THIRD DIVISION

[G.R. No. 170782. June 22, 2009.]

SIAIN ENTERPRISES, INC., petitioner, vs. CUPERTINO REALTY CORP.
and EDWIN R. CATACUTAN, respondents.

DECISION

NACHURA, J p:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the decision of the Court of Appeals in CA-G.R. CV No. 71424 1 which affirmed the decision
of the Regional Trial Court, Branch 29, Iloilo City in Civil Case No. 23244. 2
On April 10, 1995, petitioner Siain Enterprises, Inc. obtained a loan of P37,000,000.00 from
respondent Cupertino Realty Corporation (Cupertino) covered by a promissory note signed by
both petitioner's and Cupertino's respective presidents, Cua Le Leng and Wilfredo Lua. The
promissory note authorizes Cupertino, as the creditor, to place in escrow the loan proceeds of
P37,000,000.00 with Metropolitan Bank & Trust Company to pay off petitioner's loan
obligation with Development Bank of the Philippines (DBP). To secure the loan, petitioner, on
the same date, executed a real estate mortgage over two (2) parcels of land and other
immovables, such as equipment and machineries.
Two (2) days thereafter, or on April 12, 1995, the parties executed an amendment to
promissory note which provided for a seventeen percent (17%) interest per annum on the
P37,000,000.00 loan. 3 The amendment to promissory note was likewise signed by Cua Le
Leng and Wilfredo Lua on behalf of petitioner and Cupertino, respectively.
On August 16, 1995, Cua Le Leng signed a second promissory note in favor of Cupertino for
P160,000,000.00. Cua Le Leng signed the second promissory note as maker, on behalf of
petitioner, and as co-maker, liable to Cupertino in her personal capacity. This second
promissory note provides:
PROMISSORY NOTE
AMOUNTDATE: AUGUST 16, 1995
ONE HUNDRED SIXTY MILLION PESOS
(PHP 160,000,000.00)
FOR VALUE RECEIVED, after one (1) year from this date on or August 16,
1996, WE, SIAIN ENTERPRISES INC. with Metro Manila office address at
306 J.P. Rizal St., Mandaluyong City, represented herein by its duly authorized
President, Ms. LELENG CUA, (a copy of her authority is hereto attached as
Annex "A") and Ms. LELENG CUA in her personal capacity, a resident of
ILOILO CITY, jointly and severally, unconditionally promise to pay
CUPERTINO REALTY CORPORATION, or order, an existing corporation duly
organized under Philippine laws, the amount/sum of ONE HUNDRED SIXTY
MILLION PESOS (PHP 160,000,000.00), Philippine Currency, without further
need of any demand, at the office of CUPERTINO REALTY CORPORATION;

The amount/sum of ONE HUNDRED SIXTY MILLION PESOS

(PHP160,000,000.00) shall earn a compounding interest of 30% per annum
which interest shall be payable to CUPERTINO REALTY CORPORATION at
its above given address ON THE FIRST DAY OF EVERY MONTH WITHOUT
THE NEED OF DEMAND.
In case We fail to pay the principal amount of this note at maturity or in the
event of bankruptcy or insolvency, receivership, levy of execution, garnishment
or attachment or in case of conviction for a criminal offense carrying with it the
penalty of civil interdiction or in any of the cases covered by Article 1198 of the
Civil Code of the Philippines, then the entire principal of this note and other
interests and penalties due thereon shall, at the option of CUPERTINO
REALTY CORPORATION, immediately become due and payable and We
jointly and severally agree to pay additionally a penalty at the rate of THREE
PERCENT (3%) per month on the total amount/sum due until fully paid.
Furthermore, We jointly and severally agree to pay an additional sum
equivalent to 20% of the total amount due but in no case less than PHP
100,000.00 as and for attorney's fees in addition to expenses and costs of suit.
We hereby authorize and empower CUPERTINO REALTY CORPORATION at
its option at any time, without notice, to apply to the payment of this note and
or any other particular obligation or obligations of all or any one of us to
CUPERTINO REALTY CORPORATION, as it may select, irrespective of the
dates of maturity, whether or not said obligations are then due, any and all
moneys, checks, securities and things of value which are now or which may
hereafter be in its hand on deposit or otherwise to the credit of, or belonging
to, both or any one of us, and CUPERTINO REALTY CORPORATION is
hereby authorized to sell at public or private sale such checks, securities, or
things of value for the purpose of applying the proceeds thereof to such
payments of this note. HSIADc
We hereby expressly consent to any extension and/or renewals hereof in
whole or in part and/or partial payment on account which may be requested by
and granted to us or any one of us for the payment of this note as long as the
remaining unpaid balance shall earn an interest of THREE percent (3%) a
month until fully paid. Such renewals or extensions shall, in no case, be
understood as a novation of this note or any provision thereof and We will
thereby continue to be liable for the payment of this note.
We submit to the jurisdiction of the Courts of the City of Manila or of the place
of execution of this note, at the option of CUPERTINO REALTY
CORPORATION without divesting any other court of its jurisdiction, for any
legal action which may arise out of this note. In case of judical execution of
this obligation, or any part of it, we hereby waive all our rights under the
provisions of Rule 39, section 12 of the Rules of Court.
We, who are justly indebted to CUPERTINO REALTY CORPORATION, agree
to execute respectively a real estate mortgage and a pledge or a chattel
mortgage covering securities to serve as collaterals for this loan and to
execute likewise an irrevocable proxy to allow representatives of the creditor
to be able to monitor acts of management so as to prevent any premature call
of this loan. We further undertake to execute any other kind of document
which CUPERTINO REALTY CORPORATION may solely believe is necessary
in order to effect any security over any collateral.
2

For this purpose, Ms. LELENG CUA, upon the foregoing promissory note, has
this 16th day of Aug 1995, pledged her shares of stocks in SIAIN
ENTERPRISES, INC., worth PHP 1,800,000.00 which she hereby confesses
as representing 80% of the total outstanding shares of the said company.
In default of payment of said note or any part thereof at maturity, Ms. LELENG
CUA hereby authorizes CUPERTINO REALTY CORPORATION or its assigns,
to dispose of said security or any part thereof at public sale. The proceeds of
such sale or sales shall, after payment of all expenses and commissions
attending said sale or sales, be applied to this promissory note and the
balance, if any, after payment of this promissory note and interest thereon,
shall be returned to the undersigned, her heirs, successors and
administrators; it shall be optional for the owner of the promissory note to bid
for and purchase the securities or any part thereof.
(signed)
SIAIN ENTERPRISES, INC.LELENG CUA
In her personal capacity
CO-MAKER
By:
(signed)
LELENG CUA
MAKER
WITNESSES:
(signed)
EDGARDO LUA
(signed)
ROSE MARIE RAGODON 4
Parenthetically, on even date, the parties executed an amendment of real estate mortgage,
providing in pertinent part:
WHEREAS, on 10 April 1995, the [petitioner] executed, signed and delivered a
Real Estate Mortgage to and in favor of [Cupertino] on certain real estate
properties to secure the payment to [Cupertino] of a loan in the amount of
THIRTY SEVEN MILLION PESOS (P37,000,000.00) Philippine Currency,
granted by [Cupertino] was ratified (sic) on 10 April 1995 before Constancio
Mangoba, Jr., Notary Public in Makati City, as Doc. No. 242; in Page No. 50;
Book No., XVI; Series of 1995, and duly recorded in the Office of the Register
of Deeds for the said City of Iloilo;
WHEREAS, the [petitioner] has increased its loan payable to [Cupertino] which
now amounts to ONE HUNDRED NINETY SEVEN MILLION PESOS
(197,000,000.00); and
WHEREAS, the [petitioner] and [Cupertino] intend to amend the said Real
Estate Mortgage in order to reflect the current total loan secured by the said
Real Estate Mortgage;
NOW, THEREFORE, for and in consideration of the foregoing premises, the
parties hereto have agreed and by these presents do hereby agree to amend
said Real Estate Mortgage dated 10 April 1995 mentioned above by
substituting the total amount of the loan secured by said Real Estate Mortgage
from P37,000,000.00 to P197,000,000.00.
It is hereby expressly understood that with the foregoing amendment, all other
terms and conditions of said Real Estate Mortgage dated 10 April 1995 are
3

hereby confirmed, ratified and continued to be in full force and effect, and that
this agreement be made an integral part of said Real Estate Mortgage. 5
Curiously however, and contrary to the tenor of the foregoing loan documents, petitioner, on
March 11, 1996, through counsel, wrote Cupertino and demanded the release of the
P160,000,000.00 loan increase covered by the amendment of real estate mortgage. 6 In the
demand letter, petitioner's counsel stated that despite repeated verbal demands, Cupertino
had yet to release the P160,000,000.00 loan. On May 17, 1996, petitioner demanded anew
from Cupertino the release of the P160,000,000.00 loan. 7
In complete refutation, Cupertino, likewise through counsel, responded and denied that it had
yet to release the P160,000,000.00 loan. Cupertino maintained that petitioner had long
obtained the proceeds of the aforesaid loan. Cupertino declared petitioner's demand as made
to "abscond from a just and valid obligation," a mere afterthought, following Cupertino's letter
demanding payment of the P37,000,000.00 loan covered by the first promissory note which
became overdue on March 5, 1996.
Not surprisingly, Cupertino instituted extrajudicial foreclosure proceedings over the properties
subject of the amended real estate mortgage. The auction sale was scheduled on October 11,
1996 with respondent Notary Public Edwin R. Catacutan commissioned to conduct the same.
This prompted petitioner to file a complaint with a prayer for a restraining order to enjoin
Notary Public Catacutan from proceeding with the public auction.
The following are the parties' conflicting claims, summarized by the RTC, and quoted
verbatim by the CA in its decision:
"The verified complaint alleges that [petitioner] is engaged in the
manufacturing and retailing/wholesaling business. On the other hand,
Cupertino is engaged in the realty business. That on April 10, 1995, [petitioner]
executed a Real Estate Mortgage over its real properties covered by Transfer
Certificates of title Nos. T-75109 and T-73481 ("the mortgage properties") of
the Register of Deeds of Iloilo in favor of Cupertino to secure the former's loan
obligation to the latter in the amount of Php37,000,000.00. That it has been
the agreement between [petitioner] and Cupertino that the aforesaid loan will
be non-interest bearing. Accordingly, the parties saw to it that the promissory
note (evidencing their loan agreement) did not provide any stipulation with
respect to interest. On several occasions thereafter, [petitioner] made partial
payments to Cupertino in respect of the aforesaid loan obligation by the former
to the latter in the total amount of Php7,985,039.08, thereby leaving a balance
of Php29,014,960.92. On August 16, 1995, [petitioner] and Cupertino
executed an amendment of Real Estate Mortgage (Annex "C") increasing the
total loan covered by the aforesaid REM from Php37,000,000.00 to
P197,000,000.00. This amendment to REM was executed preparatory to the
promised release by Cupertino of additional loan proceeds to [petitioner] in the
total amount of Php160,000,000.00. However, despite the execution of the
said amendment to REM and its subsequent registration with the Register of
Deeds of Iloilo City and notwithstanding the clear agreement between
[petitioner] and Cupertino and the latter will release and deliver to the former
the aforesaid additional loan proceeds of P160,000,000.00 after the signing of
pertinent documents and the registration of the amendment of REM, Cupertino
failed and refused to release the said additional amount for no apparent
reason at all, contrary to its repeated promises which [petitioner] continuously
relied on. On account of Cupertino's unfulfilled promises, [petitioner]
4

