Motion for
Clarification, praying for a declaration that the trial court Decision against it was not valid; and (2) a
partial Motion for Reconsideration, seeking to set aside the assailed Decision insofar as the latter
affected it.
On July 5, 1995, the Court of Appeals issued the following Resolution: 57
Pending resolution of the motions for reconsideration, filed by Vlason Enterprises

Corporation and Banco [Du] Brazil, and considering [private respondent's] Motion for
Entry of Judgment with respect to respondent PPA having already been granted by
this Court as far back as June 17, 1994, pursuant to the resolution of the Supreme
Court dated December 8, 1993 in G.R. No. 111270-72 (Philippine Ports Authority vs.
Court of Appeals, et al.) informing the parties in the said case that the judgment
sought to be reviewed has now become final and executory, the lower court may now
take appropriate action on the urgent ex-parte motion for issuance a writ of
execution, filed by [private respondent] on July 15, 1994.
On August 28, 1995, the Regional Trial Court of Manila, Branch 26, issued a Writ of Possession
which resulted in private respondent taking possession of petitioner's barge Lawin (formerly Sea
Lion 2) on September 1, 1995. 58
Hence, this Petition. 59

Ruling of the Respondent Court
As already adverted to, Respondent Court granted the Petition for Certiorari of the private
respondent, which was consolidated with the latter's two other Petitions. The court a quo issued the
following rulings:
1. The trial court had jurisdiction over the salvor's claim or admiralty
case pursuant to Batas Pambansa Bilang 129.
2. Since the Decision of the trial court became final and executory,
never having been disputed or appealed to a higher court, the trial
judge committed grave abuse of discretion in recalling the Writ of
Execution and in quashing the levy and the execution of the sale of
M/V Star Ace and its cargo.
2. Such acts constituted an alteration or a modification of a final and

executory judgment and could never be justified under law and
jurisprudence.
3. Civil Case 59-51451 dealt only with the salvor's claim without
passing upon the legality or the validity of the undared Decision of the
Commissioner of Customs in the seizure proceeding.
4. Petitioner and his co-respondents could not invoke the jurisdiction

of a court to secure affirmative relief against their opponent and, after
failing to obtain such relief, question the court's jurisdiction.
5. Petitioner had no recourse through any of the following judicially

accepted means to question the final judgment:
a. a petition for relief from judgment under Rule 38,
b. a direct action to annul and enjoin the enforcement

of the questioned judgment, and
c. a collateral attack against the questioned judgment

which appears void on its face.
6. A court which has already acquired jurisdiction over a case cannot

be ousted by a coequal court; the res in this case the vessel and
its cargo were placed under the control of the trial court ahead of
the CTA.
7. The admiralty Decision had attained finality while the issue of the
validity of the seizure proceedings was still under determination.
In the assailed Resolution, Respondent Court clarified that there was no need to serve summons
anew on petitioner, since it had been served summons when the Second Amended Petition (the
third) was filed; and that petitioner's Motion for Reconsideration was defective and void, because it
contained no notice of hearing addressed to the counsel of private respondent in violation of Rule
16, Section 4 of the Rules of Court.
To this second motion, [private respondent] contends that there was no need to serve
summons anew to VEC when the second amended petition was filed impleading
VEC, pursuant to the ruling of the Supreme Court in Asiatic Travel Corp. vs. CA (164
SCRA 623); and that finally, the decision of the court a quo o[n] February 18, 1991
became final and executory, notwithstanding the timely filing of the motion for
reconsideration of VEC for the reason that the said motion for reconsideration was
defective or void, there being no notice of hearing addressed to the counsel of
petitioner. In fact, no motion such as this instant one can be acted upon by the Court
without proof of service of the notice thereof, pursuant to Rule 16, Section 4 of the
Rules of Court.
xxx xxx xxx
Finally, we should never lose sight of the fact that the instant petition for certiorari is
proper only to correct errors of jurisdiction committed by the lower court, or grave
abuse of discretion which is tantamount to lack of jurisdiction Where the error is not
one of jurisdiction but an error of law or of fact which is a mistake of judgment,
appeal is the remedy (Salas vs. Castro. 216 SCRA 198). Here, respondents failed to
appeal. Hence, the decision dated February 18, 1991 of the lower court has long
become final, executory and unappealable. We do not and cannot therefore review
the instant case as if it were on appeal and direct actions on these motions. While
the proper remedy is appeal, the action for certiorari will not be entertained.
Indeed, certiorari is not a substitute for lapsed appeal.
At any rate, the decision dated July 19, 1993 of this Court on the main petition
for certiorari is not yet final (except with respect to respondent PPA), the Bureau of
Customs having filed a petition for certiorari and prohibition, under Rule 65 of the Rules
of Court, with the Supreme Court, necessitating prudence on Our part to await its final
verdict. 60
Assignment of Errors
Before us, petitioner submits the following assignment of errors on the part of Respondent Court: 61
The Court of Appeals committed serious error in ruling that the entire decision of the
trial court in Civil Case No. 89-51451 dated 18 February 1991 became final and
executory because it "was never disputed or appealed".
A VEC filed a motion for reconsideration of the said decision two days
before deadline, which motion was granted by the trial court.
B The trial court correctly granted VEC's motion for reconsideration

and set aside the 18 February 1991 decision . . . against VEC, for:
1. The trial court never acquired jurisdiction over the

person of VEC as to enable it to render any judgment
against it:
(i) VEC was not impleaded as a
respondent in Civil Case No. 89-
51451;
(ii) Summons was not served on VEC;
2. The trial court improperly rendered judgment by

default against VEC;
(i) The trial court never issued an

order of default against VEC;
(ii) The trial court never authorized ex-

parte presentation of evidence against
VEC.
3. The Judgment by default was fatally defective

because:
(i) No filing fee was paid by [private

respondent) for the staggering amount
of damages awarded by the trial court.
(ii) The 18 February 1991 decision

violates the Revised Rules of Court,
which prescribe that a judgment by
default cannot decree a relief not
prayed for.
II
Since the 18 February 1991 Decision in Civil Case No. 89-51451 is void as against
VEC, the recall of the writ of execution was valid, as far as VEC is concerned.
The Court believes that the issues can be simplified and restated as follows:
1. Has the February 18, 1991 RTC Decision become final and
executory in regard to petitioner?
2. Did the trial court acquire jurisdiction over the petitioner?
3. Was the RTC default judgment binding on petitioner?
4. Was the grant of damages against petitioner procedurally proper?
5. Was private respondent entitled to a writ of execution?
This Court's Ruling

First Issue: Finality of the RTC Decision
A judgment becomes "final and executory" by operation of law. Its finality becomes a fact when the
reglementary period to appeal lapses, and no appeal is perfected within such period. 62 The admiralty
case filed by private respondent with the trial court involved multiple defendants. This being the
case, it necessarily follows that the period of appeal of the February 18, 1991 RTC Decision
depended on the date a copy of the judgment was received by each of the defendants. Elsewise
stated, each defendant had a different period within which to appeal, depending on the date of
receipt of the Decision. 63
Omega, Singkong Trading Co. and M/V Star Ace chose to enter into a compromise agreement with
private respondent. As to these defendants, the trial court Decision had become final, and a writ of
execution could be issued against them. 64 Doctrinally, a compromise agreement is immediately final
and executory. 65
Petitioner, however, is not in the same situation. Said Decision cannot be said to have attained
finality as to the petitioner, which a party to the compromise. Moreover, petitioner filed a timely
Motion for Reconsideration with the trial court, thirteen days after it received the Decision or two
days before the lapse of the reglementary period to appeal. 66 Thus, as to petitioner, the trial court
Decision had not attained finality.
Exception to the Rule
on Notice of Hearing
Respondent Court and private respondent argue that, although timely filed, petitioner's Motion for
Reconsideration was a mere scrap of paper, because (1) it did not contain a notice of hearing
addressed to the current counsel of private respondent, and (2) the notice of hearing addressed to
and served on private respondent's deceased counsel was not sufficient. Admittedly, this Motion
contained a notice of hearing sent to Atty. Jesus C. Concepcion who, according to private
respondent, had already died and had since been substituted by its new counsel, Atty. Domingo
Desierto. Therefore, the appellate court ruled that the said Motion did not toll the reglementary
period to appeal and that the trial court Decision became final.
This Court disagrees. Rule 15 of the Rules of Court states:
Sec. 4. Notice. Notice of a motion shall be served by the applicant to all parties
concerned, at least three (3) days before the hearing thereof, together with a copy of
the motion, and of any affidavits and other papers accompanying it. The court,
however, for good cause may hear a motion on shorter notice, specially on matters
which the court may dispose of on its own motion.
Sec. 5. Contents of notice. The notice shall be directed to the parties concerned, and
shall state the time and place for the hearing of the motion. 67
Ideally, the foregoing Rule requires the petitioner to address and to serve on the counsel of private
respondent the notice of hearing of the Motion for Reconsideration. The case at bar, however, is far
from ideal. First, petitioner was not validly summoned and it did not participate in the trial of the case
in the lower court; thus, it was understandable that petitioner would not be familiar with the parties
and their counsels. Second, Atty. Desierto entered his appearance only as collaborating counsel, 68
who is normally not entitled to notices even from this Court. Third, private respondent made no
manifestation on record that Atty. Concepcion was already dead. Besides, it was Atty. Concepcion
who signed the Amended Petition, wherein petitioner was first impleaded as respondent and served
a copy thereof. Naturally, petitioner's attention was focused on this pleading, and it was within its
rights to assume that the signatory to such pleading was the counsel for private respondent.
The Court has consistently held that a motion which does not meet the requirements of Sections 4
and 5 of Rule 15 of the Rules of Court is considered a worthless piece of paper, which the clerk of
court has no right to receive and the trial court has no authority to act upon. Service of a copy of a
motion containing a notice of the time and the place of hearing of that motion is a mandatory
requirement, and the failure of movants to comply with these requirements renders their motions
fatally defective. 69 However, there are exceptions to the strict application of this rule. These
exceptions are as
follows: 70
. . . Liberal construction of this rule has been allowed by this Court in cases (1) where a
rigid application will result in a manifest failure or miscarriage of justice; 71 especially if a
party successfully shows that the alleged defect in the questioned final and executory
judgment is not apparent on its face or from the recitals contained therein; (2) where the
interest of substantial justice will be served; 72 (3) where the resolution of the motion is
addressed solely to the sound and judicious discretion of the court; 73 and (4) where the
injustice to the adverse party is not commensurate [to] the degree of his thoughtlessness
in not complying with the procedure prescribed. 74
The present case falls under the first exception. Petitioner was not informed of any cause of action
or claim against it. All of a sudden, the vessels which petitioner used in its salvaging business were
levied upon and sold in execution to satisfy a supposed judgment against it. To allow this to happen
simply because of a lapse in fulfilling the notice requirement which, as already said, was
satisfactorily explained would be a manifest failure or miscarriage of justice.
A notice of hearing is conceptualized as an integral component of procedural due process intended

to afford the adverse parties a chance to be heard before a motion is resolved by the court. Through
such notice, the adverse party is permitted time to study and answer the arguments in the motion.
Circumstances in the case at bar show that private respondent was not denied procedural due
process, and that the very purpose of a notice of hearing had been served. On the day of the
hearing, Atty. Desierto did not object to the said Motion for lack of notice to him; in fact, he was
furnished in open court with a copy of the motion and was granted by the trial court thirty days to file
his opposition to it. These circumstances clearly justify a departure from the literal application of the
notice of hearing rule. 75 In other cases, after the trial court learns that a motion lacks such notice, the
prompt resetting of the hearing with due notice to all the parties is held to have cured the defect. 76
Verily, the notice requirement is not a ritual to be followed blindly. Procedural due process is not
based solely on a mechanistic and literal application that renders any deviation inexorably fatal.
Instead, procedural rules are liberally construed to promote their objective and to assist in obtaining
a just, speedy and inexpensive determination of any action and proceeding. 77 For the foregoing
reasons, we believe that Respondent Court committed reversible error in holding that the Motion for
Reconsideration was a mere scrap of paper.
Second Issue: Jurisdiction Over Petitioner
Service of Summons
on a Corporation
The sheriff's return shows that Angliongto who was president of petitioner corporation, through his
secretary Betty Bebero, was served summons on January 18, 1990. 78 Petitioner claims that this
service was defective for two reasons: (1) Bebero was an employee of Vlasons Shipping, Inc., which
was an entity separate and distinct from Petitioner Vlason Enterprises Corporation (VEC); and (2)
the return pertained to the service of summons for the amended Petition, not for the "Second
Amended Petition with Supplemental Petition," the latter pleading having superseded the former.
A corporation may be served summons through its agents or officers who under the Rules are
designated to accept service of process. A summons addressed to a corporation and served on the
secretary of its president binds that corporation. 79 This is based on the rationale that service must be
made on a representative so integrated with the corporation sued, that it is safe to assume that said
representative had sufficient responsibility and discretion to realize the importance of the legal
papers served and to relay the same to the president or other responsible officer of the corporation
being sued. 80 The secretary of the president satisfies this criterion. This rule requires, however, that
the secretary should be an employee of the corporation sought to be summoned. Only in this
manner can there be an assurance that the secretary will "bring home to the corporation [the] notice
of the filing of the action" against it.
In the present case, Bebero was the secretary of Angliongto, who was president of both VSI and
petitioner, but she was an employee of VSI, not of petitioner. The piercing of the corporate veil
cannot be resorted to when serving summons. 81 Doctrinally, a corporation is a legal entity distinct
and separate from the members and stockholders who compose it. However, when the corporate
fiction is used as a means of perpetrating a fraud, evading an existing obligation, circumventing a
statute, achieving or perfecting a monopoly or, in generally perpetrating a crime, the veil will be lifted
to expose the individuals composing it. None of the foregoing exceptions has been shown to exist in
the present case. Quite the contrary, the piercing of the corporate veil in this case will result in
manifest injustice. This we cannot allow. Hence, the corporate fiction remains.
Effect of Amendment of
Pleading on Jurisdiction
Petitioner claims that the trial court did not acquire jurisdiction over it, because the former had not
been served summons anew for the Second Amended Petition or for the Second Amended Petition
with Supplemental Petition. In the records, it appears that only Atty. Tamondong, counsel for
Singkong Trading, was furnished a copy of the Second Amended Petition. 82 The corresponding
sheriff's return indicates that only Omega, M/V Star Ace and Capt. Rada were served summons and
copies of said Petition. 83
We disagree. Although it is well-settled that an amended pleading supersedes the original one,
which is thus deemed withdrawn and no longer considered part of the record, it does not follow ipso
facto that the service of a new summons for amended petitions or complaints is required. Where the
defendants have already appeared before the trial court by virtue of a summons on the original
complaint, the amended complaint may be served upon them without need of another summons,
even if new causes of action are alleged. 84 After it is acquired, a court's jurisdiction continues until
the case is finally terminated. Conversely, when defendants have not yet appeared in court and no
summons has been validly served, new summons for the amended complaint must be served on
them. 85 It is not the change of cause of action that gives rise to the need to serve another summons
for the amended complaint, but rather the acquisition of jurisdiction over the persons of the
defendants. If the trial court has not yet acquired jurisdiction over them, a new service of summons
for the amended complaint is required. 1wphi1.nt
In this case, the trial court obviously labored under the erroneous impression that petitioner had
already been placed under its jurisdiction since it had been served summons through the secretary
of its president. Thus, it dispensed with the service on petitioner of new summons for the subsequent
amendments of the Petition. We have already ruled, however, that the first service of summons on
petitioner was invalid. Therefore, the trial court never acquired jurisdiction, and the said court should
have required a new service of summons for the amended Petitions.
Impleading a Party in the
Title of the Complaint
Petitioner further claims that the trial court failed to acquire jurisdiction to render judgment against it
because (1) the title of the three Petitions filed by private respondent never included petitioner as a
party-defendant, in violation of Rule 7; and (2) the Petitions failed to state any allegation of ultimate
facts constituting a cause of action against petitioner.
We disagree with petitioner on the first ground. The judicial attitude has always been favorable and
liberal in allowing amendments to pleadings. Pleadings shall be construed liberally so as to render
substantial justice to the parties and to determine speedily and inexpensively the actual merits of the
controversy with the least regard to technicalities. 86
The inclusion of the names of all the parties in the title of a complaint is a formal requirement under
Section 3, Rule 7. However, the rules of pleadings require courts to pierce the form and go into the
substance and not to be misled by a false or wrong name given to a pleading. The averments in the
complaint, not the title, controlling. Although the general rule requires the inclusion of the names of
all the parties in the title of a complaint, the non-inclusion of one or some of them is not fatal to the
cause of action of a plaintiff, provided there is a statement in the body of the petition indicating that a
defendant was made a party to such action.
Private respondent claims that petitioner has always been included in the caption of all the Petitions
it filed, which included Antonio Sy, field manager of petitioner. We checked and noted that in the
caption and the body of the Amended Petition and Second Amended Petition with Supplemental
Petition, Antonio Sy alleged to be representing Med Line Philippines, not petitioner. Because it was
private respondent who was responsible for the errors, the Court cannot excuse it from compliance,
for such action will prejudice petitioner, who had no hand in the preparation of these pleadings. In
any event, we reiterate that, as a general rule, mere failure to include the name of a party in the title
of a complaint is not fatal by itself.
Stating a Cause of Action
in the Complaint
The general rule is allegata et probata a judgment must conform to the pleadings and the theory
of the action under which the case was tried. 87 But a court may also rule and render judgment on the
basis of the evidence before it, even though the relevant pleading has not been previously amended,
so long as no surprise or prejudice to the adverse party is thereby caused. 88
In the case at bar, the liability of petitioner was based not on any allegation in the four Petitions filed
with the trial court, but on the evidence presented ex parte by the private respondent. Since the trial
court had not validly acquired jurisdiction over the person of petitioner, there way for the latter to
have validly and knowingly waived its objection to the private respondent's presentation of evidence
against it.
Third Issue: Judgment by Default
The trial court Decision holding petitioner liable for damages is basically a default judgment. In
Section 18, judgment by default is allowed under the following condition: 89
Sec. 1. Judgment by default. If the defendant fails to answer within the time
specified in these rules, the court shall, upon motion of the plaintiff and proof of such
failure, declare the defendant in default. Thereupon the court shall proceed to receive
the plaintiff's evidence and render judgment granting him such relief as the complaint
and the facts proven may warrant. . . . .
Thus, it becomes crucial to determine whether petitioner was declared in default, and whether the
reception of evidence ex parte against it was procedurally valid.
Petitioner Was Never
Declared In Default
Petitioner insists that the trial court never declared it in default.
We agree. The trial court denied the January 29, 1990 Motion of private respondent to declare all the
defendants in default, but it never acted on the latter's subsequent Motion to declare petitioner
likewise. During the pretrial on January 23, 1993, the RTC declared in default only "Atty. Eddie
Tamondong, as well as the other defendants Hon. Salvador Mison, M/V Star Ace, Omega Sea
Transport Co., Inc. of Panama and Sinkong Trading Co., [but] despite . . . due notice to them, [they]
failed to appear. 90 Even private respondent cannot pinpoint which trial court order held petitioner in
default.
More important, the trial court, in its Resolution dated May 22, 1991, admitted that it never declared
petitioner in default, viz.:
. . . It is in this light that this [c]ourt made an in-depth reflection and assessment of
the premises or reasons raised by [petitioner] VEC[;] and after a re-examination of
the facts and evidence spread on the records, it has come to the considered
conclusion that the questioned default-judgment has been improvidently issued.
[Based on] the records, the claim of [private respondent] that [its] January 29,
1990 Ex-Parte Motion to Declare Defendants In Default (pp. 174-177, records, Vol. 1)
including VEC had been granted is belied by the February 23, 1990 Order (pp. 214-
215, records, ibid.) par. 2, thereof, . . .
xxx xxx xxx
Not even petitioner's November 23, 1990 "Ex-Parte Motion To Present Evidence
Against Defaulting Defendants" (page 489, records, Vol. 2) [can] be deemed as a
remedy [for] the fact that there never was issued an order of default against
respondents including [petitioner] VEC. Having thus established that there ha[d] been
no order of default against VEC as contemplated by Sec. 1, Rule 18, in relation to
Sec. 9, Rule 13, Revised Rules of Court, there could not have been any valid default-
judgment rendered against it. The issuance of an order [o]f default is a condition sine
quanon in order [that] a judgment by default be clothed with validity. Further, records
show that this [c]ourt never had authorized [private respondent] to adduce
evidence ex-parte against [Petitioner] VEC. In sum, the February 18, 1991 decision
by default is null and void as against [Petitioner] VEC. . . .
The aforementioned default judgment refers to the February 18, 1989 Decision, not to the Order
finding petitioner in default as contended by private respondent. Furthermore, it is a legal
impossibility to declare a party-defendant to be in default before it was validly served summons.
Trial Court Did Not Allow
Presentation of Evidence
Ex Parte Against Petitioner
The Order of December 10, 1990, which allowed the presentation of evidence ex parte against the
defaulting defendants, could not have included petitioner, because the trial court granted private
respondent's motion praying for the declaration of only the foreign defendants in default. So too,
private respondent's ex parte Motion to present evidence referred to the foreign defendants only. 91
Furthermore, the reception of evidence ex parte against a non-defaulting party is procedurally

indefensible. Without a declaration that petitioner is in default as required in Section 1, Rule 18, the
trial court had no authority to order the presentation of evidence ex parte against petitioner to render
judgment against it by default. The trial judge must have thought that since it failed to summons and
was in default, it effectively waived any objection to the presentation of evidence against it. This rule,
however, would have applied only if petitioner had submitted itself to the jurisdiction of the trial court.
The latter correctly declared, in the Resolution just cited, that the default judgment against the former
had been improvidently rendered.
Fourth Issue: Award Not Paid and Prayed For
Additional Filing Fees as
Lien on the Judgment
Had the trial court validly acquired jurisdiction over petitioner, nonpayment of docket fees would not
have prevented it from holding petitioner liable for damages. The Court, in Manchester Development
Corporation v. Court of Appeals, 92 ruled that a court acquires jurisdiction over any case only upon
the payment of the prescribed docket fee, not upon the amendment of the complaint or the payment
of the docket fees based on the amount sought in the amended pleading. This ruling, however, was
modified in Sun Insurance Office, Ltd. v. Asuncion, 93 which added:
3. Where the trial court acquires jurisdiction over a claim [through] the filing of the
appropriate pleading and payment of the prescribed filing fee but, subsequently, the
judgment awards a claim not specified in the pleading, or if specified the same has
been left for determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment. It shall be the responsibility of the Clerk of Court or
his duly authorized deputy to enforce said lien and assess and collect the additional
fee.
Filing fees for damages and awards that cannot be estimated constitute liens on the awards finally
granted by the trial court. Their nonpayment alone is not a ground for the invalidation of the award.
Judgment by Default Cannot
Grant Relief Prayed For
A declaration or order of default is issued as a punishment for unnecessary delay in joining issues. In
such event, defendants lose their standing in court, they cannot expect the trial court to act upon
their pleadings, and they are not entitled to notice of the proceeding until the final termination of the
case. 94 Thus, the trial court proceeds with the reception of the plaintiff's evidence upon which a
default judgment is rendered.
Section 1 of Rule 18 provides that after the defendant has been declared in default, "the court shall
proceed to receive the plaintiff's evidence and render judgment granting him such relief as the
complaint and the facts proven may warrant." The reliefs that may be granted, however, are
restricted by Section 5, which provides that a judgment entered against a party in default shall not
exceed the amount or be different in kind from that prayed for.
In other words, under Section 1, a declaration of default is not an admission of the truth or the
validity of the plaintiff's claims. 95 The claimant must still prove his claim and present evidence. In this
sense the law gives defaulting parties some measure of protection because plaintiffs, despite the
default of defendants, are still required to substantiate their allegations in the complaint. The
judgment of default against defendants who have not appeared or filed their answers does not imply
a waiver of all their rights, except their right to be heard and to present evidence in their favor. Their
failure to answer does not imply their admission of the facts and the causes of action of the plaintiffs,
because the latter are required to adduce evidence to support their allegations.
Moreover, the trial court is not allowed by the Rules to receive evidence that tends to show a relief
not sought or specified in the pleadings. 96 The plaintiff cannot be granted an award greater than or
different in kind from that specified in the complaint. 97
This case should be distinguished, however, from that of defendants, who filed an answer but were
absent during trial. In that case, they can be held liable for an amount greater than or different from
that originally prayed for, provided that the award is warranted by the proven facts. This rule is
premised on the theory that the adverse party failed to object to evidence relating to an issue not
raised in the pleadings.
The latter rule, however, is not applicable to the instant case. Admittedly, private respondent
presented evidence that would have been sufficient to hold petitioner liable for damages. However, it
did not include in its amended Petitions any prayer for damages against petitioner. Therefore, the
trial court could not have validly held the latter liable for damages even if it were in default.
Fifth Issue: Execution of Final Judgment
Section 1 of Rule 39 provides that execution shall issue only upon a judgment that finally disposes of
the action or proceeding. Such execution shall issue as a matter of right upon the expiration of the
period to appeal it, if no appeal has been duly perfected. 98
In the present case, however, we have already shown that the trial court's Decision has not become
final and executory against petitioner. In fact, the judgment does not even bind it. Obviously,
Respondent Court committed serious reversible errors when it allowed the execution of the said
judgment against petitioner.
WHEREFORE, the appeal is hereby GRANTED, and the assailed Decision and Resolution of the
Court of Appeals are REVERSED and SET ASIDE insofar as they affect petitioner. The levy and the
sale on execution of petitioner's properties are declared NULL and VOID. Said properties are
ordered RESTORED to petitioner. No pronouncement as to costs.
Purisima and Gonzaga-Reyes, JJ., concur. 1wphi1.nt
Romero, J., is abroad on official business.
Vitug, J., in the result.
Footnotes
1 Penned by J. Jainal D. Rasul and concurred in by JJ. Segundinao G. Chua and Consuelo
Ynares-Santiago (now an associate justice of the Supreme Court); rollo, pp. 65-79.
2 Rollo, pp. 81-85.
3 Rollo, pp. 78-79.
4 Records, Vol. 1, pp. 27-31.
5 Records, Vol. 1, p. 32.
6 Records, Vol. 1, pp. 36-39. (Exh. B).
7 Decision dated July 17, 1989, in SFLU Seizure Identification No. 3-89; records, Vol. 1, pp.
54-68.
8 2nd Indorsement dated November 1989; Records, Vol. 1, pp. 70-71.
9 Decision dated November 17, 1989, Records, Vol. 1, pp. 74-86.
10 Docketed as Civil Case No. 89-51451 and raffled to Branch 8; records, Vol. 1, pp. 1-26.
11 Ibid., pp. 122-145.
12 Amended Petition, id., pp. 122 & 128-129.
13 Sheriff's Return, id., pp. 160-164 & 171.
14 Id., pp. 153-156.
15 Id., pp. 214-215.
16 Eventually, both separately filed their motions to dismiss.

17 Records, Vol. 1, pp. 325-326.
18 Order dated September 10, 1990; Records, Vol. 2, p. 359.
19 Records, Vol. 1, pp. 237-238.
20 Ibid., pp. 351-352.
21 Records, Vol. 2, pp. 370-371.
22 Motion for Leave to Admit Second Amended Petition and Supplemental Petition, ibid., p.
370; Second Amended Petition with Supplemental Petition, ibid., pp. 372-398.
23 Order dated September 28, 1990, Records, Vol. 2, p. 407.
24 Records, Vol. 2, pp. 414-415.
25 Ibid., pp., 425-488.
26 Id., p. 506.
27 Order dated December 10, 1990, id., p. 492.
28 Order of January 23, 1991, Records, Vol. 2, p. 506. The records (pp. 493-495), however,
show that only Duraproof Service, Singkong Trading and M/V Star Ace were served
summons.
29 RTC Decision, p. 7; Rollo, p. 92; penned by Judge Arsenio M. Gonong.
30 Memorandum of Agreement, id., pp. 511-512.
31 Records, Vol. 2, pp. 535-538.
32 Order dated March 6, 1991, ibid., pp. 519-541. Private respondent entered into two
separate compromise agreements with Singkong Trading Co. (id., pp. 535-536) and another
with Omega (id., pp. 537-538). Both agreements were dated March 4, 1991.
33 Id., p. 576.
34 Id., p. 579.
35 Id., pp. 550-581.
36 Records, Vol. 2, pp. 584-596.
37 Ibid., pp. 604-607.
38 Annex "I"; CA Rollo, pp. 51 & 817.

39 Order dated March 22, 1991, id., pp. 611-612; and Order dated April 5, 1991, id., pp. 654-
655.
40 CA Rollo, p. 52.
41 In CA Decision dated July 19, 1993, this petition was filed sometime in December 1991.
CA Decision, p. 4; Rollo, p. 68.
42 Docketed as CA-GR SP No. 24669. The respondents in this case were the RTC of
Manila, Br. 8; Bureau of Customs and PPA.
43 CA Rollo, pp. 93-94.
44 Records, Vol. 3, pp. 31-40.
45 Receipt, ibid., p. 59.
46 CA Rollo, pp. 100-110; Rollo, pp. 116-126.
47 Records, Vol. 3, pp. 100-101.
48 Now a member of this Court.
49 CA-GR SP No. 28387; Rollo, p. 82.
50 CA Rollo, pp. 199-200.
51 Ibid., pp. 593-596 & 621-622.
52 CA Rollo, p. 106.
53 Presided by then Judge Corona Ibay-Somera (now Associate Justice of Court of

Appeals). Private respondent filed with said court a motion to appoint Sevilla as special
sheriff to implement the Writ of Preliminary Injunction issued by the CA.
54 Private respondent filed on July 15, 1992, a Petition for Certiorari, Prohibition
& Mandamus from the Order dated June 26, 1992 of then Executive Judge Bernardo P.
Pardo, nullifying all the acts of Sheriff Camagon including the auction sale of the vessel M/V
Star Ace.
55 CA Rollo, pp. 1061-1063.
56 Docketed as CA-GR SP No. 29317.
57 Rollo, pp. 208-209.
58 It was only at that time that petitioner learned of private respondent's urgent ex
parte motion for the issuance of a writ of execution, and of the writ of possession filed with
the RTC of Manila, Branch 26.
59 This case was deemed submitted for decision upon receipt by this Court of the
Memorandum for the Private Respondent on September 22, 1997. Petitioner's Memorandum
was received earlier on August 26, 1997.
60 Ibid., pp. 82-83 & 84-85.
61 Memorandum; Rollo, pp. 311-312.
62 City of Manila v. Court of Appeals, 204 SCRA 362, 366, November 29, 1991; and Teodoro
v. Court of Appeals, 258 SCRA 603, 607-608, July 11, 1996.
63 Bank of the Philippine Islands v. Far East Molasses Corp., 198 SCRA 689, 703-704, July
2, 1991.
64 Litton v. Court of Appeals, 263 SCRA 40, 45, October 9, 1996.
65 Inaldo v. Balagot, 203 SCRA 650, 654, November 18, 1991.
66 Rubio v. MTCC, Branch 4, Cagayan de Oro City; 252 SCRA 172, 183, January 24, 1996.
67 The corresponding sections of the 1997 Rules of Court simply provide:
Sec. 4. Hearing of Motion. Except for motions which the court may act upon without
prejudicing the rights of the adverse party, every written motion shall be set for hearing by
the applicant.
Every written motion required to be heard and the notice of the hearing thereof shall be
served in such manner as to ensure its receipt by the other party at least three (3) days
before the date of hearing, unless the court for good cause sets the hearing on shorter
notice. (4a)
Sec. 5. Notice of hearing. The notice of hearing shall be addressed to all parties
concerned, and shall specify the time and date of the hearing, which must not be later than
ten (10) days after the filing of the motion. (5a)
Sec. 6. Proof of service necessary. No written motion set for hearing shall be acted upon
by the court without proof of service thereof.
68 RTC Records, Vol. 2 p. 369.
69 Tan v. Bloomberry Mfg., Inc., GR No. 130314, September 22, 1998, pp. 8-11; People v.
Court of Appeals, GR No. 126065, January 21, 1999, pp. 21-22.
70 Id., p. 14.
71 Goldloop Properties, Inc. vs. Court of Appeals 212 SCRA 498, 504-505, August 11, 1992;
Legarda v. Court of Appeals, 195 SCRA 418, 426-427, March 18, 1991.
72 Tamargo v. Court of Appeals, 209 SCRA 518, 522, June 3, 1992.