repeatedly demanded from Cupertino the release and/or delivery of the said
Php160,000,000.00 to the former. However, Cupertino still failed and refused
and continuously fails and refuses to release and/or deliver the
Php160,000,000.00 to [petitioner]. When [petitioner] tendered payment of the
amount of Php29,014,960.92 which is the remaining balance of the
Php37,000,000.00 loan subject of the REM, in order to discharge the same,
Cupertino unreasonably and unjustifiably refused acceptance thereof on the
ground that the previous payment amounting to Php7,985,039.08, was applied
by Cupertino to alleged interests and not to principal amount, despite the fact
that, as earlier stated, the aforesaid loan by agreement of the parties, is noninterest bearing. Worst, unknown to [petitioner], Cupertino was already making
arrangements with [respondent] Notary Public for the extrajudicial sale of the
mortgage properties even as [petitioner] is more than willing to pay the
Php29,014,960.92 which is the remaining balance of the Php37,000,000.00
loan and notwithstanding Cupertino's unjustified refusal and failure to deliver
to [petitioner] the amount of Php160,000,000.00. In fact, a notarial sale of the
mortgaged properties is already scheduled on 04 October 1996 by
[respondent] Notary Public at his office located at Rm. 100, Iloilo Casa Plaza,
Gen Luna St., Iloilo City. In view of the foregoing, Cupertino has no legal right
to foreclose the mortgaged properties. In any event, Cupertino cannot
extrajudicially cause the foreclosure by notarial sale of the mortgage
properties by [respondent] Notary Public as there is nothing in the REM (dated
10 April 1995) or in the amendment thereto that grants Cupertino the said
right.
xxx xxx xxx
"[Respondents] finally filed an answer to the complaint, alleging that the loan
have (sic) an interest of 17% per annum: that no payment was ever made by
[petitioner], that [petitioner] has already received the amount of the loan prior
to the execution of the promissory note and amendment of Real Estate
Mortgage, . . . .
"[Petitioner] filed a supplemental complaint alleging subsequent acts made by
defendants causing the subsequent auction sale and registering the
Certificates of Auction Sale praying that said auction sale be declared null and
void and ordering the Register of Deeds to cancel the registration and
annotation of the Certificate of Notarial Sale."
Thereafter, the Pre-Trial conference was set. Both parties submitted their
respective Brief and the following facts were admitted, viz.:
1.Execution of the mortgage dated April 10, 1995;
2.Amendment of Real Estate Mortgage dated August 16, 1995;
3.Execution of an Extra-Judicial Foreclosure by the [Cupertino];
4.Existence of two (2) promissory notes;
5.Existence but not the contents of the demand letter March 11, 1996
addressed to Mr. Wilfredo Lua and receipt of the same by [Cupertino];
and
6.Notice of Extra-Judicial Foreclosure Sale."
For failing to arrive at an amicable settlement, trial on the merits ensued. The
parties presented oral and documentary evidence to support their claims and
contentions. [Petitioner] insisted that she never received the proceeds of
Php160,000,000.00, thus, the foreclosure of the subject properties is null and
5

void. [Cupertino] on the other hand claimed otherwise. 8

After trial, the RTC rendered a decision dismissing petitioner's complaint and ordering it to
pay Cupertino P100,000.00 each for actual and exemplary damages, and P500,000.00 as
attorney's fees. The RTC recalled and set aside its previous order declaring the notarial
foreclosure of the mortgaged properties as null and void. On appeal, the CA, as previously
adverted to, affirmed the RTC's ruling.
In dismissing petitioner's complaint and finding for Cupertino, both the lower courts upheld the
validity of the amended real estate mortgage. The RTC found, as did the CA, that although
the amended real estate mortgage fell within the exceptions to the parol evidence rule under
Section 9, Rule 130 of the Rules of Court, petitioner still failed to overcome and debunk
Cupertino's evidence that the amended real estate mortgage had a consideration, and
petitioner did receive the amount of P160,000,000.00 representing its incurred obligation to
Cupertino. Both courts ruled that as between petitioner's bare denial and negative evidence of
non-receipt of the P160,000,000.00, and Cupertino's affirmative evidence on the existence of
the consideration, the latter must be given more weight and value. In all, the lower courts
gave credence to Cupertino's evidence that the P160,000,000.00 proceeds were the total
amount received by petitioner and its affiliate companies over the years from Wilfredo Lua,
Cupertino's president. In this regard, the lower courts applied the doctrine of "piercing the veil
of corporate fiction" to preclude petitioner from disavowing receipt of the P160,000,000.00
and paying its obligation under the amended real estate mortgage. DaTEIc
Undaunted, petitioner filed this appeal insisting on the nullity of the amended real estate
mortgage. Petitioner is adamant that the amended real estate mortgage is void as it did not
receive the agreed consideration therefor i.e., P160,000,000.00. Petitioner avers that the
amended real estate mortgage does not accurately reflect the agreement between the parties
as, at the time it signed the document, it actually had yet to receive the amount of
P160,000,000.00. Lastly, petitioner asseverates that the lower courts erroneously applied the
doctrine of "piercing the veil of corporate fiction" when both gave credence to Cupertino's
evidence showing that petitioner's affiliates were the previous recipients of part of the
P160,000,000.00 indebtedness of petitioner to Cupertino.
We are in complete accord with the lower courts' rulings.
Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially
when affirmed by the appellate court, are accorded the highest degree of respect and are
considered conclusive between the parties. 9 A review of such findings by this Court is not
warranted except upon a showing of highly meritorious circumstances, such as: (1) when the
findings of a trial court are grounded entirely on speculation, surmises or conjectures; (2)
when a lower court's inference from its factual findings is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when
the findings of the appellate court go beyond the issues of the case, or fail to notice certain
relevant facts which, if properly considered, will justify a different conclusion; (5) when there is
a misappreciation of facts; (6) when the findings of fact are conclusions without mention of the
specific evidence on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record. 10 None of these exceptions necessitating a reversal of
the assailed decision obtains in this instance.
Conversely, we cannot subscribe to petitioner's faulty reasoning.
First. All the loan documents, on their face, unequivocally declare petitioner's indebtedness to
Cupertino:
1.Promissory Note dated April 10, 1995, prefaced with a "[f]or value received," and the escrow
arrangement for the release of the P37,000,000.00 obligation in favor of DBP, another creditor
of petitioner.
6

2.Mortgage likewise dated April 10, 1995 executed by petitioner to secure its P37,000,000.00
loan obligation with Cupertino.
3.Amendment to Promissory Note for P37,000,000.00 dated April 12, 1995 which tentatively
sets the interest rate at seventeen percent (17%) per annum.
4.Promissory Note dated August 16, 1995, likewise prefaced with "[f]or value received," and
unconditionally promising to pay Cupertino P160,000,000.00 with a stipulation on
compounding interest at thirty percent (30%) per annum. The Promissory Note requires,
among others, the execution of a real estate mortgage to serve as collateral therefor. In case
of default in payment, petitioner, specifically, through its president, Cua Le Leng, authorizes
Cupertino to "dispose of said security or any part thereof at [a] public sale."
5.Amendment of Real Estate Mortgage also dated August 16, 1995 with a recital that the
mortgagor, herein petitioner, has increased its loan payable to the mortgagee, Cupertino, from
P37,000,000.00 to P197,000,000.00. In connection with the increase in loan obligation, the
parties confirmed and ratified the Real Estate Mortgage dated April 10, 1995.
Unmistakably, from the foregoing chain of transactions, a presumption has arisen that the
loan documents were supported by a consideration.
Rule 131, Section 3 of the Rules of Court specifies that a disputable presumption is
satisfactory if uncontradicted and not overcome by other evidence. Corollary thereto,
paragraphs (r) and (s) thereof and Section 24 of the Negotiable Instruments Law read:
SEC. 3.Disputable presumptions. The following presumptions are
satisfactory if uncontradicted, but may be contradicted and overcome by other
evidence:
xxx xxx xxx
(r)That there was sufficient consideration for a contract;
(s)That a negotiable instrument was given or indorsed for a sufficient
consideration;
xxx xxx xxx
SEC. 24.Presumption of consideration. Every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration; and
every person whose signature appears thereon to have become a party
thereto for value.
Second. The foregoing notwithstanding, petitioner insists that the Amended Real Estate
Mortgage was not supported by a consideration, asserting non-receipt of the
P160,000,000.00 loan increase reflected in the Amended Real Estate Mortgage. However,
petitioner's bare-faced assertion does not even dent, much less, overcome the aforesaid
presumptions on consideration for a contract. As deftly pointed out by the trial court:
. . . In this case, this Court finds that the [petitioner] has not been able to
establish its claim of non-receipt by a preponderance of evidence. Rather, the
Court is inclined to give more weight and credence to the affirmative and
straightforward testimony of [Cupertino] explaining in plain and categorical
words that the Php197,000,000.00 loan represented by the amended REM
was the total sum of the debit memo, the checks, the real estate mortgage and
the amended real estate mortgage, the pledges of jewelries, the trucks and
the condominiums plus the interests that will be incurred which all in all
amounted to Php197,000,000.00. It is a basic axiom in this jurisdiction that as
between the plaintiff's negative evidence of denial and the defendant's
affirmative evidence on the existence of the consideration, the latter must be
given more weight and value. Moreover, [Cupertino's] foregoing testimony on
7