73 Galvez v. Court of Appeals, 237 SCRA 685, 696-702, October 24, 1994.
74 Galang v. Court of Appeals, 199 SCRA 683, 689, July 29, 1991.
75 Villanueva Transport Co., Inc. v. Moya, 42 SCRA 157, 161-162, October 29, 1971.
76 Sunga v. Lacson, 23 SCRA 393, 397, April 29, 1968; De Rapisura v. Nicolas, 16 SCRA
378, 800, April 29, 1966; E & L Mercantile, Inc. v. Intermediate Appellate Court, 142 SCRA
386, 392, June 25, 1986.
77 E & L Mercantile, Inc. v. IAC; supra, p. 392.
78 RTC Records, Vol. 1, p. 164.
79 G & G Trading Corp. v. Court of Appeals, 158 SCRA 466, 468, February 29,1988; Far
Corporation v. Francisco, 146 SCRA 197, 203, December 12, 1986; ATM Trucking
Incorporated v. Buencamino, 124 SCRA 434, 436, August 31, 1983; and Summit Trading &
Development Corp. v. Avendao, 135 SCRA 397, 400, March 18, 1985.
80 Kanlaon Construction Enterprises Co., Inc, v. National Labor Relations Commission, 279
SCRA 337, 346, September 18, 1997; G & G Trading Corp. v. CA, supra; ATM Trucking
Incorporated v. Buencamino,supra; Villa Rey Transit, Inc. v. Far East Motor Corp., 81 SCRA
298, 303, January 31, 1978; and Delta Motor Sales Corporation v. Mancosing, 70 SCRA 598,
603, April 30, 1976.
81 Filmerco Commercial Co., Inc. v. Intermediate Appellate Court, 149 SCRA 194, 203-204,
April 9, 1987.
82 Compliance; Records, Vol. 2, p. 413.
83 Ibid., p. 423.
84 Ong Peng v. Custodio, 1 SCRA 780, 783, March 25, 1961; Atkins, Kroll & Co. v. Domingo,
44 Phil. 680, 683, March 24, 1923; and Pan-Asiatic Travel Corp. v. Court of Appeals, 164
SCRA 623, 627, August 19, 1988.
85 De Dios v. Court of Appeals, 212 SCRA 519, 524-525, August 12, 1992; and Ong Peng v.
Custodio,supra.
86 Contech Construction Technology & Development Corp. v. Court of Appeals, 211 SCRA
692, 695-697, July 23, 1992.
87 Lazo v. Republic Surety & Ins. Co., Inc., 31 SCRA 329, 334, January 30, 1970.
88 Talisay-Silay Milling Co., Inc. v. Asociacion de Agricultures de Talisay-Silay, Inc, 247

SCRA 361, 375-378, August 15, 1995; Northern Cement Corporation v. Intermediate
Appellate Court, 158 SCRA 408, 416-417, February 29, 1988; Jacinto v. Court of Appeals,
198 SCRA 211, 218, June 6, 1991; Pilapil v. Court of Appeals, 216 SCRA 33, 49, November
26, 1992; Universal Motors Corporation v. Court of Appeals, 205 SCRA 449, 456, January
27, 1992.
89 The corresponding provision in the 1997 Rules of Court reads:
Sec. 3. Default; declaration of. If the defending party fails to answer within the time allowed
therefor, the court shall, upon motion of the claiming party with notice to the defending party,
and proof of such failure, declare the defending party in default. Thereupon, the court shall
proceed to render judgment granting the claimant such relief as his pleading may warrant,
unless the court in its discretion requires the claimant to submit evidence. . . .
90 Order dated January 23, 1991; Records, Vol. II, p. 506.
91 Records, Vol. 2, p. 490.
92 149 SCRA 562, 569, May 7, 1987.
93 170 SCRA 274, 285, February 13, 1989; per Gancayco, J.
94 Tan v. Dimayuga et al., 5 SCRA 712, 715, July 31, 1962; and Lim Toco v. Go Fay, 80 Phil.
166, 168-169, January 31, 1948.
95 Macondray & Co. v. Eustaquio, 64 Phil. 446, 449, July 16, 1937.
96 Javelona v. Yulo, 31 Phil. 388, 391-392, September 3, 1915; and Molina v. De la Riva, 6
Phil.12, 17, March 22, 1906.
97 Lim Toco v. Go Fay, supra, p. 176.
98 Rubio v. MTCC, supra, pp. 183-184.

SUPREME COURT
Manila
EN BANC
G.R. No. L-23893 October 29, 1968
VILLA REY TRANSIT, INC., plaintiff-appellant,

vs.
EUSEBIO E. FERRER, PANGASINAN TRANSPORTATION CO., INC. and PUBLIC SERVICE
COMMISSION,defendants.
EUSEBIO E. FERRER and PANGASINAN TRANSPORTATION CO., INC., defendants-appellants.
PANGASINAN TRANSPORTATION CO., INC., third-party plaintiff-appellant,

vs.
JOSE M. VILLARAMA, third-party defendant-appellee.
Chuidian Law Office for plaintiff-appellant.