the existence of the consideration of the Php160,000,000.00 promissory note

has never been refuted nor denied by the [petitioner], who while initially having
manifested that it will present rebuttal evidence eventually failed to do so,
despite all available opportunities accorded to it. By such failure to present
rebutting evidence, [Cupertino's] testimony on the existence of the
consideration of the amended real estate mortgage does not only become
impliedly admitted by the [petitioner], more significantly, to the mind of this
Court, it is a clear indication that [petitioner] has no counter evidence to
overcome and defeat the [Cupertino's] evidence on the matter. Otherwise,
there is no logic for [petitioner] to withhold it if available. Assuming that indeed
it exists, it may be safely assumed that such evidence having been willfully
suppressed is adverse if produced.
The presentation by [petitioner] of its cash Journal Receipt Book as proof that
it did not receive the proceeds of the Php160,000,000.00 promissory note
does not likewise persuade the Court. In the first place, the subject cash
receipt journal only contained cash receipts for the year 1995. But as
appearing from the various checks and debit memos issued by Wilfredo Lua
and his wife, Vicky Lua and from the former's unrebutted testimony in Court,
the issuance of the checks, debit memos, pledges of jewelries, condominium
units, trucks and the other components of the Php197,000,000.00 amended
real estate mortgage had all taken place prior to the year 1995, hence, they
could not have been recorded therein. What is more, the said cash receipt
journal appears to be prepared solely at the behest of the [petitioner], hence,
can be considered as emanating from a "poisonous tree" therefore self-serving
and cannot be given any serious credibility. 11
Significantly, petitioner asseverates that the parol evidence rule, which excludes other
evidence, apart from the written agreement, to prove the terms agreed upon by the parties
contained therein, 12 is not applicable to the Amended Real Estate Mortgage. Both the trial
and appellate courts agreed with petitioner and did not apply the parol evidence rule. Yet,
despite the allowance to present evidence and prove the invalidity of the Amended Real
Estate Mortgage, petitioner still failed to substantiate its claim of non-receipt of the proceeds
of the P160,000,000.00 loan increase.
Moreover, petitioner was the plaintiff in the trial court, the party that brought suit against
respondent. Accordingly, it had the burden of proof, the duty to present a preponderance of
evidence to establish its claim. 13 However, petitioner's evidence consisted only of a
barefaced denial of receipt and a vaguely drawn theory that in their previous loan transaction
with respondent covered by the first promissory note, it did not receive the proceeds of the
P37,000,000.00. Petitioner conveniently ignores that this particular promissory note secured
by the real estate mortgage was under an escrow arrangement and taken out to pay its
obligation to DBP. Thus, petitioner, quite obviously, would not be in possession of the
proceeds of the loan. Contrary to petitioner's contention, there is no precedent to explain its
stance that respondent undertook to release the P160,000,000.00 loan only after it had first
signed the Amended Real Estate Mortgage.
Third. Petitioner bewails the lower courts' application of the doctrine of "piercing the veil of
corporate fiction."
As a general rule, a corporation will be deemed a separate legal entity until sufficient reason
to the contrary appears. 14 But the rule is not absolute. A corporation's separate and distinct
legal personality may be disregarded and the veil of corporate fiction pierced when the notion
of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend
8

crime. 15
In this case, Cupertino presented overwhelming evidence that petitioner and its affiliate
corporations had received the proceeds of the P160,000,000.00 loan increase which was
then made the consideration for the Amended Real Estate Mortgage. We quote with favor the
RTC's and the CA's disquisitions on this matter:
That the checks, debit memos and the pledges of the jewelries, condominium
units and trucks were constituted not exclusively in the name of [petitioner] but
also either in the name of Yuyek Manufacturing Corporation, Siain Transport,
Inc., Cua Leleng and Alberto Lim is of no moment. For the facts established in
the case at bar has convinced the Court of the propriety to apply the principle
known as "piercing the veil of the corporate entity" by virtue of which, the
juridical personalities of the various corporations involved are disregarded and
the ensuing liability of the corporation to attach directly to its responsible
officers and stockholders. . . .
xxx xxx xxx
The conjunction of the identity of the [petitioner] corporation in relation to Siain
Transport, Inc. (Siain Transport), Yuyek Manufacturing Corp. (Yuyek), as well
as the individual personalities of Cua Leleng and Alberto Lim has been
indubitably shown in the instant case by the following established
considerations, to wit:
1.Siain and Yuyek have [a] common set of [incorporators], stockholders
and board of directors;
2.They have the same internal bookkeeper and accountant in the
person of Rosemarie Ragodon;
3.They have the same office address at 306 Jose Rizal St.,
Mandaluyong City;
4.They have the same majority stockholder and president in the person
of Cua Le Leng; and
5.In relation to Siain Transport, Cua Le Leng had the unlimited authority
by and on herself, without authority from the Board of Directors, to use
the funds of Siain Trucking to pay the obligation incurred by the
[petitioner] corporation.
Thus, it is crystal clear that [petitioner] corporation, Yuyek and Siain
Transport are characterized by oneness of operations vested in the
person of their common president, Cua Le Leng, and unity in the
keeping and maintenance of their corporate books and records through
their common accountant and bookkeeper, Rosemarie Ragodon.
Consequently, these corporations are proven to be the mere alter-ego
of their president Cua Leleng, and considering that Cua Leleng and
Alberto Lim have been living together as common law spouses with
three children, this Court believes that while Alberto Lim does not
appear to be an officer of Siain and Yuyek, nonetheless, his receipt of
certain checks and debit memos from Willie Lua and Victoria Lua was
actually for the account of his common-law wife, Cua Leleng and her
alter ego corporations. While this Court agrees with Siain that a
corporation has a personality separate and distinct from its individual
stockholders or members, this legal fiction cannot, however, be applied
to its benefit in this case where to do so would result to injustice and
evasion of a valid obligation, for well settled is the rule in this
9

jurisdiction that the veil of corporate fiction may be pierced when it is

used as a shield to further an end subversive of justice, or for purposes
that could not have been intended by the law that created it; or to justify
wrong, or for evasion of an existing obligation. Resultantly, the
obligation incurred and/or the transactions entered into either by Yuyek,
or by Siain Trucking, or by Cua Leleng, or by Alberto Lim with Cupertino
are deemed to be that of the [petitioner] itself. aIcDCH
The same principle equally applies to Cupertino. Thus, while it appears that
the issuance of the checks and the debit memos as well as the pledges of the
condominium units, the jewelries, and the trucks had occurred prior to March
2, 1995, the date when Cupertino was incorporated, the same does not affect
the validity of the subject transactions because applying again the principle of
piercing the corporate veil, the transactions entered into by Cupertino Realty
Corporation, it being merely the alter ego of Wilfredo Lua, are deemed to be
the latter's personal transactions and vice-versa. 16
xxx xxx xxx
. . . Firstly. As can be viewed from the extant record of the instant case, Cua
Leleng is the majority stockholder of the three (3) corporations namely, Yuyek
Manufacturing Corporation, Siain Transport, Inc., and Siain Enterprises Inc., at
the same time the President thereof. Second. Being the majority stockholder
and the president, Cua Le leng has the unlimited power, control and authority
without the approval from the board of directors to obtain for and in behalf of
the [petitioner] corporation from [Cupertino] thereby mortgaging her jewelries,
the condominiums of her common law husband, Alberto Lim, the trucks
registered in the name of [petitioner] corporation's sister company, Siain
Transport Inc., the subject lots registered in the name of [petitioner]
corporation and her oil mill property at Iloilo City. And, to apply the proceeds
thereof in whatever way she wants, to the prejudice of the public.
As such, [petitioner] corporation is now estopped from denying the above
apparent authorities of Cua Le Leng who holds herself to the public as
possessing the power to do those acts, against any person who dealt in good
faith as in the case of Cupertino. 17
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 71424 is AFFIRMED. Costs against the petitioner. CDaTAI
SO ORDERED.

10

SECOND DIVISION
[G.R. No. 166405. August 6, 2008.]
CLAUDE P. BAUTISTA, petitioner, vs.
INCORPORATED
and
COURT
OF
Division),respondents.

AUTO PLUS TRADERS,

APPEALS
(Twenty-First

DECISION

QUISUMBING, J p:
This petition for review on certiorari assails the Decision 1 dated August 10, 2004 of the Court
of Appeals in CA-G.R. CR No. 28464 and the Resolution 2 dated October 29, 2004, which
denied petitioner's motion for reconsideration. The Court of Appeals affirmed the February 24,
2004 Decision and May 11, 2004 Order of the Regional Trial Court (RTC), Davao City, Branch
16, in Criminal Case Nos. 52633-03 and 52634-03.
The antecedent facts are as follows:
Petitioner Claude P. Bautista, in his capacity as President and Presiding Officer of Cruiser Bus
Lines and Transport Corporation, purchased various spare parts from private respondent Auto
Plus Traders, Inc. and issued two postdated checks to cover his purchases. The checks were
subsequently dishonored. Private respondent then executed an affidavit-complaint for
violation of Batas Pambansa Blg. 22 3 against petitioner. Consequently, two Informations for
violation of BP Blg. 22 were filed with the Municipal Trial Court in Cities (MTCC) of Davao City
against the petitioner. These were docketed as Criminal Case Nos. 102,004-B-2001 and
102,005-B-2001. The Informations 4 read:
Criminal Case No. 102,004-B-2001:
The undersigned accuses the above-named accused for violation of Batas
Pambansa Bilang 22, committed as follows:
That on or about December 15, 2000, in the City of Davao, Philippines, and
within the jurisdiction of this Honorable Court, the above-mentioned accused,
knowing fully well that he had no sufficient funds and/or credit with the drawee
bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of
Digos, Inc. Check No. 058832, dated December 15, 2000, in the amount of
P151,200.00, in favor of Auto Plus Traders, Inc., but when said check was
presented to the drawee bank for encashment, the same was dishonored for
the reason "DRAWN AGAINST INSUFFICIENT FUNDS" and despite notice of
dishonor and demands upon said accused to make good the check, accused
failed and refused to make payment to the damage and prejudice of herein
complainant. IEaCDH
CONTRARY TO LAW.
Criminal Case No. 102,005-B-2001:
The undersigned accuses the above-named accused for violation of Batas

11

Pambansa Bilang 22, committed as follows:

That on or about October 30, 2000, in the City of Davao, Philippines, and
within the jurisdiction of this Honorable Court, the above-mentioned accused,
knowing fully well that he had no sufficient funds and/or credit with the drawee
bank, wilfully, unlawfully and feloniously issued and made out Rural Bank of
Digos, Inc. Check No. 059049, dated October 30, 2000, in the amount of
P97,500.00, in favor of Auto Plus Traders, [Inc.], but when said check was
presented to the drawee bank for encashment, the same was dishonored for
the reason "DRAWN AGAINST INSUFFICIENT FUNDS" and despite notice of
dishonor and demands upon said accused to make good the check, accused
failed and refused to make payment, to the damage and prejudice of herein
complainant.
CONTRARY TO LAW.
Petitioner pleaded not guilty. Trial on the merits ensued. After the presentation of the
prosecution's evidence, petitioner filed a demurrer to evidence. On April 21, 2003, the MTCC
granted the demurrer, thus:
WHEREFORE, the demurrer to evidence is granted, premised on reasonable
doubt as to the guilt of the accused. Cruiser Bus Line[s] and Transport
Corporation, through the accused is directed to pay the complainant the sum
of P248,700.00 representing the value of the two checks, with interest at the
rate of 12% per annum to be computed from the time of the filing of these
cases in Court, until the account is paid in full; ordering further Cruiser Bus
Line[s] and Transport Corporation, through the accused, to reimburse
complainant the expense representing filing fees amounting to P1,780.00 and
costs of litigation which this Court hereby fixed at P5,000.00. cIDHSC
SO ORDERED. 5
Petitioner moved for partial reconsideration but his motion was denied. Thereafter, both
parties appealed to the RTC. On February 24, 2004, the trial court ruled:
WHEREFORE, the assailed Order dated April 21, 2003 is hereby MODIFIED
to read as follows: Accused is directed to pay and/or reimburse the
complainant the following sums: (1) P248,700.00 representing the value of the
two checks, with interest at the rate of 12% per annum to be computed from
the time of the filing of these cases in Court, until the account is paid in full; (2)
P1,780.00 for filing fees and P5,000.00 as cost of litigation.
SO ORDERED. 6
Petitioner moved for reconsideration, but his motion was denied on May 11, 2004. Petitioner
elevated the case to the Court of Appeals, which affirmed the February 24, 2004 Decision and
May 11, 2004 Order of the RTC:
WHEREFORE, premises considered, the instant petition is DENIED. The
assailed Decision of the Regional Trial Court, Branch 16, Davao City, dated
February 24, 2004 and its Order dated May 11, 2004 are AFFIRMED.
SO ORDERED. 7
Petitioner now comes before us, raising the sole issue of whether the Court of Appeals erred
in upholding the RTC's ruling that petitioner, as an officer of the corporation, is personally and
civilly liable to the private respondent for the value of the two checks. 8
Petitioner asserts that BP Blg. 22 merely pertains to the criminal liability of the accused and
that the corporation, which has a separate personality from its officers, is solely liable for the
value of the two checks.
Private respondent counters that petitioner should be held personally liable for both checks.
12

Private respondent alleged that petitioner issued two postdated checks: a personal check in
his name for the amount of P151,200 and a corporation check under the account of Cruiser
Bus Lines and Transport Corporation for the amount of P97,500. According to private
respondent, petitioner, by issuing his check to cover the obligation of the corporation, became
an accommodation party. Under Section 29 9 of the Negotiable Instruments Law, an
accommodation party is liable on the instrument to a holder for value. Private respondent
adds that petitioner should also be liable for the value of the corporation check because
instituting another civil action against the corporation would result in multiplicity of suits and
delay. cHEATI
At the outset, we note that private respondent's allegation that petitioner issued a personal
check disputes the factual findings of the MTCC. The MTCC found that the two checks belong
to Cruiser Bus Lines and Transport Corporation while the RTC found that one of the checks
was a personal check of the petitioner. Generally this Court, in a petition for review on
certiorari under Rule 45 of the Rules of Court, has no jurisdiction over questions of facts. But,
considering that the findings of the MTCC and the RTC are at variance, 10 we are compelled
to settle this issue.
A perusal of the two check return slips 11 in conjunction with the Current Account Statements
12 would show that the check for P151,200 was drawn against the current account of Claude
Bautista while the check for P97,500 was drawn against the current account of Cruiser Bus
Lines and Transport Corporation. Hence, we sustain the factual finding of the RTC.
Nonetheless, we find the appellate court in error for affirming the decision of the RTC holding
petitioner liable for the value of the checks considering that petitioner was acquitted of the
crime charged and that the debts are clearly corporate debts for which only Cruiser Bus Lines
and Transport Corporation should be held liable. IDAaCc
Juridical entities have personalities separate and distinct from its officers and the persons
composing it. 13 Generally, the stockholders and officers are not personally liable for the
obligations of the corporation except only when the veil of corporate fiction is being used as a
cloak or cover for fraud or illegality, or to work injustice. 14These situations, however, do not
exist in this case. The evidence shows that it is Cruiser Bus Lines and Transport Corporation
that has obligations to Auto Plus Traders, Inc. for tires. There is no agreement that petitioner
shall be held liable for the corporation's obligations in his personal capacity. Hence, he cannot
be held liable for the value of the two checks issued in payment for the corporation's
obligation in the total amount of P248,700.
Likewise, contrary to private respondent's contentions, petitioner cannot be considered liable
as an accommodation party for Check No. 58832. Section 29 of the Negotiable Instruments
Law defines an accommodation party as a person "who has signed the instrument as maker,
drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending
his name to some other person." As gleaned from the text, an accommodation party is one
who meets all the three requisites, viz.: (1) he must be a party to the instrument, signing as
maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; and (3) he must
sign for the purpose of lending his name or credit to some other person. 15 An
accommodation party lends his name to enable the accommodated party to obtain credit or to
raise money; he receives no part of the consideration for the instrument but assumes liability
to the other party/ies thereto. 16 The first two elements are present here, however there is
insufficient evidence presented in the instant case to show the presence of the third requisite.
All that the evidence shows is that petitioner signed Check No. 58832, which is drawn against
his personal account. The said check, dated December 15, 2000, corresponds to the value of
24 sets of tires received by Cruiser Bus Lines and Transport Corporation on August 29, 2000.
17 There is no showing of when petitioner issued the check and in what capacity. In the
13

absence of concrete evidence it cannot just be assumed that petitioner intended to lend his
name to the corporation. Hence, petitioner cannot be considered as an accommodation party.
ADcHES
Cruiser Bus Lines and Transport Corporation, however, remains liable for the checks
especially since there is no evidence that the debts covered by the subject checks have been
paid.
WHEREFORE, the petition is GRANTED. The Decision dated August 10, 2004 and the
Resolution dated October 29, 2004 of the Court of Appeals in CA-G.R. CR No. 28464 are
REVERSED and SET ASIDE. Criminal Case Nos. 52633-03 and 52634-03 are DISMISSED,
without prejudice to the right of private respondent Auto Plus Traders, Inc., to file the proper
civil action against Cruiser Bus Lines and Transport Corporation for the value of the two
checks.
No pronouncement as to costs.
SO ORDERED.

14

FIRST DIVISION
[G.R. No. 154975. January 29, 2007.]
GENERAL CREDIT CORPORATION (now PENTA CAPITAL FINANCE
CORPORATION), petitioner, vs. ALSONS DEVELOPMENT and
INVESTMENT CORPORATION and CCC EQUITY CORPORATION,
respondents.

DECISION

GARCIA, J p:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner General
Credit Corporation, now known as Penta Capital Finance Corporation, seeks to annul and set
aside the Decision 1 and Resolution 2 dated April 11, 2002 and August 20, 2002, respectively,
of the Court of Appeals (CA) in CA-G.R. CV No. 31801, affirming the November 8, 1990
decision of the Regional Trial Court (RTC) of Makati City in its Civil Case No. 12707, an action
for a sum of money thereat instituted by the herein respondent Alsons Development and
Investment Corporation against the petitioner and respondent CCC Equity Corporation.
The facts:
Shortly after its incorporation in 1957 as a finance and investment company, petitioner
General Credit Corporation (GCC, for short), then known as Commercial Credit Corporation
(CCC), established CCC franchise companies in different urban centers of the country. 3 In
furtherance of its business, GCC had, as early as 1974, applied for and was able to secure
license from the then Central Bank (CB) of the Philippines and the Securities and Exchange
Commission (SEC) to engage also in quasi-banking activities. 4 On the other hand,
respondent CCC Equity Corporation (EQUITY, for brevity) was organized in November 1994
by GCC for the purpose of, among other things, taking over the operations and management
of the various franchise companies. At a time material hereto, respondent Alsons
Development and Investment Corporation (ALSONS, hereinafter) and Conrado, Nicasio,
Editha and Ladislawa, all surnamed Alcantara, and Alfredo de Borja (hereinafter the Alcantara
family, for convenience), each owned, just like GCC, shares in the aforesaid GCC franchise
companies, e.g., CCC Davao and CCC Cebu.
In December 1980, ALSONS and the Alcantara family, for a consideration of Two Million
(P2,000,000.00) Pesos, sold their shareholdings a total of 101,953 shares, more or less
in the CCC franchise companies to EQUITY. 5 On January 2, 1981, EQUITY issued ALSONS
et al., a "bearer" promissory note for P2,000,000.00 with a one-year maturity date, at 18%
interest per annum, with provisions for damages and litigation costs in case of default. 6
Some four years later, the Alcantara family assigned its rights and interests over the bearer
note to ALSONS which thenceforth became the holder thereof. 7 But even before the
execution of the assignment deal aforestated, letters of demand for interest payment were
already sent to EQUITY, through its President, Wilfredo Labayen, who pleaded inability to pay

15

the stipulated interest, EQUITY no longer then having assets or property to settle its
obligation nor being extended financial support by GCC.
What happened next, as narrated in the assailed Decision of the CA, may be summarized, as
follows:
1.On January 14, 1986, before the RTC of Makati, ALSONS, having failed to
collect on the bearer note aforementioned, filed a complaint for a sum of
money 8 against EQUITY and GCC. The case, docketed as Civil Case No.
12707, was eventually raffled to Branch 58 of the court. As stated in par. 4 of
the complaint, GCC is being impleaded as party-defendant for any judgment
ALSONS might secure against EQUITY and, under the doctrine of piercing the
veil of corporate fiction, against GCC, EQUITY having been organized as a
tool and mere conduit of GCC.
2.Answering with a cross-claim against GCC, EQUITY stated by way of
special and affirmative defenses that it (EQUITY):
a)was purposely organized by GCC for the latter to avoid CB Rules and
Regulations on DOSRI (Directors, Officers, Stockholders and Related
Interest) limitations, and that it acted merely as intermediary or bridge
for loan transactions and other dealings of GCC to its franchises and
the investing public; and
b)is solely dependent upon GCC for its funding requirements, to settle,
among others, equity purchases made by investors on the franchises;
hence, GCC is solely and directly liable to ALSONS, the former having
failed to provide . . . EQUITY the necessary funds to meet its
obligations to ALSONS. EHTISC
3.GCC filed its ANSWER to Cross-claim, stressing that it is a distinct and
separate entity from EQUITY and alleging, in essence that the business
relationships with each other were always at arm's length. And following the
denial of its motion to dismiss ALSONS' complaint, on the ground of lack of
jurisdiction and want of cause of action, GCC filed its Answer thereto and set
up affirmative defenses with counterclaim for exemplary damages and
attorney's fees.
Issues having been joined, trial ensued. Presented by ALSONS, but testifying as adverse
witnesses, were CB and GCC officers. Among other things, ALSONS' evidence, which
included the EQUITY-issued "bearer" promissory note marked as Exhibit "K" and over sixty
(60) other marked and subsequently admitted documents,9 were to the effect that five (5)
incorporators, each contributing P100,000.00 as the initial paid up capital of the company,
organized EQUITY to manage, as it did manage, various GCC franchises through
management contracts. Before EQUITY's incorporation, however, GCC was already into the
financing business as it was in fact managing and operating various CCC franchises.
Presented in evidence, too, was the September 29, 1982 letter-reply of one G. Villanueva,
then GCC President, to EQUITY President Wilfredo Labayen, bearing on the sale of EQUITY
shares to third parties, part of the proceeds of which the Alcantaras wanted applied to
liquidate the promissory note in question. In said letter, Mr. Villanueva explained that the GCC
Board denied the Alcantaras' request to be paid out of such proceeds, but nonetheless
authorized EQUITY to pay them interest out of EQUITY's operation income, in preference
over what was due GCC. 10
Albeit EQUITY presented its president, it opted to adopt the testimony of some of ALSONS'
witnesses, inclusive of the documentary exhibits testified to by each of them, as its evidence.
For its part, GCC called only Wilfredo Labayen to testify. It stuck to its underlying defense of
16