Bengzon, Zarraga & Villegas for defendant-appellant / third-party plaintiff-appellant.
Laurea & Pison for third-party defendant-appellee.
ANGELES, J.:
This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No.
41845, declaring null and void the sheriff's sale of two certificates of public convenience in favor of
defendant Eusebio E. Ferrer and the subsequent sale thereof by the latter to defendant Pangasinan
Transportation Co., Inc.; declaring the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the
said certificates of public convenience; and ordering the private defendants, jointly and severally, to
pay to the plaintiff, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was
dismissed.
The rather ramified circumstances of the instant case can best be understood by a chronological
narration of the essential facts, to wit:
Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name
of Villa Rey Transit, pursuant to certificates of public convenience granted him by the Public Service
Commission (PSC, for short) in Cases Nos. 44213 and 104651, which authorized him to operate a
total of thirty-two (32) units on various routes or lines from Pangasinan to Manila, and vice-versa. On
January 8, 1959, he sold the aforementioned two certificates of public convenience to the
Pangasinan Transportation Company, Inc. (otherwise known as Pantranco), for P350,000.00 with the
condition, among others, that the seller (Villarama) "shall not for a period of 10 years from the date of
this sale, apply for any TPU service identical or competing with the buyer."
Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc.
(which shall be referred to hereafter as the Corporation) was organized with a capital stock of
P500,000.00 divided into 5,000 shares of the par value of P100.00 each; P200,000.00 was the
subscribed stock; Natividad R. Villarama (wife of Jose M. Villarama) was one of the incorporators,
and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and
sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the
treasurer of the corporation, who was Natividad R. Villarama.
In less than a month after its registration with the Securities and Exchange Commission (March 10,
1959), the Corporation, on April 7, 1959, bought five certificates of public convenience, forty-nine
buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which
P100,000.00 was paid upon the signing of the contract; P50,000.00 was payable upon the final
approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the
balance of P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER."
The very same day that the aforementioned contract of sale was executed, the parties thereto
immediately applied with the PSC for its approval, with a prayer for the issuance of a provisional
authority in favor of the vendee Corporation to operate the service therein involved. 1 On May 19,
1959, the PSC granted the provisional permit prayed for, upon the condition that "it may be modified
or revoked by the Commission at any time, shall be subject to whatever action that may be taken on
the basic application and shall be valid only during the pendency of said application." Before the
PSC could take final action on said application for approval of sale, however, the Sheriff of Manila,
on July 7, 1959, levied on two of the five certificates of public convenience involved therein, namely,
those issued under PSC cases Nos. 59494 and 63780, pursuant to a writ of execution issued by the
Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff,
judgment creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and
entered the levy in the records of the PSC. On July 16, 1959, a public sale was conducted by the
Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a
certificate of sale was issued in his name.
Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted
for approval their corresponding contract of sale to the PSC.2 Pantranco therein prayed that it be
authorized provisionally to operate the service involved in the said two certificates.
The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case
No. 124057, and that of Ferrer and Pantranco, Case No. 126278, were scheduled for a joint hearing.
In the meantime, to wit, on July 22, 1959, the PSC issued an order disposing that during the
pendency of the cases and before a final resolution on the aforesaid applications, the Pantranco
shall be the one to operate provisionally the service under the two certificates embraced in the
contract between Ferrer and Pantranco. The Corporation took issue with this particular ruling of the
PSC and elevated the matter to the Supreme Court,3 which decreed, after deliberation, that until the
issue on the ownership of the disputed certificates shall have been finally settled by the proper court,
the Corporation should be the one to operate the lines provisionally.
On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for
the annulment of the sheriff's sale of the aforesaid two certificates of public convenience (PSC
Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and the subsequent sale thereof by
the latter to Pantranco, against Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed
therein that all the orders of the PSC relative to the parties' dispute over the said certificates be
annulled.
In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff Corporation had
no valid title to the certificates in question because the contract pursuant to which it acquired them
from Fernando was subject to a suspensive condition the approval of the PSC which has not
yet been fulfilled, and, therefore, the Sheriff's levy and the consequent sale at public auction of the
certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid and
regular, and vested unto Pantranco, a superior right thereto.
Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama
and the Corporation, are one and the same; that Villarama and/or the Corporation was disqualified
from operating the two certificates in question by virtue of the aforementioned agreement between
said Villarama and Pantranco, which stipulated that Villarama "shall not for a period of 10 years from
the date of this sale, apply for any TPU service identical or competing with the buyer."
Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried,
and thereafter decision was rendered in the terms, as above stated.
As stated at the beginning, all the parties involved have appealed from the decision. They submitted
a joint record on appeal.
Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc.
(Corporation) is a distinct and separate entity from Jose M. Villarama; that the restriction clause in
the contract of January 8, 1959 between Pantranco and Villarama is null and void; that the Sheriff's
sale of July 16, 1959, is likewise null and void; and the failure to award damages in its favor and
against Villarama.
Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void;
and the sale of the two certificates in question by Valentin Fernando to the Corporation, is valid. He
also assails the award of P5,000.00 as attorney's fees in favor of the Corporation, and the failure to
award moral damages to him as prayed for in his counterclaim.
The Corporation, on the other hand, prays for a review of that portion of the decision awarding only
P5,000.00 as attorney's fees, and insisting that it is entitled to an award of P100,000.00 by way of
exemplary damages.
After a careful study of the facts obtaining in the case, the vital issues to be resolved are: (1) Does
the stipulation between Villarama and Pantranco, as contained in the deed of sale, that the former
"SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY
TPU SERVICE IDENTICAL OR COMPETING WITH THE BUYER," apply to new lines only or does it
include existing lines?; (2) Assuming that said stipulation covers all kinds of lines, is such stipulation
valid and enforceable?; (3) In the affirmative, that said stipulation is valid, did it bind the Corporation?
For convenience, We propose to discuss the foregoing issues by starting with the last proposition.
The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the
Corporation, alleging that he did not become such, because he did not have sufficient funds to
invest, his wife, however, was an incorporator with the least subscribed number of shares, and was
elected treasurer of the Corporation. The finances of the Corporation which, under all concepts in
the law, are supposed to be under the control and administration of the treasurer keeping them as
trust fund for the Corporation, were, nonetheless, manipulated and disbursed as if they were the
private funds of Villarama, in such a way and extent that Villarama appeared to be the actual owner-
treasurer of the business without regard to the rights of the stockholders. The following testimony of
Villarama,4 together with the other evidence on record, attests to that effect:
Q. Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You
heard the testimony presented here by the bank regarding the initial opening deposit of ONE
HUNDRED FIVE THOUSAND PESOS, of which amount Eighty-Five Thousand Pesos was a
check drawn by yourself personally. In the direct examination you told the Court that the
reason you drew a check for Eighty-Five Thousand Pesos was because you and your wife,
or your wife, had spent the money of the stockholders given to her for incorporation. Will you
please tell the Honorable Court if you knew at the time your wife was spending the money to
pay debts, you personally knew she was spending the money of the incorporators?
A. You know my money and my wife's money are one. We never talk about those things.
Q. Doctor, your answer then is that since your money and your wife's money are one
money and you did not know when your wife was paying debts with the incorporator's
money?
A. Because sometimes she uses my money, and sometimes the money given to her she
gives to me and I deposit the money.
Q. Actually, aside from your wife, you were also the custodian of some of the
incorporators here, in the beginning?
A. Not necessarily, they give to my wife and when my wife hands to me I did not know it
belonged to the incorporators.
Q. It supposes then your wife gives you some of the money received by her in her
capacity as treasurer of the corporation?
A. Maybe.
Q. What did you do with the money, deposit in a regular account?
A. Deposit in my account.
Q. Of all the money given to your wife, she did not receive any check?
A. I do not remember.
Q. Is it usual for you, Doctor, to be given Fifty Thousand Pesos without even asking what
is this?
xxx xxx xxx
JUDGE: Reform the question.
Q. The subscription of your brother-in-law, Mr. Reyes, is Fifty-Two Thousand Pesos, did
your wife give you Fifty-two Thousand Pesos?
A. I have testified before that sometimes my wife gives me money and I do not know
exactly for what.
The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was
mostly financed by Villarama. Of the P105,000.00 deposited in the First National City Bank of New
York, representing the initial paid-up capital of the Corporation, P85,000.00 was covered by
Villarama's personal check. The deposit slip for the said amount of P105,000.00 was admitted in
evidence as Exh. 23, which shows on its face that P20,000.00 was paid in cash and P85,000.00
thereof was covered by Check No. F-50271 of the First National City Bank of New York. The
testimonies of Alfonso Sancho5 and Joaquin Amansec,6 both employees of said bank, have proved
that the drawer of the check was Jose Villarama himself.
Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the
corporation there appears an entry that the treasurer received P95,000.00 as second installment of
the paid-in subscriptions, and, subsequently, also P100,000.00 as the first installment of the offer for
second subscriptions worth P200,000.00 from the original subscribers, yet Villarama directed him
(Rivera) to make vouchers liquidating the sums.7 Thus, it was made to appear that the P95,000.00
was delivered to Villarama in payment for equipment purchased from him, and the P100,000.00 was
loaned as advances to the stockholders. The said accountant, however, testified that he was not
aware of any amount of money that had actually passed hands among the parties involved, 8 and
actually the only money of the corporation was the P105,000.00 covered by the deposit slip Exh. 23,
of which as mentioned above, P85,000.00 was paid by Villarama's personal check.
Further, the evidence shows that when the Corporation was in its initial months of operation,
Villarama purchased and paid with his personal checks Ford trucks for the Corporation. Exhibits 20
and 21 disclose that the said purchases were paid by Philippine Bank of Commerce Checks Nos.
992618-B and 993621-B, respectively. These checks have been sufficiently established by Fausto
Abad, Assistant Accountant of Manila Trading & Supply Co., from which the trucks were
purchased9 and Aristedes Solano, an employee of the Philippine Bank of Commerce, 10 as having
been drawn by Villarama.
Exhibits 6 to 19 and Exh. 22, which are photostatic copies of ledger entries and vouchers showing
that Villarama had co-mingled his personal funds and transactions with those made in the name of
the Corporation, are very illuminating evidence. Villarama has assailed the admissibility of these
exhibits, contending that no evidentiary value whatsoever should be given to them since "they were
merely photostatic copies of the originals, the best evidence being the originals themselves."
According to him, at the time Pantranco offered the said exhibits, it was the most likely possessor of
the originals thereof because they were stolen from the files of the Corporation and only Pantranco
was able to produce the alleged photostat copies thereof.
Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility of
secondary evidence when the original is in the custody of the adverse party, thus: (1) opponent's
possession of the original; (2) reasonable notice to opponent to produce the original; (3) satisfactory
proof of its existence; and (4) failure or refusal of opponent to produce the original in
court.11 Villarama has practically admitted the second and fourth requisites.12 As to the third, he
admitted their previous existence in the files of the Corporation and also that he had seen some of
them.13 Regarding the first element, Villarama's theory is that since even at the time of the issuance
of the subpoena duces tecum, the originals were already missing, therefore, the Corporation was no
longer in possession of the same. However, it is not necessary for a party seeking to introduce
secondary evidence to show that the original is in the actual possession of his adversary. It is
enough that the circumstances are such as to indicate that the writing is in his possession or under
his control. Neither is it required that the party entitled to the custody of the instrument should, on
being notified to produce it, admit having it in his possession. 14 Hence, secondary evidence is
admissible where he denies having it in his possession. The party calling for such evidence may
introduce a copy thereof as in the case of loss. For, among the exceptions to the best evidence rule
is "when the original has been lost, destroyed, or cannot be produced in court." 15 The originals of the
vouchers in question must be deemed to have been lost, as even the Corporation admits such loss.
Viewed upon this light, there can be no doubt as to the admissibility in evidence of Exhibits 6 to 19
and 22.
Taking account of the foregoing evidence, together with Celso Rivera's testimony, 16 it would appear
that: Villarama supplied the organization expenses and the assets of the Corporation, such as trucks
and equipment;17there was no actual payment by the original subscribers of the amounts of
P95,000.00 and P100,000.00 as appearing in the books;18 Villarama made use of the money of the
Corporation and deposited them to his private accounts;19 and the Corporation paid his personal
accounts.20
Villarama himself admitted that he mingled the corporate funds with his own money. 21 He also
admitted that gasoline purchases of the Corporation were made in his name 22 because "he had
existing account with Stanvac which was properly secured and he wanted the Corporation to benefit
from the rebates that he received."23
The foregoing circumstances are strong persuasive evidence showing that Villarama has been too
much involved in the affairs of the Corporation to altogether negative the claim that he was only a
part-time general manager. They show beyond doubt that the Corporation is his alter ego.
It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness
with the Corporation has been denied by him. On the contrary, he has admitted them with offered
excuses.
Villarama has admitted, for instance, having paid P85,000.00 of the initial capital of the Corporation
with the lame excuse that "his wife had requested him to reimburse the amount entrusted to her by
the incorporators and which she had used to pay the obligations of Dr. Villarama (her husband)
incurred while he was still the owner of Villa Rey Transit, a single proprietorship." But with his
admission that he had received P350,000.00 from Pantranco for the sale of the two certificates and
one unit,24 it becomes difficult to accept Villarama's explanation that he and his wife, after
consultation,25 spent the money of their relatives (the stockholders) when they were supposed to
have their own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could
have been easy for Villarama to have deposited said check in his account and issued his own check
to pay his obligations. And there is no evidence adduced that the said amount of P350,000.00 was
all spent or was insufficient to settle his prior obligations in his business, and in the light of the
stipulation in the deed of sale between Villarama and Pantranco that P50,000.00 of the selling price
was earmarked for the payments of accounts due to his creditors, the excuse appears unbelievable.
On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co.
with his personal checks, his reason was that he was only sharing with the Corporation his credit
with some companies. And his main reason for mingling his funds with that of the Corporation and
for the latter's paying his private bills is that it would be more convenient that he kept the money to
be used in paying the registration fees on time, and since he had loaned money to the Corporation,
this would be set off by the latter's paying his bills. Villarama admitted, however, that the corporate
funds in his possession were not only for registration fees but for other important obligations which
were not specified.26
Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-time
manager,27he admitted not only having held the corporate money but that he advanced and lent
funds for the Corporation, and yet there was no Board Resolution allowing it. 28
Villarama's explanation on the matter of his involvement with the corporate affairs of the Corporation
only renders more credible Pantranco's claim that his control over the corporation, especially in the
management and disposition of its funds, was so extensive and intimate that it is impossible to
segregate and identify which money belonged to whom. The interference of Villarama in the complex
affairs of the corporation, and particularly its finances, are much too inconsistent with the ends and
purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from
corporate undertakings. It is the very essence of incorporation that the acts and conduct of the
corporation be carried out in its own corporate name because it has its own personality.
The doctrine that a corporation is a legal entity distinct and separate from the members and
stockholders who compose it is recognized and respected in all cases which are within reason and
the law.29 When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection
of a monopoly or generally the perpetration of knavery or crime,30 the veil with which the law covers
and isolates the corporation from the members or stockholders who compose it will be lifted to allow
for its consideration merely as an aggregation of individuals.
Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of
evidence have shown that the Villa Rey Transit, Inc. is an alter ego of Jose M. Villarama, and that
the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and
binding against the said Corporation. For the rule is that a seller or promisor may not make use of a
corporate entity as a means of evading the obligation of his covenant. 31 Where the Corporation is
substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from
competing with the covenantee.32
The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and Villarama are
one and the same, the restrictive clause in the contract between Villarama and Pantranco does not
include the purchase of existing lines but it only applies to application for the new lines. The clause
in dispute reads thus:
(4) The SELLER shall not, for a period of ten (10) years from the date of this sale apply for
any TPU service identical or competing with the BUYER. (Emphasis supplied)
As We read the disputed clause, it is evident from the context thereof that the intention of the parties
was to eliminate the seller as a competitor of the buyer for ten years along the lines of operation
covered by the certificates of public convenience subject of their transaction. The word "apply" as
broadly used has for frame of reference, a service by the seller on lines or routes that would
compete with the buyer along the routes acquired by the latter. In this jurisdiction, prior authorization
is needed before anyone can operate a TPU service,33whether the service consists in a new line or
an old one acquired from a previous operator. The clear intention of the parties was to prevent the
seller from conducting any competitive line for 10 years since, anyway, he has bound himself not to
apply for authorization to operate along such lines for the duration of such period. 34
If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru
an application with the Public Service Commission, this would, in effect, allow the seller just the
same to compete with the buyer as long as his authority to operate is only acquired thru transfer or
sale from a previous operator, thus defeating the intention of the parties. For what would prevent the
seller, under the circumstances, from having a representative or dummy apply in the latter's name
and then later on transferring the same by sale to the seller? Since stipulations in a contract is the
law between the contracting parties,
Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith. (Art. 19, New Civil
Code.)
We are not impressed of Villarama's contention that the re-wording of the two previous drafts of the
contract of sale between Villarama and Pantranco is significant in that as it now appears, the parties
intended to effect the least restriction. We are persuaded, after an examination of the supposed
drafts, that the scope of the final stipulation, while not as long and prolix as those in the drafts, is just
as broad and comprehensive. At most, it can be said that the re-wording was done merely for brevity
and simplicity.
The evident intention behind the restriction was to eliminate the sellers as a competitor, and this
must be, considering such factors as the good will35 that the seller had already gained from the riding
public and his adeptness and proficiency in the trade. On this matter, Corbin, an authority on
Contracts has this to say.36
When one buys the business of another as a going concern, he usually wishes to keep it
going; he wishes to get the location, the building, the stock in trade, and the customers. He
wishes to step into the seller's shoes and to enjoy the same business relations with other
men. He is willing to pay much more if he can get the "good will" of the business, meaning by
this the good will of the customers, that they may continue to tread the old footpath to his
door and maintain with him the business relations enjoyed by the seller.
... In order to be well assured of this, he obtains and pays for the seller's promise not to
reopen business in competition with the business sold.
As to whether or not such a stipulation in restraint of trade is valid, our jurisprudence on the
matter37says:
The law concerning contracts which tend to restrain business or trade has gone through a
long series of changes from time to time with the changing condition of trade and commerce.
With trifling exceptions, said changes have been a continuous development of a general
rule. The early cases show plainly a disposition to avoid and annul all contract which
prohibited or restrained any one from using a lawful trade "at any time or at any place," as
being against the benefit of the state. Later, however, the rule became well established that if
the restraint was limited to "a certain time" and within "a certain place," such contracts were
valid and not "against the benefit of the state." Later cases, and we think the rule is now well
established, have held that a contract in restraint of trade is valid providing there is a
limitation upon either time or place. A contract, however, which restrains a man from entering
into business or trade without either a limitation as to time or place, will be held invalid.
The public welfare of course must always be considered and if it be not involved and the
restraint upon one party is not greater than protection to the other requires, contracts like the
one we are discussing will be sustained. The general tendency, we believe, of modern
authority, is to make the test whether the restraint is reasonably necessary for the protection
of the contracting parties. If the contract is reasonably necessary to protect the interest of the
parties, it will be upheld. (Emphasis supplied.)
Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of
an agreement suppressing competition, it is, however, merely ancillary or incidental to the main
agreement which is that of sale. The suppression or restraint is only partial or limited: first, in scope,
it refers only to application for TPU by the seller in competition with the lines sold to the buyer;
second, in duration, it is only for ten (10) years; and third, with respect to situs or territory, the
restraint is only along the lines covered by the certificates sold. In view of these limitations, coupled
with the consideration of P350,000.00 for just two certificates of public convenience, and
considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the
same is reasonable and it is not harmful nor obnoxious to public service. 38 It does not appear that the
ultimate result of the clause or stipulation would be to leave solely to Pantranco the right to operate
along the lines in question, thereby establishing monopoly or predominance approximating thereto.
We believe the main purpose of the restraint was to protect for a limited time the business of the
buyer.
Indeed, the evils of monopoly are farfetched here. There can be no danger of price controls or
deterioration of the service because of the close supervision of the Public Service
Commission.39 This Court had stated long ago,40that "when one devotes his property to a use in
which the public has an interest, he virtually grants to the public an interest in that use and submits it
to such public use under reasonable rules and regulations to be fixed by the Public Utility
Commission."
Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement, the
underlying reason sustaining its validity is well explained in 36 Am. Jur. 537-539, to wit:
... Numerous authorities hold that a covenant which is incidental to the sale and transfer of a
trade or business, and which purports to bind the seller not to engage in the same business
in competition with the purchaser, is lawful and enforceable. While such covenants are
designed to prevent competition on the part of the seller, it is ordinarily neither their purpose
nor effect to stifle competition generally in the locality, nor to prevent it at all in a way or to an
extent injurious to the public. The business in the hands of the purchaser is carried on just as
it was in the hands of the seller; the former merely takes the place of the latter; the
commodities of the trade are as open to the public as they were before; the same
competition exists as existed before; there is the same employment furnished to others after
as before; the profits of the business go as they did before to swell the sum of public wealth;
the public has the same opportunities of purchasing, if it is a mercantile business; and
production is not lessened if it is a manufacturing plant.
The reliance by the lower court on tile case of Red Line Transportation Co. v. Bachrach41 and finding
that the stipulation is illegal and void seems misplaced. In the said Red Line case, the agreement
therein sought to be enforced was virtually a division of territory between two operators, each
company imposing upon itself an obligation not to operate in any territory covered by the routes of
the other. Restraints of this type, among common carriers have always been covered by the general
rule invalidating agreements in restraint of trade. 42
Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case.
In Pampanga Bus Co., Inc. v. Enriquez,43the undertaking of the applicant therein not to apply for the
lifting of restrictions imposed on his certificates of public convenience was not an ancillary or
incidental agreement. The restraint was the principal objective. On the other hand, in Red Line
Transportation Co., Inc. v. Gonzaga,44 the restraint there in question not to ask for extension of the
line, or trips, or increase of equipment was not an agreement between the parties but a condition
imposed in the certificate of public convenience itself.
Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting Villarama for a
period of 10 years to "apply" for TPU service along the lines covered by the certificates of public
convenience sold by him to Pantranco is valid and reasonable. Having arrived at this conclusion,
and considering that the preponderance of the evidence have shown that Villa Rey Transit, Inc. is
itself the alter ego of Villarama, We hold, as prayed for in Pantranco's third party complaint, that the
said Corporation should, until the expiration of the 1-year period abovementioned, be enjoined from
operating the line subject of the prohibition.
To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon
Villarama is not against his application for, or purchase of, certificates of public convenience, but
merely the operation of TPU along the lines covered by the certificates sold by him to Pantranco.
Consequently, the sale between Fernando and the Corporation is valid, such that the rightful
ownership of the disputed certificates still belongs to the plaintiff being the prior purchaser in good
faith and for value thereof. In view of the ancient rule of caveat emptorprevailing in this jurisdiction,
what was acquired by Ferrer in the sheriff's sale was only the right which Fernando, judgment
debtor, had in the certificates of public convenience on the day of the sale. 45
Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was
notified that "by virtue of an Order of Execution issued by the Court of First Instance of Pangasinan,
the rights, interests, or participation which the defendant, VALENTIN A. FERNANDO in the above
entitled case may have in the following realty/personalty is attached or levied upon, to wit: The rights,
interests and participation on the Certificates of Public Convenience issued to Valentin A. Fernando,
in Cases Nos. 59494, etc. ... Lines Manila to Lingayen, Dagupan, etc. vice versa." Such notice of
levy only shows that Ferrer, the vendee at auction of said certificates, merely stepped into the shoes
of the judgment debtor. Of the same principle is the provision of Article 1544 of the Civil Code, that "If
the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should be movable property."
There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public
convenience in question, between the Corporation and Fernando, was not consummated, it being
only a conditional sale subject to the suspensive condition of its approval by the Public Service
Commission. While section 20(g) of the Public Service Act provides that "subject to established
limitation and exceptions and saving provisions to the contrary, it shall be unlawful for any public
service or for the owner, lessee or operator thereof, without the approval and authorization of the
Commission previously had ... to sell, alienate, mortgage, encumber or lease its property, franchise,
certificates, privileges, or rights or any part thereof, ...," the same section also provides:
... Provided, however, That nothing herein contained shall be construed to prevent the
transaction from being negotiated or completed before its approval or to prevent the sale,
alienation, or lease by any public service of any of its property in the ordinary course of its
business.
It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the
validity and consummation of the sale.
Anent the question of damages allegedly suffered by the parties, each of the appellants has its or his
own version to allege.
Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer)
in acquiring the certificates of public convenience in question, despite constructive and actual
knowledge on their part of a prior sale executed by Fernando in favor of the said corporation, which
necessitated the latter to file the action to annul the sheriff's sale to Ferrer and the subsequent
transfer to Pantranco, it is entitled to collect actual and compensatory damages, and attorney's fees
in the amount of P25,000.00. The evidence on record, however, does not clearly show that said
defendants acted in bad faith in their acquisition of the certificates in question. They believed that
because the bill of sale has yet to be approved by the Public Service Commission, the transaction
was not a consummated sale, and, therefore, the title to or ownership of the certificates was still with
the seller. The award by the lower court of attorney's fees of P5,000.00 in favor of Villa Rey Transit,
Inc. is, therefore, without basis and should be set aside.
Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale, he had
suffered and should be awarded moral, exemplary damages and attorney's fees, cannot be
entertained, in view of the conclusion herein reached that the sale by Fernando to the Corporation
was valid.
Pantranco, on the other hand, justifies its claim for damages with the allegation that when it
purchased ViIlarama's business for P350,000.00, it intended to build up the traffic along the lines
covered by the certificates but it was rot afforded an opportunity to do so since barely three months
had elapsed when the contract was violated by Villarama operating along the same lines in the
name of Villa Rey Transit, Inc. It is further claimed by Pantranco that the underhanded manner in
which Villarama violated the contract is pertinent in establishing punitive or moral damages. Its
contention as to the proper measure of damages is that it should be the purchase price of
P350,000.00 that it paid to Villarama. While We are fully in accord with Pantranco's claim of
entitlement to damages it suffered as a result of Villarama's breach of his contract with it, the record
does not sufficiently supply the necessary evidentiary materials upon which to base the award and
there is need for further proceedings in the lower court to ascertain the proper amount.
PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows:
1. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa
Rey Transit, Inc. is declared preferred over that made by the Sheriff at public auction of the aforesaid
certificate of public convenience in favor of Eusebio Ferrer;
2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co.
against Jose M. Villarama, holding that Villa Rey Transit, Inc. is an entity distinct and separate from
the personality of Jose M. Villarama, and insofar as it awards the sum of P5,000.00 as attorney's
fees in favor of Villa Rey Transit, Inc.;
3. The case is remanded to the trial court for the reception of evidence in consonance with the above
findings as regards the amount of damages suffered by Pantranco; and
4. On equitable considerations, without costs. So ordered.
Concepcion, C. J., Reyes, J.B.L., Dizon, Makalintal, Castro and Fernando, JJ., concur.
Sanchez and Capistrano, JJ., took no part.
Zaldivar, J., is on leave.
Footnotes
1
Application for approval of sale docketed as PSC Case No. 124057.
2
PSC Case No. 126278.
3
G.R. Nos. L-17684-85, promulgated May 30, 1962.
4
TSN, pp. 1649-1651, Session of April 8, 1963.
5
TSN, pp. 1210, 1217-1218, Session of Oct. 8, 1962.
6
TSN, p. 1262, Session of Nov. 8, 1962.
7
TSN, pp. 947-948, Session of Sept. 3, 1962; TSN, pp. 1022, 1025, 1027-1029, Session of
Sept. 7, 1962.
8
TSN, pp. 948-949.
9
TSN, pp. 899, 901, Session of Aug. 27, 1962.
10
TSN, pp. 1227-1228, Session of Oct. 8, 1962.
11
Francisco, Evidence, 1964, ed. p. 113.
12
Plaintiff-appellee's Brief, pp. 45-46.
13
14
See the Revised Rules of Court Evidence by Francisco, 1964 ed., pp. 113-114.
15
Sec. 2(a), Rule 130, Rules of Court.
It was Celso Rivera who prepared these documents as admitted by Villarama, TSN, pp.
16
1580-1581, Session of April 8, 1963.
17
Exh. 6.
18
Exhs. 8 to 8-C.
19
Exhs. 7 to 7-C.
20
Exhs. 10 to 19, 22; TSN, pp. 1709-1710, Session of April 16, 1963.
21
TSN, p. 1625, Session of April 8, 1963.
22
23
Brief for Plaintiff-appellee, p. 49.
24
TSN, pp. 1593, 1658, Session of April 8, 1963.
25
TSN, pp. 1660-1661, ditto
26
27
28
29
Borja v. Vasquez, 74 Phil. 56.
Koppel Phil. v. Yatco, 77 Phil. 496; Lidell & Co. v. Collector, G.R. No. L-9687, June 30,
30
1961; Commissioner v. Norton & Harrison Company, G.R. No. L-17618, Aug. 31, 1964;
Guevarra, Phil. Corp. Law, 1961 ed., p. 7.
31
36 Am. Jur. 548; 18 Am. Jur. 2nd 563-564.
32
94 A. L. R. 346, 348.
33
Secs. 15 and 18, Com. Act 146.
34
The 10-year period will expire on January, 1969. Hence, it is practically over.
35
Recent cases have enlarged the concept of good will over the behavioristic resort of old
customers to the old place of business. It is now recognized that "It may include in addition to
those factors all that goes with a business in excess of its mere capital and physical value,
such as reputation for promptness, fidelity, integrity, politeness, business sagacity and
commercial skill in the conduct of its affairs, solicitude for the welfare of customers and other
tangible elements which contribute to successful commercial venture." (Footnotes to p. 4592,
Williston on Contracts, Vol. 5, citing cases.)
36
Corbin on Contracts, Vol. 6, Sec. 1385, p. 483.
37
Del Castillo v. Richmon, 45 Phil. 683, citing Anchor Electric Co. v. Hawkes, 171 Mass. 101;
Alger v. Tacher, 19 Pickering (Mass.) 51; Taylor v. Blanchard, 13 Allen (Mass.) 370; Lurkin
Rule Co. v. Fringeli, 57 Ohio State 596; Fowle v. Park, 131 U. S. 88, 97; Diamond Match Co.
v. Reeber, 106 N. Y. 473; National Benefit Co. v. Union Hospital Co., 45 Minn. 272; Swigert &
Howard v. Tilden, 121 Iowa, 650. See also Ollendorf v. Abrahamson, 38 Phil. 585.
38
Clearly, the greater part of said consideration was to compensate Villarama for not
competing with Pantranco for at least 10 years, within which period the latter would put up 31
other units (certificates contained authorization for 32 units), train drivers thereof and incur
such other expenses, so as to put the service along the lines acquired in good, operating
and competing condition.
39
See Secs. 16-C, 19 and 20-A, Com. Act 146.
40
National Coal Co. v. Public Utility Commission, 47 Phil. 356, 360.
41
67 Phil. 577.
42
See Negros Ice & Cold Storage Co., Inc v. PSC, 90 Phil. 138. See also 58 C. J. S. 1051.
43
66 Phil. 645.
44
G.R. No. L-10834, April 28, 1960.
45
See secs. 25 & 26, Rule 39, Rules of Court.

SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 111810-11 June 16, 1995
JAMES YU and WILSON YOUNG, petitioners,

vs.
THE NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER DANIEL C. CUETO,
TANDUAY DISTILLERY INC., FERNANDO DURAN, EDUARDO PALIWAN, ROQUE ESTOCE
AND RODRIGO SANTOS,respondents.
MELO, J.:
Before us is a petition for certiorari assailing the decision of public respondent National Labor
Relations Commission (NLRC) promulgated on August 25, 1993 in the cases of Fernando Duran, et
al. vs. Tanduay Distillery, Inc., docketed as NLRC NCR Case No. 00-04-01737-88, and Rodrigo
Santos vs. Tanduay Distillery, Inc., docketed as NLRC NCR Case No. 00-06-02546-88.
The relevant antecedent facts as gathered from the record are as follows:
Private respondents-employees Fernando Duran, Eduardo Paliwan, Roque Estoce, and Rodrigo
Santos were employees of respondent corporation Tanduay Distillery, Inc, (TDI).
On March 29, 1988, 22 employees of TDI, including private respondents employees, received a
memorandum from TDI terminating their services. for reasons of retrenchment, effective 30 days
from receipt thereof or not later than the close of business hours on April 28, 1988.
On April 26, 1988, all 22 employees of TDI filed an application for the issuance of a temporary
restraining order against their retrenchment. The labor arbiter issued the restraining order the
following day. However, due to the 20-day lifetime of the temporary restraining order, and because of
the on-going negotiations for the sale of TDI the retrenchment pushed through. Parenthetically, it
should be mentioned that although all 22 employees were retrenched, the instant petition involves
only the 4 individual respondents herein, namely, Fernando Duran, Eduardo Paliwan, Roque Estoce,
and Rodrigo Santos.
On June 14, 1988, the First Pacific Metro Corporation moved that it be dropped as a party to the
case on the ground that its projected purchase of the assets of TDI was not consummated. The
participation of First Pacific was later in effect held to be irrelevant (decision dated May 24, 1989;
Annex G, pp. 50-58, Rollo). On June 1, 1988, or after respondents-employees had ceased as such
employees, a new buyer of TDI's assets, Twin Ace Holdings, Inc. took over the business. Twin Ace
assumed the business name Tanduay Distillers.
On August 8, 1988, the employees filed a motion to implead herein petitioners James Yu and Wilson
Young, doing business under the name and style of Tanduay Distillers, as party respondents in said
cases. Petitioners filed an opposition thereto, asserting that they are representatives of Tanduay
Distillers an entity distinct and separate from TDI, the previous owner, and that there is no employer-
employee relationship between Tanduay Distillers and private respondents. Respondents-employees
filed a reply to the opposition stating that petitioner James Yu as officer-in-charge of Tanduay
Distillers had informed the president of TDI labor union of Tanduay Distillers' decision to hire
everybody with a clean slate on a probation basis.
On November 16, 1988, private respondents filed a motion for leave to file an amended complaint
impleading petitioners as respondents. Petitioners filed an opposition thereto reiterating the grounds
they relied upon in their opposition to private respondents' motion to implead. A reply was filed by
private respondents, and a rejoinder was then filed by petitioners. In turn, private respondents filed a
sub-rejoinder.
Subsequently, an amended complaint was filed by private respondents against TDI and petitioners
Yu and Young "doing business under the name and style of Tanduay Distillers".
In her decision dated May 24, 1989, Labor Arbiter Daisy Cauton-Barcelona held:
In treating the motion to implead a motion to admit amended complaint with leave,
the same [is] hereby given due course and all pleadings filed by respondents James
Yu and Wilson Young are hereby treated as their responsive pleadings in the light of
speedy disposition of justice and the basic rule that administrative fora, such as this
office, are not governed by technical rules of proceedings.
(p. 52, Rollo).
In the same decision, it was disposed:
WHEREFORE, judgment is hereby rendered and declaring that the retrenchment is

illegal thereby ordering respondent Tanduay Distillery, Inc., to reinstate the
complainants to their former position with backwages up to the time of change of
ownership, if one has taken place.
That in the event of change in management it (Tanduay Distillery, Inc.,) is hereby

ordered to pay the complainants their respective separation benefits computed at the
rate of one (1) month for every year of service. This is without prejudice to the letter
of Mr. James Yu as officer-in-charge of Tanduay Distillers dated June 17, 1988 to the
President of the Tanduay Distillery, Inc., Labor Union.
(pp. 57-58, Rollo.)
Only TDI appealed said decision to the National Labor Relations Commission, but on June 18, 1991,
said commission promulgated an affirmance decision (p. 102, Rollo). TDI filed a motion for
reconsideration, but the same was denied on August 15, 1991.
Thereupon, private respondents-employees on September 16, 1991 filed a motion for execution
(Annex Q, pp. 103-106, Rollo) praying that NLRC through the labor arbiter, "[i]ssue the necessary
writ for the execution of the entire decision dated May 24, 1989, including the actual reinstatement of
the complainants to their former position without loss of seniority and benefits against Tanduay
Distillery, Inc., and/or Tanduay Distillers, James Yu and Wilson Young."
On September 24, 1993, petitioners filed an opposition (Annex R, pp. 108-110, Rollo) to the motion
for execution on the ground that "the Motion for Execution is without any basis in so far as it prays
for the issuance of a writ of execution against respondent Tanduay Distillers, which is an entity
separate and distinct from respondent Tanduay Distillery, Inc., and respondents James Yu and
Wilson Young." Respondents-employees filed their reply thereto (Annex S, pp. 111-115, Rollo), and
in turn petitioners filed their rejoinder (Annex T, pp. 116-118, Rollo), to which private respondents
filed their sur-rejoinder (Annex U, pp. 119-122, Rollo). On December 18, 1991, respondent TDI filed
its comment on the motion for execution (Annex V, pp. 124-129, Rollo), while petitioners on January
10, 1992, filed a joint comment (Annex W, pp. 130-132, Rollo) to private respondents' sur-rejoinder
as well to the comment filed by respondent TDI.
Subsequently, TDI filed a manifestation dated April 24, 1992 (Annex X, pp. 133-135, Rollo), stating
2. At the hearing held on March 23, 1992, individual complainants, assisted by their
counsel, Atty. Noel Cruz, agreed to be paid the total amount of P86,049.83, in full
satisfaction of the Company's liability as stated in the dispositive portion of Labor
Arbiter Barcelona's decision promulgated on May 24, 1989 and affirmed by the
Second Division of the NLRC on June 18, 1991, which reads as follows:
WHEREFORE, judgment is hereby rendered declaring that the

retrenchment is illegal thereby ordering respondent Tanduay
Distillery, Inc. to reinstate the complainants to their former position
with backwages up to the time of the change of ownership, if one has
taken place.
That in the event of change in management it (Tanduay Distillery, Inc.

( is hereby ordered to pay the complainants their respective
separation benefits computed at the rate of one (1) month of every
year of service. This is without prejudice to the letter of Mr. James Yu
as officer-in-charge of Tanduay Distillers dated June 17, 1988 to the
No Costs.
SO ORDERED.
1. In accordance with the aforequoted decision, complainants shall be paid the amounts
appearing opposite their respective names:
Rodrigo F. Santos P20,282.03
Roque Estoce 20,092.50
Eduardo Daliwan 19,973.40
Fernando A. Duran 25,702.00
Total P86,049.83
=========
4. The foregoing amounts shall be satisfied out of the cash bond deposited by the
Company with the Cashier of the NLRC. The excess amounting to P7,076.44 must
revert to the Company.
(pp. 134-135, Rollo.)
On November 17, 1992, respondent NLRC, through Labor Arbiter Daniel C. Cueto, issued an order
(Annex Z, pp. 139-145, Rollo), resolving the motion for execution as follows:
Based on the foregoing considerations, this Branch finds the Motion for Writ of
Execution filed by the complainants meritorious and in order. Accordingly, let a Writ of
Execution be issued against Tanduay Distiller, Inc., Wilson Young and James Yu to
immediately reinstate complainants Fernando Duran, Rodrigo Santos, Roque Estoce
and Eduardo Daliwan to their respective positions.
(p 145, Rollo.)
Consequently, a writ of execution was issued by Labor Arbiter Cueto on December 16, 1992.
To stop the implementation of the writ of execution, petitioners filed a petition for certiorari (Annex
AA, pp. 146-158, Rollo before respondent NLRC, praying that
1. Immediately upon filing of the instant case, a temporary restraining order he

issued, to wit.
a) Enjoining and restraining the respondents from implementing the

Order dated November 17, 1992;
b.) Commanding the public respondent to desist from acting on the

Order,
c.) Commanding the respondents to desist from committing any other

act judicial to the petitioners/appellants.
2. After the appropriate proceedings, a writ of preliminary injunction be issued so

enjoining the respondents;
3. After hearing on the merits, the Order dated November 17, 1992 be set aside and
an injunction be issued permanently enjoining the respondents from committing the
aforesaid acts and to comply strictly with terms of the Decision and the NLRC;
4. Ordering the respondents, jointly and severally, to pay petitioner's fees in the
amount of P100,000.00 and to pay the cost of suit.
On August 25, 1993, respondent NLRC promulgated its decision, the dispositive portion of which
reads:
In view of the foregoing premises, the petition/appeal with prayer for preliminary
injunction is hereby dismissed for lack of merit.
The petitioners respondents are hereby directed to re re-employ/re-hire respondents-

complainants immediately upon receipt of this decision.
(p. 36, Rollo.)
Thus, the present petition where petitioners pray that
1. Immediately upon filing of the instant case, a temporary restraining order be

issued, to wit:
a) Restraining and prohibiting the respondents form implementing the

ORDER dated November 17, 1992 and the NLRC Certiorari Decision.
b) Commanding the respondents to desist from committing any other

act prejudicial to the petitioners.
2. After the appropriate proceedings, a writ of preliminary injunction be issued so
enjoining the respondents;
3. After appropriate proceedings, the ORDER dated November 17, 1992 and the
NLRC CertiorariDecision be set aside and a injunction be issued permanently
enjoining the respondents from committing the aforesaid acts and to comply strictly
with the terms of the Arbiter Decision and the NLRC Decision;
4. Ordering the respondents, jointly and severally, to pay petitioners' attorney's fees
in the amount of P100,000.00 and to pay the costs of suit.
(pp. 26-27, Rollo.)
The issue posed by the present petition is whether respondent NLRC committed grave abuse of
discretion in holding petitioners Yu and Young liable under the decision dated May 24, 1989 which
decreed that:
WHEREFORE, judgment is hereby rendered declaring that the retrenchment is

illegal thereby ordering respondent Tanduay Distillery Inc., to reinstate the
complainants to their former position with backwages up to the time of the change
ownership, if one has taken place.
That in the event of change in management it (Tanduay Distillery, Inc.) is hereby

ordered to pay the complainants their respective separation benefits corrupted at the
rate of one (1) month for every year of service. This is without prejudice to the letter
of Mr. James Yu as officer-in-charge of Tanduay Distillers dated June 17, 1988 to the
(pp. 57-58, Rollo.)
We hold that petitioners, for a number of reasons which we shall discuss below, may not be held
answerable and liable under the final judgment of Labor Arbiter Cauton-Barcelona.
1. Admittedly, the decision dated May 24, 1989 is now final and executory, as only respondent TDI
appealed said decision and its appeal was later dismissed by respondent NLRC. It is fundamental
that a final and executory decision cannot be amended or corrected (First Integrated Bonding and
Insurance Company, Inc, vs. Hernando, 199 SCRA 796 [1991]) except for clerical errors or mistakes
(Maramba vs. Lozano, 20 SCRA 474 [1967]); Reyes vs. Court of Appeals, 189 SCRA 46 [1990]). A
definitive judgment is no longer subject to change, revision, amendment, or reversal (Miranda vs.
Court of Appeals, 71 SCRA 295 [1976], and the court loses jurisdiction over it, except to order its
execution (PY Eng Chong vs. Herrera, 70 SCRA 130 (1976]).
An examination of the aforequoted dispositive portion of the decision shows that the same does not
in any manner obligate Tanduay Distillers, or even petitioners Yu and Young for that matter, to
reinstate respondents. Only TDI was held liable to reinstate respondents up to the time of change of
ownership, and for separation benefits.
However, Labor Arbiter Cueto went beyond what was disposed by the decision and issued an order
dated November 17, 1992 (Annex Z, Petition, pp. 139-145, Rollo) which required
. . . Tanduay Distillers, Inc., Wilson Young and James Yu to immediately reinstate
complainants Fernando Duran, Rodrigo Santos, Roque Estoce and Eduardo Daliwan
to heir respective positions.
(p. 145, Rollo.)
Subsequently, a writ of execution was issued on December 16, 1992 pursuant to the order of
November 17, 1992.
The order of execution dated November 17, 1992 in effect amended the decision dated May 24,
1989 for the former orders petitioners and Tanduay Distillers to reinstate private respondents
employees whereas the decision dated May 24, 1989, as we have discussed above, does not so
decree, This cannot be done. It is beyond the power and competence of Labor Arbiter Cueto to
amend a final decision, The writ of execution must not go beyond the scope of the judgment.
As Chief Justice Moran opined: "The writ of execution must conform to the judgment
which is to be executed as it may not vary the terms of the judgment it seeks to
enforce. Nor may it go beyond the terms of the judgment, sought to be executed.
Where the execution is not in harmony with the judgment which gives it life and
exceeds it, it has pro tanto no validity. To maintain otherwise would be to ignore the
constitutional provision against depriving a person of his property without due
process of law" (Moran, Comments on the Rules of Court, Vol. I 1952 Ed., p. 809;
cited in Villoria vs. Piccio, supra).
(Gamboa's Incorporated vs. Court of

Appeals, 72 SCRA 131, 137-138 [1976])
The order of execution and the writ of execution ordering petitioners and Tanduay Distillers to
reinstate private respondents employees are, therefore, null and void.
2. Neither may be said that petitioners and Tanduay Distillers are one and the same as TDI, as
seems to be the impression of respondents when they impleaded petitioners as party respondents in
their compliant for unfair labor practice, illegal lay off, and separation benefits.
Such a stance is not supported by the facts. The name of the company for whom the petitioners are
working is Twin Ace Holdings Corporation, As stated by the Solicitor General, Twin Ace is part of the
Allied Bank Group although it conducts the rum business under the name of Tanduay Distillers. The
use of a similar sounding or almost identical name is an obvious device to capitalize on the goodwill
which Tanduay Rum has built over the years. Twin Ace or Tanduay Distillers, on one hand, and
Tanduay Distillery Inc. (TDI), on the other, are distinct and separate corporations. There is nothing to
suggest that the owners of TDI, have any common relationship as to identify it with Allied Bank
Group which runs Tanduay Distillers. The dissertation of the Court in Diatagon Labor Federation
Local 110 of the ULGWP vs. Ople, et al. (101 SCRA 534 [1980]) is worthy of restatement, thusly:
We hold that the director of labor Relations acted with grave abuse of discretion in
treating the two companies as a single bargaining unit. The ruling is arbitrary and
untenable because the two companies are indubitably distinct entities with separate
juridical personalities.
The fact that their businesses are related and that the 236 employees of Georgia
Pacific International Corporation were originally employees of Lianga Bay Logging
Co., Inc, is not a justification for disregarding their separate personalities. Hence, the
236 employees, who are now attached to Georgia Pacific International should not be
allowed to vote in the certification election at the Lianga Bay Logging Co., Inc. They
should vote at a separate certification election to determine the collective bargaining
representative of the employees of Georgia Pacific International Corporation.
(at pp. 540-541.)
It is basic that a corporation is invested by law with a personality separate and distinct from those of
the persons composing it as well as from that of any other legal entity to which it may be related
(Palay, Inc. et al. vs. Clave, et al., 124 SCRA 641 [1983]).
The genuine nature of the sale to Twin Ace is evidenced by the fact that Twin Ace was only a
subsequent interested buyer. At the time when termination notices were sent to its employees, TDI
was negotiating with the First Pacific Metro Corporation for the sale of its assets. Only after First
Pacific gave up its efforts to acquire the assets did Twin Ace or Tanduay Distillers come into the
picture. Respondents-employees have not presented any proof as to communality of ownership and
management to support their contention that the two companies are one firm or closely related. The
doctrine of piercing the veil of corporate entity applies when the corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend crime or where a corporation is the mere
alter ego or business conduit of a person (Indophil Textile Mill Workers Union vs. Calica, 205 SCRA
697, 703 (1992]). To disregard the separate juridical personality of a corporation, the wrong-doing
must be clearly and convincingly established. It cannot be presumed (Del Rosario vs. NLRC, 187
SCRA 777, 7809 [1990]).
The complaint for unfair labor practice, illegal lay off, and separation benefits was filed against TDI.
Only later when the manufacture and sale of Tanduay products was taken over by Twin Ace or
Tanduay Distillers were James Yu and Wilson Young impleaded.
The corporation itself Twin Ace or Tanduay Distillers was never made a party to the case.
Another factor to consider is that TDI as a corporation or its shares of stock were not purchased by
Twin Ace. The buyer limited itself to purchasing most of the assets, equipment, and machinery of
TDI. Thus, Twin Ace or Tanduay Distillers did not take over the corporate personality of DTI although
they manufacture the same product at the same plant with the same equipment and machinery.
Obviously, the trade name "Tanduay" went with the sale because the new firm does business as
Tanduay Distillers and its main product of rum is sold as Tanduay Rum. There is no showing,
however, that TDI itself was absorbed by Twin Ace or that it ceased to exist as a separate
corporation, In point of fact TDI is now herein a party respondent represented by its own counsel.
Significantly, TDI in the petition at hand has taken the side of its former employees and argues
against Tanduay Distillers. In its memorandum filed on January 9, 1995, TDI argues that it was not
alone its liability which arbiter recognized "but also of James Yu and Wilson Young representatives of
Twin Ace and/or the Allied Bank Group doing business under the name "TANDUAY DISTILLERS," to
whom the business and assets of TDI were sold." If TDI and Tanduay, Distillers are one and the
same group or one is a continuation of the other, the two would not be fighting each other in this
case. TDI would not argue strongly "that the petition for certiorari filed by James Yu and Wilson
Young be dismissed for lack of merit." It is obvious that the second corporation, Twin Ace or Tanduay
Distillers, is an entity separate and distinct, from the first corporation, TDI. The circumstances of this
case are different from the earlier decisions of the Court in labor cases where the veil of corporate
fiction was pierced.
In La Campana Coffee Factory. Inc. vs. Kaisahan ng Mangagawa sa La Campana (KKM), (93 Phil,
160 [1953]), La Campana Coffee Factory, Inc. and La Campana Gaugau Packing were substantially
owned by the same person. They had one office, one management, and a single payroll for both
businesses. The laborers of thegaugau factory and the coffee factory were also interchangeable, the
workers in one factory worked also in the other factory.
In Claparols vs. Court of Industrial Relations (65 SCRA 613 (1975]), the Claparols Steel and Nail
Plant, which was ordered to pay its workers backwages, ceased operations on June 30, 1956 and
was succeeded on the very next day, July 1, 1957, by the Claparols Steel Corporation. Both
corporations were substantially owned and controlled by the same person and there was no break or
cessation in operations. Moreover, all the assets of the steel and nail plant were transferred to the
new corporation.
In fine, the fiction of separate and distinct corporate entities cannot, in the instant case, be
disregarded and brushed aside, there being not the least indication that the second corporation is a
dummy or serves as a client of the first corporate entity.
In the case at bench, since TDI and Twin Ace or Tanduay Distillers are two separate and distinct
entities, the order for Tanduay Distillers (and petitioners) to reinstate respondents-employees is
obviously without legal and factual basis.
3. Nor could the order and writ to reinstate be anchored on the vague and seemingly uncalled for
alternative disposition in the Barcelona decision that
. . . This is without prejudice to the letter of Mr. James Yu as officer-in-charge of

Tanduay Distillers dated June 16, 1988 to the President of the Tanduay Distillery, Inc.
labor Union.
The June 11, 1988 letter referred to was addressed to Benjamin C. Agaloos, president of the
Tanduay Distillery Labor Union by James Yu in his capacity as officer-in-charge of Tanduay Distillers.
It pertinently reads:
Please be informed that our company stands firm on its decision to hire everybody
with a clean slate effective June 1, 1988 on a probationary basis while those
currently casual or contractual employees shall retain the same employment status.
In the same manner that the new company stood firm on its decision to grant a 10%
across-the-board increase to all employees, which in fact has been received by
employees concerned.
(p. 88, Rollo.)
We do not find in the decision of Labor Arbiter Cauton Barcelona or in the letter of James Yu what
the respondents are trying to read into it. Labor Arbiter Cauton-Barcelona found the retrenchment
effected by TDI illegal and ordered TDI to reinstate the complainants and that if there is a change of
management, then separation benefits would be paid. There is, however, no order in the decision
directing Twin Ace or Tanduay Distillers to hire or reinstate herein four individual respondents.
The letter of James Yu does not mention any reinstatement. It assures the president of the labor
union that Tanduay Distillers stood firm on its decision to hire employees with a clean slate on a
probationary basis. The fact that the employees of the former employer (TDI) would be hired on
a probationary basis shows that there was no employer-employee relationship between individual
respondents and Twin Ace. Any one who joins the buyer corporation comes in as an outsider who is
newly hired and who starts on a probationary basis until he proves he deserves to be on a
permanent status. His application can be rejected in the exercise of the hiring authority's discretion.
There is thus no legal basis for Labor Arbiter Cueto or the NLRC to compel Twin Ace or Tanduay
Distillers, or petitioners to "reinstate" the four individual respondents. The letter of James Yu to the
union president was a unilateral and gratuitous offer with no consideration. It refers to people who
still have to be hired. New hires had to be investigated or evaluated if they have "clean slates." Twin
Ace or Tanduay Distillers and petitioners are being compelled by public respondents
to reinstate workers who were never their employees. There is no showing that the sale of assets by
TDI to Tanduay Distillers included a condition that employees of the former would be absorbed by
the latter.
Employees of TDI had been terminated in their employment as of April 28, 1988. Petitioners state
that Twin Ace bought the assets of TDI after the employment of the individual respondents had been
terminated. True, Labor Arbiter Cauton-Barcelona declared the retrenchment program of TDI as
illegal. This decision, however, did not convert the individual respondents into employees of the firm
which purchased the assets of the former employer. It merely held TDI liable for the consequences
of the illegal retrenchment.
Labor Arbiter Cueto and the NLRC, therefore, committed grave abuse of discretion when they read
into the decision of Labor Arbiter Cauton- Barcelona something which did not appear therein. And
even assuming that Labor Arbiter Cauton-Barcelona formally included an order for the petitioners to
hire the individual respondents, there would be no factual or legal basis for such an order. An
employer-employee relation is created by contract, and can not be forced upon either party simply
upon order of a labor arbiter. The hiring of employees is one of the recognized prerogatives of
management.
4. Another factor which militates against the claim for reinstatement of the individual respondents is
their having received separation pay as part of a compromise agreement in the course of their
litigation with TDI. Rodrigo F. Santos received P20,282.03; Roque Estoce, P20,092.50; Eduardo
Daliwan, P19,973.40; and Fernando A. Duran, P25,702.00. These amounts correspond to their
entitlement to separation benefits. Having received separation pay from a former employer, how can
they compel, as a matter of right, another company to hire them on a supposed "reinstatement"
basis? The orders executing the earlier decision of Labor Arbiter Cauton-Barcelona and directing
petitioners to immediately reinstate the four individual respondents to their former positions are, thus,
characterized by grave abuse of discretion. There are no "former positions" to which individual
respondents may be reinstated because they never hired by Twin Ace/Tanduay Distillers and had
never worked for it.
WHEREFORE, the petition is hereby GRANTED, The questioned Order of the Labor Arbiter Daniel
C. Cueto dated November 17, 1992 and the decision of the National Labor Relations Commission
upholding said order are set aside as null and void. No special pronouncement is made as to costs.
SO ORDERED.
Romero, Vitug and Francisco, JJ., concur.
Feliciano, J., took no part.

De facto

SUPREME COURT
Manila
EN BANC
G.R. No. L-2598 June 29, 1950
C. ARNOLD HALL and BRADLEY P. HALL, petitioners,

vs.
EDMUNDO S. PICCIO, Judge of the Court of First Instance of Leyte, FRED BROWN, EMMA
BROWN, HIPOLITA CAPUCIONG, in his capacity as receiver of the Far Eastern Lumber and
Commercial Co., Inc.,respondents.
Claro M. Recto for petitioners.
Ramon Diokno and Jose W. Diokno for respondents.
BENGZON, J.:
This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance
of Leyte and to enjoin the respondent judge from further acting upon the same.
Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents
Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella, signed and acknowledged
in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized
to engage in a general lumber business to carry on as general contractors, operators and managers,
etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock had
been subscribed and fully paid with certain properties transferred to the corporation described in a
list appended thereto.
(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do
business with the adoption of by-laws and the election of its officers.
(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities
and Exchange Commissioner, for the issuance of the corresponding certificate of incorporation.
(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental
office, the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S. Abella filed
before the Court of First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et
al. vs. Arnold C. Hall et al.", alleging among other things that the Far Eastern Lumber and
Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of
bitter dissension among the members, mismanagement and fraud by the managers and heavy
financial losses.
(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss,
contesting the court's jurisdiction and the sufficiently of the cause of action.
(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and
at the request of plaintiffs, appointed of the properties thereof, upon the filing of a P20,000 bond.
(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the
receiver, but the respondent judge refused to accept the offer and to discharge the receiver.
Whereupon, the present special civil action was instituted in this court. It is based upon two main
propositions, to wit:
(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company,
because it being ade facto corporation, dissolution thereof may only be ordered in a quo
warranto proceeding instituted in accordance with section 19 of the Corporation Law.
(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation
but only a partnership.
Discussion: The second proposition may at once be dismissed. All the parties are informed that the
Securities and Exchange Commission has not, so far, issued the corresponding certificate of
incorporation. All of them know, or sought to know, that the personality of a corporation begins to
exist only from the moment such certificate is issued not before (sec. 11, Corporation Law). The
complaining associates have not represented to the others that they were incorporated any more
than the latter had made similar representations to them. And as nobody was led to believe anything
to his prejudice and damage, the principle of estoppel does not apply. Obviously this is not an
instance requiring the enforcement of contracts with the corporation through the rule of estoppel.
The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern
Lumber and Commercial Co., is a de facto corporation, section 19 of the Corporation Law applies,
and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section
19 reads as follows:
. . . The due incorporation of any corporations claiming in good faith to be a corporation

under this Act and its right to exercise corporate powers shall not be inquired into collaterally
in any private suit to which the corporation may be a party, but such inquiry may be had at
the suit of the Insular Government on information of the Attorney-General.
There are least two reasons why this section does not govern the situation. Not having obtained the
certificate of incorporation, the Far Eastern Lumber and Commercial Co. even its stockholders
may not probably claim "in good faith" to be a corporation.
Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a
certificate of incorporation by the Director of the Bureau of Commerce and Industry which
calls a corporation into being. The immunity if collateral attack is granted to corporations
"claiming in good faith to be a corporation under this act." Such a claim is compatible with the
existence of errors and irregularities; but not with a total or substantial disregard of the law.
Unless there has been an evident attempt to comply with the law the claim to be a
corporation "under this act" could not be made "in good faith." (Fisher on the Philippine Law
of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)
Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders
of the alleged corporation, for the purpose of obtaining its dissolution. Even the existence of a de
jure corporation may be terminated in a private suit for its dissolution between stockholders, without
the intervention of the state.
There might be room for argument on the right of minority stockholders to sue for dissolution; 1 but
that question does not affect the court's jurisdiction, and is a matter for decision by the judge, subject
to review on appeal. Whkch brings us to one principal reason why this petition may not prosper,
namely: the petitioners have their remedy by appealing the order of dissolution at the proper time.
There is a secondary issue in connection with the appointment of a receiver. But it must be admitted
that receivership is proper in proceedings for dissolution of a company or corporation, and it was no
error to reject the counter-bond, the court having declared the dissolution. As to the amount of the
bond to be demanded of the receiver, much depends upon the discretion of the trial court, which in
this instance we do not believe has been clearly abused.
Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore
issued will be dissolved.
Ozaeta, Pablo, Tuason, Montemayor, and Reyes, JJ., concur.