separateness and presented documentary evidence detailing the organizational structures of

both GCC and EQUITY. And in a bid to negate the notion that it was conducting its business
illegally, GCC presented CB and SEC-issued licenses authoring it to engage in financing and
quasi-banking activities. It also adduced evidence to prove that it was never a party to any of
the actionable documents ALSONS and its predecessors-in-interest had in their possession
and that the November 27, 1985 deed of assignment of rights over the promissory note was
unenforceable.
Eventually, the trial court, on its finding that EQUITY was but an instrumentality or adjunct of
GCC and considering the legal consequences and implications of such relationship, came out
with its decision on November 8, 1990, rendering judgment for ALSONS, to wit:
WHEREFORE, the foregoing premises considered, judgment is hereby
rendered in favor of plaintiff [ALSONS] and against the defendants [EQUITY
and GCC] who are hereby ordered, jointly and severally, to pay plaintiff:
1.the principal sum of Two Million Pesos (P2,000,000.00) together with the
interest due thereon at the rate of eighteen percent (18%) annually computed
from Jan. 2, 1981 until the obligation is fully paid;
2.liquidated damages due thereon equivalent to three percent (3%) monthly
computed from January 2, 1982 until the obligation is fully paid;
3.attorney's fees in an amount equivalent to twenty four percent (24%) of the
total obligation due; and
4.the costs of suit.
IT IS SO ORDERED. (Words in brackets added.)
Therefrom, GCC went on appeal to the CA where its appellate recourse was docketed as CAG.R. CV No. 31801, ascribing to the trial court the commission of the following errors:
1.In holding that there is a "Parent-Subsidiary" corporate relationship between
EQUITY and GCC;
2.In not holding that EQUITY and GCC are distinct and separate corporate
entities;
3.In applying the doctrine of "Piercing the Veil of Corporate Fiction" in the case
at bar; and
4.In not holding ALSONS in estoppel to question the corporate personality of
EQUITY.
On April 11, 2002, the appellate court rendered the herein assailed Decision, 11 affirming that
of the trial court, thus:
WHEREFORE, premises considered, the Decision of the Regional Trial Court,
Branch 58, Makati in Civil Case No. 12707 is hereby AFFIRMED.
SO ORDERED.
In time, GCC moved for reconsideration followed by a motion for oral argument, but both
motions were denied by the CA in its equally assailed Resolution of August 20, 2002. 12
Hence, GCC's present recourse anchored on the following arguments, issues and/or
submissions:
1.The motion for oral argument with motion for reconsideration and its
supplement were perfunctorily denied by the CA without justifiable basis;
2.There is absolutely no basis for piercing the veil of corporate fiction;
3.Respondent Alsons is not a real party-in-interest as the promissory note
payable to bearer subject of the collection suit is but a simulated document
and/or refers to another party. Moreover, the subject promissory note is not
admissible in evidence because it has not been duly authenticated and it is an
altered document;
17

4.The fact of full payment stated in the ten (10) deeds of sale of the shares of
stock is conclusive on the sellers, and by the patrol evidence rule, the alleged
fact of its non-payment cannot be introduced in evidenced; and
5.The counter-claim filed by GCC against Alsons should be granted in the
interest of justice.
The petition and the arguments and/or issues holding it together are without merit. The
desired reversal of the assailed decision and resolution of the appellate court is accordingly
DENIED. AaEcHC
Instead of raising distinctly formulated questions of law, as is expected of one seeking a
review under Rule 45 of the Rules of Court of a final CA judgment, 13petitioner GCC starts off
by voicing disappointment over the "perfunctory" denial by the CA of its twin motions for
reconsideration and oral argument. Petitioner, to be sure, cannot plausibly expect a reversal
action premised on the cursory way its motions were denied, if such indeed were the case.
Such manner of denial, while perhaps far from ideal, is not even a recognized ground for
appeal by certiorari, unless a denial of due process ensues, which is not the case here. And
lest it be overlooked, the CA prefaced its assailed denial resolution with the clause: "[F]inding
no reversible error committed to warrant the modification and/or reversal of the April 11, 2002
Decision," suggesting that the appellate court gave the petitioner's motion for reconsideration
the attention it deserved. At the very least, the petitioner was duly apprised of the reasons
why reconsideration could not be favorably considered. An extended resolution was not really
necessary to dispose of the motion for reconsideration in question.
Petitioner's lament about being deprived of procedural due process owing to the denial of its
motion for oral argument is simply specious. Under the CA Internal Rules, the appellate court
may tap any of the three (3) alternatives therein provided to aid the court in resolving
appealed cases before it. It may rely on available records alone, require the submission of
memoranda or set the case for oral argument. The option the Internal Rules thus gives the CA
necessarily suggests that the appellate court may, at its sound discretion, dispense with a
tedious oral argument exercise. Rule VI, Section 6 of the 2002 Internal Rules of the CA,
provides:
SEC. 6Judicial Action on Certain Petitions. (a) In petitions for review,
after the receipt of the respondent's comment on the petition, . . . the Court [of
Appeals] may dismiss the petition if it finds the same to be patently without
merit . . . , otherwise, it shall give due course to it.
xxx xxx xxx
If the petition is given due course, the Court may consider the case submitted
for decision or require the parties to submit their memorandum or set the case
for oral argument. . . . . After the oral argument or upon submission of the
memoranda . . . the case shall be deemed submitted for decision.
In the case at bench, records reveal that the appellate court, in line with the prescription of its
own rules, required the parties to just submit, as they did, their respective memoranda to
properly ventilate their separate causes. Under this scenario, the petitioner cannot be validly
heard, having been deprived of due process.
Just like the first, the last three (3) arguments set forth in the petition will not carry the day for
the petitioner. In relation therewith, the Court notes that these arguments and the issues
behind them were not raised before the trial court. This appellate maneuver cannot be
allowed. For, well-settled is the rule that issues or grounds not raised below cannot be
resolved on review in higher courts. 14 Springing surprises on the opposing party is
antithetical to the sporting idea of fair play, justice and due process; hence, the proscription
18

against a party shifting from one theory at the trial court to a new and different theory in the
appellate level. On the same rationale, points of law, theories, issues not brought to the
attention of the lower court or, in fine, not interposed during the trial cannot be raised for the
first time on appeal. 15
There are, to be sure, exceptions to the rule respecting what may be raised for the first time
on appeal. Lack of jurisdiction over when the issues raised present a matter of public policy
16 comes immediately to mind. None of the well-recognized exceptions obtain in this case,
however.
Lest it be overlooked vis--vis the same last three arguments thus pressed, both the trial court
and the CA, based on the evidence adduced, adjudged the petitioner and respondent
EQUITY jointly and severally liable to pay what respondent ALSONS is entitled to under the
"bearer" promissory note. The judgment argues against the notion of the note being simulated
or altered or that respondent ALSONS has no standing to sue on the note, not being the
payee of the "bearer" note. For, the declaration of liability not only presupposes the duly
established authenticity and due execution of the promissory note over which ALSONS, as
the holder in due course thereof, has interest, but also the untenability of the petitioner's
counterclaim for attorney's fees and exemplary damages against ALSONS. At bottom, the
petitioner predicated such counter-claim on the postulate that respondent ALSONS had no
cause of action, the supposed promissory note being, according to the petitioner, either a
simulated or an altered document.
In net effect, the definitive conclusion of the appellate court affirmatory of that of the trial
court was that the bearer promissory note (Exh. "K") was a genuine and authentic
instrument payable to the holder thereof. This factual determination, as a matter of long and
sound appellate practice, deserves great weight and shall not be disturbed on appeal, save
for the most compelling reasons, 17 such as when that determination is clearly without
evidentiary support or when grave abuse of discretion has been committed. 18 This is as it
should be since the Court, in petitions for review of CA decisions under Rule 45 of the Rules
of Court, usually limits its inquiry only to questions of law. Stated otherwise, it is not the
function of the Court to analyze and weigh all over again the evidence or premises supportive
of the factual holdings of lower courts. 19
As nothing in the record indicates any of the exceptions adverted to above, the factual
conclusion of the CA that the P2 Million promissory note in question was authentic and was
issued at the first instance to respondent ALSONS and the Alcantara family for the amount
stated on its face, must be affirmed. It should be stressed in this regard that even the issuing
entity, i.e., respondent EQUITY, never challenged the genuineness and due execution of the
note.
This brings us to the remaining but core issue tendered in this case and aptly raised by the
petitioner, to wit: whether there is absolutely no basis for piercing GCC's veil of corporate
identity.
A corporation is an artificial being vested by law with a personality distinct and separate from
those of the persons composing it 20 as well as from that of any other entity to which it may
be related. 21 The first consequence of the doctrine of legal entity of the separate personality
of the corporation is that a corporation may not be made to answer for acts and liabilities of its
stockholders or those of legal entities to which it may be connected or vice versa. 22
The notion of separate personality, however, may be disregarded under the doctrine
"piercing the veil of corporate fiction" as in fact the court will often look 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.
Another formulation of this doctrine is that when two (2) business enterprises are owned,
19

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 one and the same. 23
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. 24 After all, the concept of corporate
entity was not meant to promote unfair objectives. IACDaS
Authorities are agreed on at least three (3) basic areas where piercing the veil, with which the
law covers and isolates the corporation from any other legal entity to which it may be related,
is allowed. 25 These are: 1) defeat of public convenience, 26 as when the corporate fiction is
used as vehicle for the evasion of an existing obligation; 27 2) fraud cases or when the
corporate entity is used to justify a wrong, protect fraud, or defend a crime; 28 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. 29
The CA found valid grounds to pierce the corporate veil of petitioner GCC, there being
justifiable basis for such action. When the appellate court spoke of a justifying factor, the
reference was to what the trial court said in its decision, namely: the existence of "certain
circumstances [which], taken together, gave rise to the ineluctable conclusion that . . .
[respondent] EQUITY is but an instrumentality or adjunct of [petitioner] GCC."
The Court agrees with the disposition of the appellate court on the application of the piercing
doctrine to the transaction subject of this case. Per the Court's count, the trial court
enumerated no less than 20 documented circumstances and transactions, which, taken as a
package, indeed strongly supported the conclusion that respondent EQUITY was but an
adjunct, an instrumentality or business conduit of petitioner GCC. This relation, in turn,
provides a justifying ground to pierce petitioner's corporate existence as to ALSONS' claim in
question. Foremost of what the trial court referred to as "certain circumstances" are the
commonality of directors, officers and stockholders and even sharing of office between
petitioner GCC and respondent EQUITY; certain financing and management arrangements
between the two, allowing the petitioner to handle the funds of the latter; the virtual
domination if not control wielded by the petitioner over the finances, business policies and
practices of respondent EQUITY; and the establishment of respondent EQUITY by the
petitioner to circumvent CB rules. For a perspective, the following are some relevant excerpts
from the trial court's decision setting forth in some detail the tipping circumstances adverted to
therein:
It must be noted that as characterized by their business relationship,
[respondent] EQUITY and [petitioner] GCC had common directors and/or
officers as well as stockholders. This is revealed by the proceedings
recorded in SEC Case No. 25-81 entitled "Avelina Ramoso, et al., vs. GCC, et
al.,where it was established, thru the testimony of EQUITY's own
President . . . that more than 90% of the stockholders of . . . EQUITY were
also stockholders of . . . GCC . . . . Disclosed likewise is the fact that when
[EQUITY's President] Labayen sold the shareholdings of EQUITY in said
franchise companies, practically the entire proceeds thereof were surrendered
to GCC, and not received by EQUITY (EXHIBIT "RR") . . . .
It was likewise shown by a preponderance of evidence that not only had . . .
20

GCC financed . . . EQUITY and that the latter was heavily indebted to the
former but EQUITY was, in fact, a wholly owned subsidiary of . . . GCC.
Thus, as affirmed by EQUITY's President, . . . the funds invested by EQUITY
in the CCC franchise companies actually came from CCC Phils. or GCC
(Exhibit "Y-5") . . . . that, as disclosed by the Auditor's report for 1982, past due
receivables alone of GCC exceeded P101,000,000.00 mostly to GCC affiliates
especially CCC EQUITY. . . . ; that [CB's] Report of Examination dated July 14,
1977 shows that . . . EQUITY which has a paid-up capital of only P500,000.00
was the biggest borrower of GCC with a total loan of P6.70 Million . . . .
xxx xxx xxx
It has likewise been amply substantiated by [respondent ALSONS'] evidence
that not only did . . . GCC cause the incorporation of . . . EQUITY, but, the
latter had grossly inadequate capital for the pursuit of its line of business to the
extent that its business affairs were considered as GCC's own business
endeavors. . . . .
xxx xxx xxx
ALSONS has likewise shown . . . that the bonuses of the officers and directors
of . . . EQUITY was based on its total financial performance together with all its
affiliates . . . both firms were sharing one and the same office when both were
still operational . . . and that the directors and executives of . . . EQUITY never
acted independently . . . but took their orders from . . . GCC . . . .
The evidence has also indubitably established that . . . EQUITY was
organized by . . . GCC for the purpose of circumventing [CB] rules and
regulations and the Anti-Usury Law. Thus, as disclosed by the Advance
Report . . . on the result of Central Bank's Operations Examination conducted
on . . . GCC as of March 31, 1977 (EXHIBITS "FFF" etc.), the latter violated
[CB] rules and regulations by: (a) using as a conduit its non-quasi bank
affiliates . . . . (b) issuing without recourse facilities to enable GCC to extend
credit to affiliates like . . . EQUITY which go beyond the single borrower's limit
without the need of showing outstanding balance in the book of accounts.
(Emphasis over words in brackets added.)
It bears to stress at this point that the facts and the inferences drawn therefrom, upon which
the two (2) courts below applied the piercing doctrine, stand, for the most part, undisputed.
Among these is, to reiterate, the matter of EQUITY having been incorporated to serve, as it
did serve, as an instrumentality or adjunct of GCC. With the view we take of this case, GCC
did not adduce any evidence, let alone rebut the testimonies and documents presented by
ALSONS, to establish the prevailing circumstances adverted to that provided the justifying
occasion to pierce the veil of corporate fiction between GCC and EQUITY. We quote the trial
court:
Verily, indeed, as the relationships binding herein [respondent EQUITY and
petitioner GCC] have been that of "parent-subsidiary corporations" the
foregoing principles and doctrines find suitable applicability in the case at bar;
and, it having been satisfactorily and indubitably shown that the said
relationships had been used to perform certain functions not characterized
with legitimacy, this Court . . . feels amply justified to "pierce the veil of
corporate entity" and disregard the separate existence of the percent (sic)
and subsidiary the latter having been so controlled by the parent that its
separate identity is hardly discernible thus becoming a mere
instrumentality or alter ego of the former. Consequently, as the parent
21

corporation, [petitioner] GCC maybe (sic) held responsible for the acts and
contracts of its subsidiary [respondent] EQUITY most especially if the
latter (who had anyhow acknowledged its liability to ALSONS) maybe (sic)
without sufficient property with which to settle its obligations. For, after all,
GCC was the entity which initiated and benefited immensely from the
fraudulent scheme perpetrated in violation of the law. (Words in parenthesis in
the original; emphasis and bracketed words added).
Given the foregoing considerations, it behooves the petitioner, as a matter of law and equity,
to assume the legitimate financial obligation of a cash-strapped subsidiary corporation which
it virtually controlled to such a degree that the latter became its instrument or agent. The
facts, as found by the courts a quo, and the applicable law call for this kind of disposition. Or
else, the Court would be allowing the wrong use of the fiction of corporate veil.
WHEREFORE, the instant petition is DENIED and the appealed Decision and Resolution of
the Court of Appeals are accordingly AFFIRMED.
Costs against the petitioner.
SO ORDERED.

22

THIRD DIVISION
[G.R. No. 164846. June 18, 2008.]
STA. MONICA INDUSTRIAL AND DEVELOPMENT CORPORATION,
petitioner, vs. THE DEPARTMENT OF AGRARIAN REFORM REGIONAL
DIRECTOR FOR REGION III, PROVINCIAL AGRARIAN REFORM OFFICER
OF BULACAN, MUNICIPAL AGRARIAN REFORM OFFICER OF
CALUMPIT, BULACAN, and BASILIO DE GUZMAN, respondents.

DECISION

REYES, R.T., J p:
ANG Malawak na Batas sa Repormang Pangsakahan ay binuo upang makalaya ang
mga magsasaka mula sa tali ng kahirapan at paghahari ng may-ari ng lupa.
Kapag ang kathang-isip na korporasyon ay ginamit na tabing sa katulad na pyudal na
pang-aalipin, ang matayog na hangarin ng batas pambukid ay nabibigo at ang
mismong suliranin na nais lunasan nito ay nananatili.
Ang belo ng kathang-isip na korporasyon ay pupunitin kapag ito ay ginamit sa maling
hangarin at di-tapat na layunin.
The Comprehensive Agrarian Reform Law 1 was designed precisely to liberate peasantfarmers from the clutches of landlordism and poverty.
When corporate fiction is used as a mere smokescreen to the same form of feudal servitude,
the lofty aim of the agrarian law is thwarted and the very problem which the law seeks to
solve is perpetrated.
The veil of corporate fiction will be pierced when used for improper purposes and unfair
objectives.
Before Us is a petition for review on certiorari of the Decision 2 of the Court of Appeals (CA)
dismissing the petition of Sta. Monica Industrial and Development Corporation (Sta. Monica)
to annul the Order 3 of the Regional Director, Region III, Department of Agrarian Reform
(DAR) placing the landholdings of Asuncion Trinidad under the Comprehensive Agrarian
Reform Program (CARP). 4
The Facts
Trinidad is the owner of five parcels of land with a total area of 4.69 hectares in Iba Este,
Calumpit, Bulacan. Private respondent Basilio de Guzman is the agricultural leasehold tenant
of Trinidad.
On April 29, 1976, a leasehold contract denominated as "Kasunduan ng Buwisan sa
Sakahan" was executed between Trinidad and de Guzman. 5 As an agricultural leasehold
tenant, de Guzman was issued Certificates of Land Transfer on July 22, 1981. 6
Desiring to have an emancipation patent over the land under his tillage, de Guzman filed a
petition for the issuance of patent in his name with the Office of the Regional Director of the
DAR. 7 The Legal Services Division of the DAR duly sent notices to Trinidad requiring her to

23

comment. Instead of complying, Trinidad filed a motion for bill of particulars. 8

After due proceedings, the Regional Director issued the Order 9 granting the petition of de
Guzman, with the following disposition:
WHEREFORE, in light of the foregoing analysis and the reasons indicated
thereon, an ORDER is hereby issued as follows:
1.PLACING under the coverage of Operation Land Transfer (OLT) pursuant to
PD 27/Executive Order No. 228 the landholdings of Asuncion Trinidad with an
area of 10.6800 hectares, more or less, located at Iba Este, Calumpit,
Bulacan, without prejudice to the exercise of her retention rights if qualified
under the law.
2.DIRECTING the MARO of Calumpit, Bulacan and the PARO of Baliuag,
Bulacan to cause the generation and issuance of Emancipation Patent in favor
of the petitioner and other qualified farmer-beneficiaries over the said
landholding in accordance with the actual area of tillages. 10
Trinidad filed a motion for reconsideration but her motion was denied. 11
A year later, petitioner Sta. Monica filed a petition for certiorari and prohibition with the CA
assailing the order of the Regional Director. In its petition, Sta. Monica claimed that while it is
true that Asuncion Trinidad was the former registered owner of a parcel of land with an area of
83,689 square meters, the said landholding was sold on January 27, 1986. 12
Petitioner was able to acquire 39,547 square meters of the Trinidad property. After the sale,
petitioner sought the registration of the portion pertaining to it before the Register of Deeds of
the Province of Bulacan. Consequently, a corresponding Transfer Certificate of Title, with No.
301408 (now TCT No. RT 70512) was issued in favor of petitioner. 13
It was asserted that there was a denial of due process of law because it was not furnished a
notice of coverage under the CARP law. 14
In his comment on the petition, de Guzman argued that the alleged sale of the landholding is
illegal due to the lack of requisite clearance from the DAR. The said clearance is required
under P.D. No. 27, 15 the Tenant Emancipation Decree, which prohibits transfer of covered
lands except to tenant-beneficiaries. According to de Guzman, since no clearance was sought
from, and granted by, the DAR, the sale in favor of petitioner by Trinidad is inexistent and
void. Hence, Trinidad remained the owner of the disputed property.
CA Disposition
On May 26, 2004, the CA rendered a decision dismissing the petition of Sta. Monica,
disposing as follows:
WHEREFORE, premises considered, the instant petition is hereby DENIED for
lack of merit.
SO ORDERED. 16
The CA held that Sta. Monica is not a real party-in-interest because it cannot be considered
as an owner of the land it bought from Trinidad, thus: 17
It appears from the records of this case that the sale between Trinidad and the
petitioner is enjoined by Department Memorandum Circular No. 2-A,
implementing the provisions of Presidential Decree (P.D.) No. 27, which
prohibits the transfer of ownership of landholdings covered by P.D. No. 27
after 21 October 1972 without the requisite clearance from the DAR except to
the tenant-beneficiary. Thus, the title to the subject landholding remained with
the previous owner, Asuncion Trinidad. This effectively deprives the petitioner
of interest to question the orders of the Regional Director of the DAR relative
to the latter's directive placing the subject landholding under the coverage of