Footnotes
1
Cf. Thompson on Corporations, 3rd. ed., secs. 6455-6457. But the suit might be viewed as
one of the rescission of contract, the agreement between incorporators being contractual in
nature. Fisher op. cit., p. 14.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119002 October 19, 2000
INTERNATIONAL EXPRESS TRAVEL & TOUR SERVICES, INC., petitioner,

vs.
HON. COURT OF APPEALS, HENRI KAHN, PHILIPPINE FOOTBALL
FEDERATION, respondents.
DECISION
KAPUNAN, J.:
On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its
managing director, wrote a letter to the Philippine Football Federation (Federation), through its
president private respondent Henri Kahn, wherein the former offered its services as a travel agency
to the latter.1 The offer was accepted.
Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the
South East Asian Games in Kuala Lumpur as well as various other trips to the People's Republic of
China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received,
the Federation made two partial payments, both in September of 1989, in the total amount of
P176,467.50.2
On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter
requesting for the amount of P265,894.33.3 On 30 October 1989, the Federation, through the Project
Gintong Alay, paid the amount of P31,603.00.4
On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial
payment for the outstanding balance of the Federation. 5 Thereafter, no further payments were made
despite repeated demands.
This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued
Henri Kahn in his personal capacity and as President of the Federation and impleaded the
Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid
balance for the tickets purchased by the Federation on the ground that Henri Kahn allegedly
guaranteed the said obligation.6
Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation
owed the amount P207,524.20, representing the unpaid balance for the plane tickets, he averred
that the petitioner has no cause of action against him either in his personal capacity or in his official
capacity as president of the Federation. He maintained that he did not guarantee payment but
merely acted as an agent of the Federation which has a separate and distinct juridical personality. 7
On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial
court.8
In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared
Henri Kahn personally liable for the unpaid obligation of the Federation. In arriving at the said ruling,
the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had it been duly established that
defendant Federation is a corporation. The trouble, however, is that neither the plaintiff nor the
defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant
Federation. In paragraph 2 of its complaint, plaintiff asserted that "Defendant Philippine Football
Federation is a sports association xxx." This has not been denied by defendant Henri Kahn in his
Answer. Being the President of defendant Federation, its corporate existence is within the personal
knowledge of defendant Henri Kahn. He could have easily denied specifically the assertion of the
plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not.
xxx
A voluntary unincorporated association, like defendant Federation has no power to enter into, or to
ratify, a contract. The contract entered into by its officers or agents on behalf of such association is
not binding on, or enforceable against it. The officers or agents are themselves personally liable.
x x x9
The dispositive portion of the trial court's decision reads:
WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal
sum of P207,524.20, plus the interest thereon at the legal rate computed from July 5, 1990, the date
the complaint was filed, until the principal obligation is fully liquidated; and another sum of
P15,000.00 for attorney's fees.
The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the
defendant Henri Kahn are hereby dismissed.
With the costs against defendant Henri Kahn.10
Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the
respondent court rendered a decision reversing the trial court, the decretal portion of said decision
reads:
WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET
ASIDE and another one is rendered dismissing the complaint against defendant Henri S. Kahn. 11
In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It
rationalized that since petitioner failed to prove that Henri Kahn guaranteed the obligation of the
Federation, he should not be held liable for the same as said entity has a separate and distinct
personality from its officers.
Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation
be held liable for the unpaid obligation. The same was denied by the appellate court in its resolution
of 8 February 1995, where it stated that:
As to the alternative prayer for the Modification of the Decision by expressly declaring in the
dispositive portion thereof the Philippine Football Federation (PFF) as liable for the unpaid
obligation, it should be remembered that the trial court dismissed the complaint against the
Philippine Football Federation, and the plaintiff did not appeal from this decision. Hence, the
Philippine Football Federation is not a party to this appeal and consequently, no judgment may be
pronounced by this Court against the PFF without violating the due process clause, let alone the fact
that the judgment dismissing the complaint against it, had already become final by virtue of the
plaintiff's failure to appeal therefrom. The alternative prayer is therefore similarly DENIED. 12
Petitioner now seeks recourse to this Court and alleges that the respondent court committed the
following assigned errors:13
A. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER

HAD DEALT WITH THE PHILIPPINE FOOTBALL FEDERATION (PFF) AS A CORPORATE
ENTITY AND IN NOT HOLDING THAT PRIVATE RESPONDENT HENRI KAHN WAS THE
ONE WHO REPRESENTED THE PFF AS HAVING A CORPORATE PERSONALITY.
B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE

RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE
UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND
CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL PAYMENT
AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY

LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT EXPRESSLY
DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE
OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of the Philippine
Football Federation as a juridical person. In the assailed decision, the appellate court recognized the
existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as
the Revised Charter of the Philippine Amateur Athletic Federation, and Presidential Decree No. 604
as the laws from which said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the
juridical existence of national sports associations. This may be gleaned from the powers and
functions granted to these associations. Section 14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have
the following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and government;
2. To raise funds by donations, benefits, and other means for their purposes.
3. To purchase, sell, lease or otherwise encumber property both real and personal, for the
accomplishment of their purpose;
4. To affiliate with international or regional sports' Associations after due consultation with the
executive committee;
xxx
13. To perform such other acts as may be necessary for the proper accomplishment of their
purposes and not inconsistent with this Act.
Section 8 of P.D. 604, grants similar functions to these sports associations:
SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports
associations shall have the following functions, powers, and duties:
1. Adopt a Constitution and By-Laws for their internal organization and government which
shall be submitted to the Department and any amendment thereto shall take effect upon
approval by the Department: Provided, however, That no team, school, club, organization, or
entity shall be admitted as a voting member of an association unless 60 per cent of the
athletes composing said team, school, club, organization, or entity are Filipino citizens;
2. Raise funds by donations, benefits, and other means for their purpose subject to the
approval of the Department;
3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the
accomplishment of their purpose;
4. Conduct local, interport, and international competitions, other than the Olympic and Asian
Games, for the promotion of their sport;
5. Affiliate with international or regional sports associations after due consultation with the
Department;
xxx
13. Perform such other functions as may be provided by law.
The above powers and functions granted to national sports associations clearly indicate that these
entities may acquire a juridical personality. The power to purchase, sell, lease and encumber
property are acts which may only be done by persons, whether natural or artificial, with juridical
capacity. However, while we agree with the appellate court that national sports associations may be
accorded corporate status, such does not automatically take place by the mere passage of these
laws.
It is a basic postulate that before a corporation may acquire juridical personality, the State must give
its consent either in the form of a special law or a general enabling act. We cannot agree with the
view of the appellate court and the private respondent that the Philippine Football Federation came
into existence upon the passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604
any provision creating the Philippine Football Federation. These laws merely recognized the
existence of national sports associations and provided the manner by which these entities may
acquire juridical personality. Section 11 of R.A. 3135 provides:
SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be
organized for each individual sports in the Philippines in the manner hereinafter provided to
constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National
Sports' Association shall be filed with the executive committee together with, among others, a copy
of the constitution and by-laws and a list of the members of the proposed association, and a filing fee
of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said association
will promote the purposes of this Act and particularly section three thereof. No application shall be
held pending for more than three months after the filing thereof without any action having been taken
thereon by the executive committee. Should the application be rejected, the reasons for such
rejection shall be clearly stated in a written communication to the applicant. Failure to specify the
reasons for the rejection shall not affect the application which shall be considered as unacted upon:
Provided, however, That until the executive committee herein provided shall have been formed,
applications for recognition shall be passed upon by the duly elected members of the present
executive committee of the Philippine Amateur Athletic Federation. The said executive committee
shall be dissolved upon the organization of the executive committee herein provided: Provided,
further, That the functioning executive committee is charged with the responsibility of seeing to it that
the National Sports' Associations are formed and organized within six months from and after the
passage of this Act.
Section 7 of P.D. 604, similarly provides:
SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national

sports association for each individual sport in the Philippines shall be filed with the Department
together with, among others, a copy of the Constitution and By-Laws and a list of the members of
the proposed association.
The Department shall give the recognition applied for if it is satisfied that the national sports
association to be organized will promote the objectives of this Decree and has substantially complied
with the rules and regulations of the Department: Provided, That the Department may withdraw
accreditation or recognition for violation of this Decree and such rules and regulations formulated by
it.
The Department shall supervise the national sports association: Provided, That the latter shall have
exclusive technical control over the development and promotion of the particular sport for which they
are organized.
Clearly the above cited provisions require that before an entity may be considered as a national
sports association, such entity must be recognized by the accrediting organization, the Philippine
Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development
under P.D. 604. This fact of recognition, however, Henri Kahn failed to substantiate. In attempting to
prove the juridical existence of the Federation, Henri Kahn attached to his motion for reconsideration
before the trial court a copy of the constitution and by-laws of the Philippine Football Federation.
Unfortunately, the same does not prove that said Federation has indeed been recognized and
accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and
Sports Development. Accordingly, we rule that the Philippine Football Federation is not a national
sports association within the purview of the aforementioned laws and does not have corporate
existence of its own.
Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid
obligations of the unincorporated Philippine Football Federation. It is a settled principal in corporation
law that any person acting or purporting to act on behalf of a corporation which has no valid
existence assumes such privileges and becomes personally liable for contract entered into or for
other acts performed as such agent.14 As president of the Federation, Henri Kahn is presumed to
have known about the corporate existence or non-existence of the Federation. We cannot subscribe
to the position taken by the appellate court that even assuming that the Federation was defectively
incorporated, the petitioner cannot deny the corporate existence of the Federation because it had
contracted and dealt with the Federation in such a manner as to recognize and in effect admit its
existence.15 The doctrine of corporation by estoppel is mistakenly applied by the respondent court to
the petitioner. The application of the doctrine applies to a third party only when he tries to escape
liability on a contract from which he has benefited on the irrelevant ground of defective
incorporation.16 In the case at bar, the petitioner is not trying to escape liability from the contract but
rather is the one claiming from the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595 is hereby REINSTATED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
Footnotes
1
Records, p. 10
2
Id., at 12-13.
3
Id., at 14.
4
Id., at 15.
5
Id., at 18.
6
Id., at 1-9.
7
Id., at 29-34.
8
Id., at 40.
9
Rollo, pp. 195-196.
10
Id., at 196.
11
Id., at 48.
12
Id., at 50.
13
Id., at 16-17.
Albert vs. University Publishing Co. Inc.., 13 SCRA 84, 87 (1965) citing Salvatierra vs.
14
Garlitos, 56 O.G. 3069.
15
CA Decision, p. 11, Rollo, p 46.
Campos, p. 107, citing Lowell-Woodward Hardware vs. Woods, et al., Partners As The
16
Superior Leasing Company, Supreme Court of Kansas, 1919, 104 Kan. 729, 180 p. 734.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that they
have not contributed any capital of their own to a "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for
debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of
an unincorporated association or ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998
Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same
is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the
CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on
September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to
the modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the

fishing nets covered by the Agreement plus P68,000.00 representing
the unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices

and computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No.

14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No.

iii. Accrued interest of P12,920.00 on Invoice No.
c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing

P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage

charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or
for the unpaid price of nets and floats in the amount of P532,045.00 and
P68,000.00, respectively, or for the total amount P600,045.00, this Court
noted that these items were attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon agreement of the parties, and, to
avoid further deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which the
plaintiff was the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced
the attached property as a guaranty for any judgment that plaintiff may be
able to secure in this case with the ownership and possession of the nets and
floats awarded and delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership of the nets
[was] retained by the plaintiff until full payment [was] made as stipulated in
the invoices; hence, in effect, the plaintiff attached its own properties. It [was]
for this reason also that this Court earlier ordered the attachment bond filed
by plaintiff to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor
of defendants.
From the foregoing, it would appear therefore that whatever judgment the
plaintiff may be entitled to in this case will have to be satisfied from the
amount of P900,000.00 as this amount replaced the attached nets and floats.
Considering, however, that the total judgment obligation as computed above
would amount to only P840,216.92, it would be inequitable, unfair and unjust
to award the excess to the defendants who are not entitled to damages and
who did not put up a single centavo to raise the amount of P900,000.00 aside
from the fact that they are not the owners of the nets and floats. For this
reason, the defendants are hereby relieved from any and all liabilities arising
from the monetary judgment obligation enumerated above and for plaintiff to
retain possession and ownership of the nets and floats and for the
reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement.
The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were
also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents
filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as
shown by a Certification from the Securities and Exchange Commission. 5 On September 20, 1990,
the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing
nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting
a reasonable time within which to pay. He also turned over to respondent some of the nets which
were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his
right to cross-examine witnesses and to present evidence on his behalf, because of his failure to
appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim
and Crossclaim and moved for the lifting of the Writ of Attachment.6 The trial court maintained the Writ,
and upon motion of private respondent, ordered the sale of the fishing nets at a public auction. Philippine
Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds of
P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners,
were jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a
declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10 The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
vessels sold in the amount of P5,750,000.00 including the fishing net.
This P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong
Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher
price than P5,750,000.00 whatever will be the excess will be divided
into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than

P5,750,000.00 whatever the deficiency shall be shouldered and paid
to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the nature of their obligations,
but that joint liability could be presumed from the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for
the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein appellant Lim Tong
Lim undertook a partnership for a specific undertaking, that is for commercial fishing .
. . . Oviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is . . . . By a contract of
partnership, two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves
(Article 1767, New Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE

AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG
THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR
OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN
IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND

ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats from respondent,
the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to
have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he
disclaims any direct participation in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the representatives of the
respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao,
for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two
the main asset of the purported partnership the fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767
of the Civil Code which provides:
Art. 1767 By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to
the partnership in the amount of P1 million secured by a check, because of which,
Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady
Anne Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of
nullity of commercial documents; (b) reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a
loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and
to divide equally among them the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be
divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this
Court, absent any cogent proof that the present action is embraced by one of the exceptions to the
rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the
bounds of a petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership
was the Compromise Agreement. He also claims that the settlement was entered into only to end the
dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are
baseless. The Agreement was but an embodiment of the relationship extant among the parties prior
to its execution.
A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise
all relevant facts. Both lower courts have done so and have found, correctly, a preexisting
partnership among the parties. In implying that the lower courts have decided on the basis of one
piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the
history of the document and explored all the possible consequential combinations in harmony with
law, logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified
petitioner's argument that the existence of a partnership was based only on the Compromise
Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua
and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of
Lease and the registration papers showing that he was the owner of the boats, including F/B
Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale
of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided
among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale
proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and
Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the
vessels which would be used in their fishing business. The sale of the boats, as well as the division
among the three of the balance remaining after the payment of their loans, proves beyond cavil
that F/B Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in the name of the
person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to pay a
debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee,
instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to
Chua and Yao, and not to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist

performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. "The reason behind this doctrine is obvious an
unincorporated association has no personality and would be incompetent to act and appropriate for
itself the power and attributes of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges
and obligations and becomes personally liable for contracts entered into or for other acts performed
as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In
the first instance, an unincorporated association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a third person who relied in good
faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility
for a contract it entered into and by virtue of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless
treated it as a corporation and received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation. In such case, all those who benefited
from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may
be held liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for
the nets it sold. The only question here is whether petitioner should be held jointly 18 liable with Chua
and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat
which has earlier been proven to be an asset of the partnership. He in fact questions the attachment
of the nets, because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law
on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having
reaped the benefits of the contract entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine
of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position, entraps and destroys the other. It
is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no
vested rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We
agree with the Court of Appeals that this issue is now moot and academic. As previously
discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of
petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats
were specifically manufactured and tailor-made according to their own design, and were bought and
used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment
of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the
nets remained with Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice Artemio V.
Panganiban, particularly the finding that Antonio Chua, Peter Yao and petitioner Lim Tong Lim have
incurred the liabilities of general partners. I merely would wish to elucidate a bit, albeit briefly, the
liability of partners in a general partnership.
When a person by his act or deed represents himself as a partner in an existing partnership or with
one or more persons not actual partners, he is deemed an agent of such persons consenting to such
representation and in the same manner, if he were a partner, with respect to persons who rely upon
the representation. 1 The association formed by Chua, Yao and Lim, should be, as it has been deemed,
a de facto partnership with all the consequent obligations for the purpose of enforcing the rights of third
persons. The liability of general partners (in a general partnership as so opposed to a limited partnership)
is laid down in Article 1816 2 which posits that all partners shall be liable pro rata beyond the partnership
assets for all the contracts which may have been entered into in its name, under its signature, and by a
person authorized to act for the partnership. This rule is to be construed along with other provisions of the
Civil Code which postulate that the partners can be held solidarily liable with the partnership specifically in
these instances (1) where, by any wrongful act or omission of any partner acting in the ordinary course
of the business of the partnership or with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor
to the same extent as the partner so acting or omitting to act; (2) where one partner acting within the
scope of his apparent authority receives money or property of a third person and misapplies it; and (3)
where the partnership in the course of its business receives money or property of a third person and the
money or property so received is misapplied by any partner while it is in the custody of the
partnership 3 consistently with the rules on the nature of civil liability in delicts and quasi-delicts.
Footnotes
1 Penned by J. Portia Alino-Hormachuelos; with the concurrence of JJ.