24

Operation Land Transfer and the subsequent issuance of an Emancipation

Patent in favor of private respondent de Guzman. One having no right or
interest to protect cannot invoke the jurisdiction of the court as a party plaintiff
(in this case petitioner) in an action. 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. 18 (Citations omitted)
The CA added that even assuming that Sta. Monica is a real party-in-interest, it was not
denied due process because it had constructive notice of the proceeding which involved its
property:
Even assuming, without admitting, that petitioner is the real party in interest by
reason of the sale of the subject landholding in its favor, it cannot be said that
petitioner was denied due process because of lack of notice of the
proceedings before the DAR. It is significant to note that Asuncion Trinidad is
the treasurer of petitioner, based on the corporation's General Information
Sheet. While it cannot be said that there was proper notice to the corporation,
being a corporate officer of the petitioner, there was at least constructive
notice of the fact that there was a proceeding which involved the property of
the corporation of which it may be deprived should an adverse decision be
rendered by the DAR. 19
The CA also ruled that the assailed orders of the Regional Director have already attained
finality because it was not appealed to the DAR Secretary.
Furthermore, the assailed orders have long become final and executory, there
being no appeal undertaken to the Secretary of the Department of Agrarian
Reform. Citing Fortich vs. Corona, et al., the Supreme Court aptly ruled in this
wise:
"The orderly administration of justice requires that the
judgments/resolutions of a court or quasi-judicial body must reach a
point of finality set by law, rules and regulations. The noble purpose is
to write finis to disputes once and for all. This is a fundamental principle
in our justice system, without which there would be no end to litigations.
Utmost respect and adherence to this principle must always be
maintained by those who wield the power of adjudication. Any act which
violates such principle must immediately be struck down."
The rule on finality of decisions, orders or resolutions of a judicial, quasijudicial, or administrative body is not a question of technicality but of
substance and merit, the underlying consideration therefore being the
protection of the substantive rights of the winning party. Just as a losing party
has the right to file an appeal within the prescribed period, the winning party
also has the correlative right to enjoy the finality of the resolution of his/her
case. 20
Sta. Monica sought reconsideration but it was denied. Hence, the present recourse. 21
Issue
Sta. Monica seeks reversal of the CA decision on the lone ground that THE ASSAILED
DECISION AND RESOLUTION OF THE COURT OF APPEALS ARE CONTRARY TO
EXISTING LAWS, RELEVANT JURISPRUDENCE ON THE MATTER AND THE FACTUAL
CIRCUMSTANCES. 22
Our Ruling

25

The petition is bereft of merit.

Trinidad is still deemed the owner of
the agricultural land sold to Sta.
Monica; no need for separate notice
of coverage under the CARP law.
The crux of the petition lies in the requirement of notice of coverage under the CARP law. The
statute requires a notice of coverage to be furnished and sent to the landowner. 23 Notice is
part of the constitutional right to due process of law. It informs the landowner of the State's
intention to acquire a private land upon payment of just compensation and gives him the
opportunity to present evidence that his landholding is not covered or is otherwise excused
from the agrarian law.
There is no dispute that a notice of coverage was duly sent to Trinidad. Records show that
she participated in the DAR proceedings. As to her, the constitutional requirement of due
process was met and satisfied.
Petitioner Sta. Monica, however, claims that it is the owner of the agricultural land awarded to
de Guzman. It acquired the land from Trinidad by sale in 1986 and it was issued a transfer
certificate of title. Sta. Monica claims denial of due process of law because it was not
furnished the required notice of coverage under the CARP law.
Respondent de Guzman, on the other hand, contends that the sale between Trinidad and Sta.
Monica is null and void because it is a prohibited transaction under Presidential Decree No.
27 (P.D. No. 27), as amended. 24 de Guzman also claims that Trinidad is a corporate officer
of Sta. Monica. It was her duty to inform Sta. Monica of the pending proceeding with the DAR.
25 He maintains that Sta. Monica was not denied due process because there was
constructive notice. Sta. Monica was sufficiently informed of the pending DAR proceedings.
26
Records disclose that there was indeed a deed of sale between Trinidad and Sta. Monica
over the agricultural land awarded to de Guzman. Sta. Monica was also issued a new transfer
certificate of title over the land. If We rely solely on the sale, it is a foregone conclusion that
Sta. Monica was denied due process of law. As the owner on record of the agricultural land, it
should have been given a notice of coverage.
However, there is much to be said of the attendant circumstances that lead Us to conclude
that notice of coverage to Trinidad is also sufficient notice to Sta. Monica. Moreover, We find
that the sale between Trinidad and Sta. Monica was a mere ruse to frustrate the
implementation of the agrarian law.
First, the sale to Sta. Monica is prohibited. P.D. No. 27, as amended, forbids the transfer or
alienation of covered agricultural lands after October 21, 1972 except to the tenantbeneficiary. The agricultural land awarded to de Guzman is covered by P.D. No. 27. He was
awarded a certificate of land transfer in July 22, 1981. The sale to Sta. Monica in 1986 is void
for being contrary to law. 27 Trinidad remained the owner of the agricultural land.
In Heirs of Batongbacal v. Court of Appeals, 28 involving the similar issue of sale of a covered
agricultural land under P.D. No. 27, this Court held:
Clearly, therefore, Philbanking committed breach of obligation as an
agricultural lessor. As the records show, private respondent was not informed
about the sale between Philbanking and petitioner, and neither was he privy to
the transfer of ownership from Juana Luciano to Philbanking. As an
agricultural lessee, the law gives him the right to be informed about matters
affecting the land he tills, without need for him to inquire about it.

26

xxx xxx xxx

In other words, transfer of ownership over tenanted rice and/or corn lands
after October 21, 1972 is allowed only in favor of the actual tenant-tillers
thereon.Hence, the sale executed by Philbanking on January 11, 1985 in favor
of petitioner was in violation of the aforequoted provision of P.D. 27 and its
implementing guidelines, and must thus be declared null and void. 29
(Underscoring supplied)
Second, buyer Sta. Monica is owned and controlled by Trinidad and her family. Records
show that Trinidad, her husband and two sons own more than 98% 30 of the outstanding
capital stock of Sta. Monica. They are all officers of the corporation. 31 There are only two
non-related incorporators who own less than one percent of the outstanding capital stock of
Sta. Monica and who are not officers of the corporation.
To be sure, Trinidad and her family exercise absolute control of the corporate affairs of Sta.
Monica. As owners of 98% of the outstanding capital stock, they are the beneficial owners of
all the assets of the company, including the agricultural land sold by Trinidad to Sta. Monica.
Third, Trinidad and her counsel failed to notify the DAR of the prior sale to Sta. Monica during
the administrative proceedings. Worse, Trinidad feigned ignorance of the sale by filing a
motion for bill of particulars seeking specifics from de Guzman of her alleged landholdings
which are subject of his petition with the DAR.
It is highly unusual and unbelievable for her not to know, or at least be aware, of the sale to
Sta. Monica. She herself signed the deed of sale as seller. She is also a stockholder and
officer of Sta. Monica. More importantly, she cannot feign ignorance of de Guzman's claim
because he was her agricultural tenant since the 1970s. She knows, or at least ought to
know, that the subject matter of the petition with the DAR was her own landholding, which she
sold to Sta. Monica in direct violation of P.D. No. 27.
The apparent lack of candor is heightened by the fact that both Trinidad and Sta. Monica are
represented by the same counsel, Atty. Ramon Gutierrez. We cannot stretch Our credulity on
how Trinidad filed a motion for bill of particulars with the DAR seeking specifics on the sale to
Sta. Monica when she herself signed for the vendor as a party to the transaction.
It is the duty of Atty. Gutierrez to inform the DAR, at the very first opportunity, of the sale to
Sta. Monica. He was utterly remiss of this duty. Instead of informing the DAR, Trinidad and
her counsel engaged in wild goose chase and stonewalling, feigning ignorance when they
ought to have informed the DAR of the sale to Sta. Monica. Atty. Gutierrez is reminded that,
as an officer of the court, he owes it the duty of candor, honesty and fairness. 32
Fourth, it was only after an adverse decision against Trinidad that Sta. Monica suddenly filed
a petition for certiorari with the CA questioning the lack of notice of coverage under the CARP
law. It is highly unlikely that Sta. Monica, an artificial being acting only through its duly
authorized representatives, was not sufficiently informed or had no constructive knowledge of
the DAR proceedings.
Trinidad and by extension, her family members, were informed or should be sufficiently aware
of the DAR proceedings. They are all stockholders and corporate officers of Sta. Monica.
They knew, they ought to know, that Sta. Monica would suffer damage should the DAR
award, as it awarded, the agricultural land to de Guzman.
As directors and corporate officers, they owe a duty of care to the corporation to inform it of
the pending proceedings with the DAR.
Fifth, the ultimate factor that betrays Trinidad and Sta. Monica is the continued payment of
lease rentals by de Guzman. Records show that de Guzman paid and continued to pay lease
rentals to Trinidad even after she sold the land to Sta. Monica. The receipt 33 dated May 30,
2002 discloses that de Guzman paid 40 cavans ofpalay to Clodinaldo dela Cruz, the
27

authorized representative of Trinidad, as lease rentals for the agricultural land.