Buenaventura J. Guerrero, Division chairman, and Presbitero J. Velasco Jr.,
member.
2 CA Decision, p. 12; rollo, p. 36.
3 RTC Decision penned by Judge Maximiano C. Asuncion. pp. 11-12; rollo,

pp. 48-49.
5 Ibid., p. 2; rollo, p. 26.
6 RTC Decision, p. 2; Rollo, p. 39.
7 Petition, p. 4; rollo, p. 11.
8 Ibid.
9 RTC Decision, pp. 6-7; rollo, pp. 43-44.
10 Respondent's Memorandum, pp. 5, 8; rollo, pp. 107, 109.
12 RTC Decision, p. 10; rollo, p. 47.
13 Ibid.
14 This case was deemed submitted for resolution on August 10, 1999, when
this Court received petitioner's Memorandum signed by Atty. Roberto A.
Abad. Respondent's Memorandum signed by Atty. Benjamin S. Benito was
filed earlier on July 27, 1999.
15 Nos. 1-7 are from CA Decision p. 9 (rollo, p. 33); No. 8 is from RTC
Decision, p. 5 (rollo, p. 42); and No. 9 is from CA Decision, pp. 9-10 (rollo, pp.
33-34).
16 See Fuentes v. Court of Appeals, 268 SCRA 703, February 26, 1997.
17 Salvatierra v. Garlitos, 103 SCRA 757, May 23, 1958, per Felix
J.; citing Fay v. Noble, 7 Cushing [Mass.] 188.
18 The liability is joint if it is not specifically stated that it is solidary,"

Maramba v. Lozano, 126 Phil 833, June 29, 1967, per Makalintal, J. See
also Article 1207 of the Civil Code, which provides: "The concurrence of two
or more creditors or of two or more debtors in one [and] the same obligation
does not imply that each one of the former has a right to demand, or that
each one of the latter is bound to render, entire compliance with the
prestation. There is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity.
19 16 Phil. 315, July 26, 1910, per Moreland, J.
VITUG, J., concurring opinion;
1 Art. 1825. When a person, by words spoken or written or by conduct,

represents himself, or consents to another representing him to anyone, as a
partner in an existing partnership or with one or more persons not actual
partners, he is liable to any such persons to whom such representation has
been made, who has, on the faith of such representation, given credit to the
actual or apparent partnership, and if he has made such representation or
consented to its being made in a public manner he is liable to such person,
whether the representation has or has not been made or communicated to
such person so giving credit by or with the knowledge of the apparent partner
making the representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he were an

actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the other
persons, if any, so consenting to the contract or representation as to incur
liability, otherwise separately.
When a person has been thus represented to be a partner in an existing

partnership, or with one or more persons not actual partners, he is an agent
of the persons consenting to such representation to bind them to the same
extent and in the same manner as though he were a partner in fact, with
respect to persons who rely upon the representation. When all the members
of the existing partnership consent to the representation, a partnership act or
obligation results; but in all other cases it is the joint act or obligation of the
person acting and the persons consenting to the representation.
2 All partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the
contracts which may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.
3 Art. 1824 in relation to Article 1822 and Article 1823, New Civil Code.

SUPREME COURT
Manila
EN BANC
G.R. No. L-19118 June 16, 1965

MARIANO A. ALBERT, plaintiff-appellant,
vs.
UNIVERSITY PUBLISHING CO., INC., defendant-appellee.
Uy and Artiaga and Antonio M. Molina for plaintiff-appellant.

Aruego, Mamaril and Associates for defendant-appellee.
R E S O L U T I O N*
BENGZON, J.P., J.:
Defendant-appellee University Publishing Co., Inc. has two prayers before us: First, that said
defendant-appellee be granted leave to present original papers not included in the records of this
case because they were never presented in the trial of the case; and second, that the decision
promulgated by this Court on January 30, 1965 be reconsidered.
For a proper appraisal of all the facts and circumstances of this case it becomes necessary and
convenient to trace the origin of the same.
Plaintiff Albert, almost sixteen (16) years ago, sued University Publishing Co., Inc. for breach of
contract. On April 18, 1958, in L-9300, this court awarded the sum of P15,000.00 as damages. On
October 24, 1960, in L-15275, to clarify whether the P7,000.00 paid on account should be deducted
therefrom, this Court decided that the amount should be paid in full because said partial payment
was already taken into consideration when it fixed P15,000.00 as damages.
From the inception until the time when the decision in L-15275 was to be executed, corporate
existence on the part of University Publishing Co., Inc. seems to have been taken for granted, for it
was not put in issue in either of the cases abovementioned. However, when the Court of First
Instance of Manila issued on July 22, 1961 an order of execution against University Publishing Co.,
Inc., plaintiff, speaking also for the Sheriff of Manila, reported to the Court by petition of August 10,
1961 that there is no such entity as University Publishing Co., Inc., thereupon praying that, Jose M.
Aruego being the real defendant, the writ of execution be issued against him. Attached to said
petition was a certification from the Securities and Exchange Commission dated July 31, 1961
attesting: "The records of this Commission do not show the registration of UNIVERSITY
PUBLISHING CO., INC., either as a corporation or partnership." The issue of its corporate existence
was then clearly and squarely presented before the court.
University Publishing Co., Inc., instead of informing the lower court that it had in its possession
copies of its certificate of registration its by-laws, and all other pertinent papers material to the point
in dispute corporate existence chose to remain silent thereon. It merely countered the
aforesaid petition by filing through counsel (Jose M. Aruego's own law firm) a manifestation stating
that Jose M. Aruego is not a party to this case and, therefore, plaintiff's petition should be denied.
After the court a quo denied the request that a writ of execution be issued against Jose M. Aruego,
plaintiff brought this present appeal on the issue of the corporate existence of University Publishing
Co., Inc., as determinative of the responsibility of Jose M. Aruego, the person or official who had
always moved and acted for and in behalf of University Publishing Co., Inc.
It may be worth noting again that Jose M. Aruego started the negotiation which culminated in the
contract between the parties, signing said contract as president of University Publishing Co., Inc.
Likewise he was the one who made partial payments up to the amount of P7,000.00 for, and in
behalf of University Publishing Co., Inc. He also appeared not only as a witness but as lawyer,
signing some pleadings or motions in defense of University Publishing Co., Inc., although in other
instances it is one of his associates or members of his law firm who did so. Known is the fact that
even a duly existing corporation can only move and act through natural persons. In this case it was
Jose M. Aruego who moved and acted as or for University, Publishing Co., Inc.
It is elemental that the courts can only decide the merits of a given suit according to the records that
are in the case. It is true that in the two previous cases decided by this Court, the first, awarding
damages (L-9300), the second, clarifying the amount of P15,000.00 awarded as such (L-15275), the
corporate existence of University Publishing Co., Inc. as a legal entity was merely taken for granted.
However, when the said issue was squarely presented before the court, and University Publishing
Co., Inc. chose to keep the courts in the dark by withholding pertinent documents and papers in its
possession and control, perforce this Court had to decide the points raised according to the records
of the case and whatever related matters necessarily included therein. Hence, as a consequence of
the certification of the Securities and Exchange Commission that its records "do not show the
registration of University Publishing Co., Inc., either as a corporation or partnership," this Court
concluded that by virtue of its non-registration, it can not be considered a corporation. We further
said that it has therefore no personality separate from Jose M. Aruego and that Aruego was in reality
the one who answered and litigated through his own law firm counsel. Stated otherwise, we found
that Aruego was in fact, if not in name, the defendant. 1 Indeed, the judge of the court of first instance
wrote in his decision thus: "Defendant Aruego (all along the judge who pens this decision considered
that the defendant here is the president of the University Publishing Co., Inc. since it was he who
really made the contract with Justice Albert) 2" And this portion of the decision made by the court a
quo was never questioned by the defendant.
The above statement made by the court a quo in its decision compelled this Court to carefully
examine the facts surrounding the dispute starting from the time of the negotiation of the business
proposition, followed by the signing of the contract; considered the benefits received; took into
account the partial payments made, the litigation conducted, the decisions rendered and the appeals
undertaken. After thus considering the facts and circumstances, keeping in mind that even with
regard to corporations shown as duly registered and existing, we have in many a case pierced the
veil of corporate fiction to administer the ends of justice, 3 we held Aruego personally responsible for
his acts on behalf of University Publishing Co., Inc.
Defendant would reply that in all those cases where the Court pierced the veil of corporate fiction the
officials held liable were made party defendants. As stated, defendant-appellee could not even
pretend to possess corporate fiction in view to its non-registration per the evidence so that
from the start Aruego was the real defendant. Since the purpose of formally impleading a party is to
assure him a day in court, once the protective mantle of due process of law has in fact been
accorded a litigant, whatever the imperfection in form, the real litigant may be held liable as a party.
Jose M. Aruego definitely had his day in court, and due process of law was enjoyed by him as a
matter of fact as revealed by the records of the case. 4
The dispositive portion of the decision the reconsideration of which is being sought is the following:
"Premises considered, the order appealed from is hereby set aside and the case remanded ordering
the lower court to hold supplementary proceedings for the purpose of carrying the judgment into
effect against University Publishing Co., Inc. and/or Jose M. Aruego."
According to several cases a litigant is not allowed to speculate on the decision the court may render
in the case.5 The University Publishing Co., Inc. speculated on a favorable decision based on the
issue that Jose M. Aruego, not being a formal party defendant in this case, a writ of execution
against him was not in order. It, therefore, preferred to suppress vital documents under its
possession and control rather than to rebut the certification issued by the Securities and Exchange
Commission that according to its records University Publishing Co., Inc. was not registered. If the
lower court's order is sustained, collection of damages becomes problematical. If a new suit is filed
against Aruego, prescription might be considered as effective defense, aside from the prospect of
another ten years of pending litigation. Such are the possible reasons for adopting the position of
speculation of our decision. Our ruling appeared to be unfavorable to such speculation. It was only
after the receipt of the adverse decision promulgated by this Court that University Publishing Co.,
Inc., disclosed its registration papers. For purposes of this case only and according to its particular
facts and circumstances, we rule that in view of the late disclosure of said papers by the University
Publishing Co., Inc., the same can no longer considered at this stage of the proceedings.
Specifically said original papers are:
1. Original Certificate of Registration of the University Publishing Co., Inc., signed by then
Director of Commerce, Cornelio Balmaceda, showing that said company was duly registered
as a corporation with the Mercantile Registry of the then Bureau of Commerce (predecessor
of the Securities and Exchange Commission) as early as August 7, 1936;
2. Original copy of the Articles of Incorporation of the University Publishing Co., Inc
consisting of five (5) pages, showing that said corporation was incorporated as early as
August 1, 1936, Manila, Philippines, with an authorized capital stock of TEN THOUSAND
PESOS (P10,000), TWO THOUSAND PESOS (P2,000.00) of which was fully subscribed
and FIVE HUNDRED PESOS (P500.00), fully paid up; that it had a corporate existence of
fifty (50) years and the original incorporators of the same are: Jose M. Aruego, Jose A.
Adeva, Delfin T. Bruno Enrique Rimando and Federico Mangahas;
3. The original copy of the By-Laws of the University Publishing Co., Inc. consisting of eleven
(11) pages, showing that it exercised its franchise as early as September 4, 1936;
4. A certificate of Reconstitution of Records issued by the Securities and Exchange

Commission recognized the corporate existence of the University Publishing, Co., Inc. as
early as August 7, 1936.
Defendant-appellee could have presented the foregoing papers before the lower court to counter the
evidence of non-registration, but defendant-appellee did not do so. It could have reconstituted its
records at that stage of the proceedings, instead of only on April 1, 1965, after decision herein was
promulgated.
It follows, therefore, that defendant-appellee may not now be allowed to submit the abovementioned
papers to form part of the record. Sec. 7 of Rule 48, Rules of Court (in relation to Sec. 1. Rule 42),
invoked by movant, states:
SEC. 7. Original papers may be required. Whenever it is necessary or proper in the opinion
of the court that original papers of any kind should be inspected in the court on appeal, it
may make such order for the transmission, safekeeping, and return of such original papers
as may seem proper, and the court may receive and consider such original papers in
connection with the record.
The provision obviously refers to papers the originals of which are of record in the lower court, which
the appellate court may require to be transmitted for inspection. The original papers in question not
having been presented before the lower court as part of its record, the same cannot be transmitted
on appeal under the aforesaid section. In contrast, the certification as to University Publishing Co.,
Inc.'s non-registration forms part of the record in the lower court.
For original papers not part of the lower court's record, the applicable rule is Sec. 1 of Rule 59 on
New Trial. Under said Rule, the papers in question cannot be admitted, because they are not "newly
discovered evidence ," for with due diligence movant could have presented them in the lower court,
since they were in its possession and control.
As far as this case is concerned, therefore, University Publishing Co., Inc. must be deemed as
unregistered, since by defendant-appellee's choice the record shows it to be so. Defendant-appellee
apparently sought to delay the execution by remaining unregistered per the certification of the
Securities and Exchange Commission. It was only when execution was to be carried out, anyway,
against it and/or its president and almost 19 years after the approval of the law authorizing
reconstitution that it reconstituted its records to show its registration, thereby once more
attempting to delay the payment of plaintiff's claim, long since adjudged meritorious. Deciding,
therefore, as we must, this particular case on its record as submitted by the parties, defendant-
appellee's proffered evidence of its corporate existence cannot at this stage be considered to alter
the decision reached herein. This is not to preclude in future cases the consideration of properly
submitted evidence as to defendant-appellee's corporate existence.
WHEREFORE, the motion for reconsideration and for leave to file original papers not in the record,
is hereby denied. It is so ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala, Makalintal and
Zaldivar, JJ., concur.
Barrera, J., took no part.
Footnotes
*
Editor's Note: See main decision in 13 SCRA 84.
1
Decision, p. 6.
2
Decision of CFI, p. 9, quoted in plaintiff-appellant's brief, p. 10.
Arnold vs. Willits & Patterson, Ltd., 44 Phil. 634; Koppel (Phil.), Inc. vs. Yatco, 77 Phil. 496;
3
La Campana Coffee Factory, Inc. vs. Kaisahan ng, mga Manggagawa sa La Campana 93
Phil. 160; Marvel Building Corporation vs. David, 94 Phil. 376; Madrigal Shipping Co., Inc. vs.
Ogilvie, L-8431, Oct. 30, 1958: Laguna Transportation Co., Inc. vs. S.S.S., L-14606, April 28,
1960; McConnel vs. C.A., L-10510, Mar. 17, 1961; Liddel & Co., Inc. vs. Collector of Internal
Revenue, L-9687, June 30, 1961; Palacio vs. Fely Transportation Co., L-15121, August 31,
1962.
4
Decision, p. 6.
5
Rodriguez vs. Treasurer of the Philippines, 45 O.G. 4457 (Resolution); Arnault vs.
Nazareno, L-3820, Resolution of August 9, 1950: Howden vs. Collector of Internal Revenue,
L-19392, April 14, 1965.

Primary Purposes To Corporation by Estoppel (coRPORATION)

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Primary Purposes

[G.R. No. 156819. December 11, 2003]

ALICIA E. GALA, GUIA G. DOMINGO and RITA G.

27, 2002 of the Court of Appeals in CA-G.R. SP No. 71979.

Name Number of Shares Amount

Subsequently, on September 16, 1982, Guia Domingo, Ofelia Gala, Raul

Name Number of Shares Amount

Raul E. Gala 6,640 66,400.00

Ofelia E. Gala 6,640 66,400.00

Guia G. Domingo 6,640 66,400.00

Virgilio Galeon 40 40.00

Julian Jader 40 40.00

TOTAL 20,000 P200,000.00 [9]

Name Number of Shares Amount

Alicia Gala 21,480.2 2,148,020.00

Raul Gala 2,704.5 270,450.00

Ofelia Gala 980.8 98,080.00

Gina Domingo 516 51,600.00

Rita Benson 2 200.00

Virgilio Galeon 1 100.00

Julian Jader 1 100.00

Adnan Alonto 1 100.00

Elias Cresencio 1 100.00

TOTAL 50,000 P5,000,000.00

management committee or receiver and for the dissolution of Ellice. Additionally,

WHEREFORE, premises considered, judgment is hereby rendered, as follows:

1. Dismissing the petition in SEC Case No. 3747,

2. Issuing the following orders in SEC Case No. 4027;

(a) Enjoining herein respondents to perform corporate acts of both Ellice

(d) Directing the respondents to return to herein petitioners all corporate

WHEREFORE, the Decision of the Hearing Officer dated November 3, 1998 is

(3) jointly and severally indemnify the appellants P90,000.00 as attorneys

(4) jointly and solidarily pay the costs of suit;

Hence, this petition, raising the following issues:

conventional corporate formalities. [27]

of a case cannot thus be attributed to the injudicious performance of its

In an attempt to bolster their theory that the organization of the respondent

However, to warrant resort to the extraordinary remedy of piercing the veil of

[G.R. No. 133547. December 7, 2001]

[G.R. No. 133843. December 7, 2001]

MARIA DESTURA, petitioner, vs. COURT OF APPEALS, JORGE H. CHIN

Likewise in the case of Mago v. Court of Appeals,[2] it was held:

Republic of the Philippines

G.R. No. L-15429 December 1, 1919

Kincaid and Perkins for petitioners.

(f) To purchase and sell industrial and mercantile establishments.

Arellano, C.J., Torres and Avancea, JJ., concur.

STREET, J., concurring:

Republic of the Philippines

NORBERTO ASUNCION, ET AL., petitioners-appellants,

Modesto Reyes for appellants.

Section 6 of the Corporation Law reads in part as follows:

The judgment appealed from is affirmed, with costs against appellants.

Arellano, C.J., Torres, Johnson, Carson and Araullo, JJ., concur.

Republic of the Philippines

DAVAO LIGHT & POWER CO., INC., petitioner,

DE LEON, JR., J.:

The antecedent facts are:

Hence, the case should be filed in Davao City.