It is incredible that Trinidad would still continue to collect lease rentals from de Guzman if she
had long sold the agricultural land to Sta. Monica in 1986. The continued payment of lease
rentals indicates that Trinidad never sold the agricultural land to Sta. Monica. Evidently, the
sale was a mere ruse to skirt coverage under the comprehensive agrarian reform law.
All these circumstances indicate that Trinidad has remained as the real owner of the
agricultural land sold to Sta. Monica. The sale to Sta. Monica is not valid because it is
prohibited under P.D. No. 27. More importantly, it must be deemed as a mere ploy to evade
the applicable provisions of the agrarian law.
But it is a fiat that the corporate vehicle cannot be used as a shield to protect fraud or justify
wrong. Thus, the veil of corporate fiction will be pierced when it is used to defeat public
convenience and subvert public policy.
Considering that Trinidad remained to be the true and legal owner of the agricultural land,
there is no need for another notice of coverage to be sent or furnished to Sta. Monica. At the
very least, the notice to her is already notice to Sta. Monica because the corporation acted as
a mere conduit of Trinidad. The CA correctly dismissed the petition of Sta. Monica to annul
the orders of the Regional Director placing the agricultural land of Trinidad under the agrarian
reform law.
Final Note
This case can be viewed as a microcosm of the persistent agrarian reform problem in Our
country. For one, it illustrates the arduous legal battle that tenant-farmers have to endure in
order to be finally freed from the bondage of the soil. De Guzman battled for almost eight
years to acquire the agricultural land from Trinidad. Others are not as equally lucky. For
another, it shows the subtle but illegal measures taken by landowners to evade coverage
under the CARP law.
Of course, there are also tales of landowners who unduly suffer either the abuse of some
farmers or the harsh consequences of the law.
In hindsight, it is quite ironic that We are still faced with the same agrarian reform problem
which We have sought to eradicate several years ago when the CARP law was first
introduced. Feudal system of land ownership still persists in the countryside and most farmers
are still tied to their bondage. It is more ironic when the problem is taken in its historical
context, the CARP law being the fifth land reform law passed since President Quezon.
To Our mind, part of the problem lies with the CARP law itself. As crafted, the law has its own
loopholes. It provides for a long list of exclusions. Some landowners used these exclusions to
go around the law. There is now a growing trend of land conversion in the countryside
suspiciously to evade coverage under the CARP law. Of course, the solution to this problem
lies with Congress. It is high time We sounded the call for a more realistic, rational
comprehensive agrarian reform law.
The dubious use of seemingly legal means to sidestep the CARP law persists. Corporate law
is resorted to by way of circling around the agrarian law. As this case illustrates, agricultural
lands are being transferred, simulated or otherwise, to corporations which are fully or at least
predominantly controlled by former landowners, now called stockholders. Through this
strategy, it is anticipated that the corporation, by virtue of its corporate fiction, will shield the
landowners from agricultural claims of tenant-farmers.
The use of corporate fiction as a means to evade legal liability is not new. This scheme or
device has long been perceived to be used in other fields of law, notably taxation to minimize
payment of tax with varying degrees of success and acceptability. But the continued

28

employment of the scheme in agrarian cases is not only deplorable; it is alarming. It is time to
put a lid on the cap.
WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.

29

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.
The Law Firm of Araullo and Raymundo for petitioner.
Ciriaco S. Cruz for private respondents.
SYLLABUS
1.COMMERCIAL LAW; CORPORATION LAW; DOCTRINE OF PIERCING THE VEIL OF
CORPORATE ENTITY; WHEN APPLICABLE. 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. But, this separate and distinct personality of a
corporation is merely a fiction created by law for convenience and to promote justice. 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, this
separate personality of the corporation may be disregarded or the veil of corporate fiction
pierced. This is true likewise when the corporation is merely an adjunct, a business conduit or
an alter ego of another corporation.
2.ID.; ID.; ID.; PROBATIVE FACTORS OF IDENTITY THAT WILL JUSTIFY THE
APPLICATION THEREOF. 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."
3.ID.; ID.; ID.; TEST IN DETERMINING THE APPLICABILITY THEREOF. The test in
determining the applicability of the doctrine of piercing the veil of corporation 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
30

of any one of these elements prevent '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."
4.ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. 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, the same 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." Clearly, petitioner ceased its business
operations in order to evade the payment to private respondents of backwages 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.
5.ID.; NATIONAL LABOR RELATIONS COMMISSION MANUAL OF EXECUTION OF
JUDGMENT; SECTION 3, RULE VII THEREOF; PROPERLY OBSERVED IN CASE AT BAR.
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 breakopen 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 Commissioner or Labor Arbiter
concerned for a break-open order."

DECISION

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

31

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 subcontractors 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' backwages 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;

32

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 Information Sheet, dated May 15, 1987, submitted by petitioner to
the Securities Exchange Commission (SEC) and the General Information Sheet, dated
May 15, 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 StockholderAmount Subscribed
HPPIP6,999,500.00
Antonio W. Lim2,900,000.00
Dennis S. Cuyegkeng300.00
Elisa C. Lim100,000.00
Teodulo R. Dino100.00
Virgilio O. Casino100.00
2.Board of Directors
Antonio W. LimChairman
Dennis S. CuyegkengMember
Elisa C. LimMember
Teodulo R. DinoMember
Virgilio O. CasinoMember
3.Corporate Officers
Antonio W. LimPresident
Dennis S. CuyegkengAssistant to the President
Elisa O. LimTreasurer
Virgilio O. CasinoCorporate Secretary
4.Principal Office
355 Maysan Road
Valenzuela, Metro Manila." 5

33

On the other hand, the General Information Sheet of HPPI revealed the following:
"1.Breakdown of Subscribed Capital
Name of StockholderAmount Subscribed
Antonio W. LimP400,000.00
Elisa C. Lim57,700.00
AWL Trading455,000.00
Dennis S. Cuyegkeng40,100.00
Teodulo R. Dino100.00
Virgilio O. Casino100 00
2.Board of Directors
Antonio W. LimChairman
Elisa C. LimMember
Dennis S. CuyegkengMember
Virgilio O. CasinoMember
Teodulo R. DinoMember
3.Corporate Officers
Antonio W. LimPresident
Dennis S. CuyegkengAssistant to the President
Elisa C. LimTreasurer
Virgilio O. CasinoCorporate 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
34

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 finances, policies and practices that the
controlled corporation has, so to speak, no separate mind, will or existence of
its own, and is but a conduit for its principal. 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

35

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, the same 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 backwages 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

36

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 quasijudicial 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 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.

37

THIRD DIVISION
[G.R. No. 142936. April 17, 2002.]
PHILIPPINE NATIONAL BANK & NATIONAL SUGAR DEVELOPMENT
CORPORATION, petitioners, vs. ANDRADA ELECTRIC & ENGINEERING
COMPANY, respondent.
Salvador Luy for petitioners.
Renecio Espiritu for private respondent.
SYNOPSIS
Respondent filed an action against petitioners for the unpaid balance on electrical
services it previously rendered to Pampanga Sugar Mill (PASUMIL). Respondent alleged
that petitioners became liable to them when the former acquired the assets of, took over,
and operated PASUMIL.
The Court disagreed with respondent. The following precludes the piercing of the
corporate veil in the case at bar: Other than the fact that petitioners acquired the assets of
PASUMIL, there was no showing that their control over it warrants the disregard of
corporate personalities, there was no evidence that their juridical personality was used to
commit 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;
respondent was not defrauded or injured when petitioners acquired the assets of
PASUMIL. Neither is there merger nor consolidation with respect to PASUMIL and PNB.
SYLLABUS
1.REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; PETITION FOR REVIEW; QUESTIONS
OF FACT MAY NOT RE RAISED THEREIN; EXCEPTION IS WHEN THERE IS
MISAPPRECIATION OF EVIDENCE. As a general rule, questions of fact may not be
raised in a petition for review under Rule 45 of the Rules of Court. To this rule, however, there
are some exceptions enumerated in Fuentes v. Court of Appeals. After a careful scrutiny of
the records and the pleadings submitted by the parties, we find that the lower courts
misappreciated the evidence presented. Overlooked by the CA were certain relevant facts
that would justify a conclusion different from that reached in the assailed Decision.
2.COMMERCIAL LAW; PRIVATE CORPORATIONS; WHERE CORPORATION PURCHASED
THE ASSETS OF ANOTHER CORPORATION, THE FORMER WILL NOT BE LIABLE TO
THE DEBTS OF THE LATTER; EXCEPTIONS. 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

38

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. SCHATc
3.ID.; ID.; CORPORATION; ELUCIDATED. 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. 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. This is basic.
4.ID.; ID.; DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION; WHEN
PROPER. Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or of another
corporation. For reasons of public policy and in the interest of justice, the corporate veil will
justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed
against third persons. Hence, any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of the milieu where it is to be applied.
It must be certain that the corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed. Otherwise, an injustice
that was never unintended may result from an erroneous application. This Court has pierced
the corporate veil to ward off a judgment credit, to avoid inclusion of corporate assets as part
of the estate of the decedent, to escape liability arising from a debt, or to perpetuate fraud
and/or confuse legitimate issues either to promote or to shield unfair objectives or to cover up
an otherwise blatant violation of the prohibition against forum-shopping. Only in these and
similar instances may the veil be pierced and disregarded.
5.ID.; ID.; ID.; ELEMENTS; NOT PRESENT IN CASE AT BAR. 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
plaintiff's legal right; and (3) the said control and breach of duty must have proximately
caused the injury or unjust loss complained of. 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. 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. Third, respondent was not defrauded or injured when petitioners
acquired the assets of PASUMIL. 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. However, it utterly failed to discharge
this burden; it failed to establish by competent evidence that petitioner's separate corporate
veil had been used to conceal fraud, illegality or inequity. The CA erred in affirming the trial
court's lifting of the corporate mask. The CA did not point to any fact evidencing bad faith on
the part of PNB and its transferee. The corporate fiction was not used to defeat public
convenience, justify a wrong, protect fraud or defend crime. None of the foregoing exceptions
was shown to exist in the present case. On the contrary, the lifting of the corporate veil would
39

result in manifest injustice. This we cannot allow.

6.ID.; ID.; CONSOLIDATION OR MERGER OF CORPORATIONS; REQUISITES; NOT
PRESENT IN CASE AT BAR. 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. The merger, however, does not become effective upon
the mere agreement of the constituent corporations. Since 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. For a valid merger or
consolidation, the approval by the Securities and Exchange Commission (SEC) of the articles
of merger or consolidation is required. These articles must likewise be duly approved by a
majority of the respective stockholders of the constituent corporations. 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 Code was not followed. AEIcSa

DECISION

PANGANIBAN, J p:
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 PASUMIL's contractual debts
to respondent.
Statement of the Case
Before us is a Petition for Review assailing the April 17, 2000 Decision 1 of the Court of
Appeals (CA) in CA-G.R. 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
40

(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
41

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 attorney's 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 attorney's 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 . . . 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
42

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 attorney's 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 plaintiff's 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 PNB's 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 manage 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
43

litigate and to incur expenses in this case, hence it is entitled to claim

attorney's 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 attorney's 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 attorney's fees; and,
'3.Costs.
'SO ORDERED.
'Manila, Philippines, September 4, 1986.
'(SGD) ERNESTO S. TENGCO
'Judge '" 3
Ruling of the Court of Appeals
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 Court's 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.

44

This Court's 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 latter's 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 PASUMIL's unpaid obligation.
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. 18It 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. 19The 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 issues 25 either to promote or to
shield unfair objectives 26 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
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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 plaintiff's 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 petitioner's separate corporate veil had been used to conceal
fraud, illegality or inequity. 36
While we agree with respondent's 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 latter's 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-A 42 as amended by LOI No. 311, 43 PNB acquired PASUMIL's
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 PASUMIL's 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 Mining's 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 court's 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.
46

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. 55 Since 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 Code 59 was not
followed.
In fact, PASUMIL's corporate existence, as correctly found by the CA, had not been legally
extinguished or terminated. 60 Further, prior to PNB's acquisition of the foreclosed assets,
PASUMIL had previously made partial payments to respondent for the former's 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 PASUMIL's creditors. 62 Clearly, the corporate
separateness between PASUMIL and PNB remains, despite respondent's insistence to the
contrary. 63
WHEREFORE, the Petition is hereby GRANTED and the assailed Decision SET ASIDE. No
pronouncement as to costs. DHTCaI
SO ORDERED.

47