G.R. No.
90580 April 8, 1991 The petitioners are now before this Court, contending that:
RUBEN SAW, DIONISIO SAW, LINA S. CHUA, LUCILA S.
RUSTE AND EVELYN SAW, petitioners,
vs.
HON. COURT OF APPEALS, HON. BERNARDO P. PARDO,
Presiding Judge of Branch 43, (Regional Trial Court of
Manila), FREEMAN MANAGEMENT AND DEVELOPMENT
CORPORATION, EQUITABLE BANKING CORPORATION,
FREEMAN INCORPORATED, SAW CHIAO LIAN, THE
REGISTER OF DEEDS OF CALOOCAN CITY, and DEPUTY
SHERIFF ROSALIO G. SIGUA, respondents.
Benito O. Ching, Jr. for petitioners.
William R. Vetor for Equitable Banking Corp.
Pineda, Uy & Janolo for Freeman, Inc. and Saw Chiao.
CRUZ, J.:
A collection suit with preliminary attachment was filed by
Equitable Banking Corporation against Freeman, Inc. and
Saw Chiao Lian, its President and General Manager. The
petitioners moved to intervene, alleging that (1) the loan
transactions between Saw Chiao Lian and Equitable Banking
Corp. were not approved by the stockholders representing at
least 2/3 of corporate capital; (2) Saw Chiao Lian had no
authority to contract such loans; and (3) there was collusion
between the officials of Freeman, Inc. and Equitable Banking
Corp. in securing the loans. The motion to intervene was
denied, and the petitioners appealed to the Court of Appeals.
Meanwhile, Equitable and Saw Chiao Lian entered into a
compromise agreement which they submitted to and was
approved by the lower court. But because it was not complied
with, Equitable secured a writ of execution, and two lots
owned by Freeman, Inc. were levied upon and sold at public
auction to Freeman Management and Development Corp.
The Court of Appeals1 sustained the denial of the petitioners'
motion for intervention, holding that "the compromise
agreement between Freeman, Inc., through its President, and
Equitable Banking Corp. will not necessarily prejudice
petitioners whose rights to corporate assets are at most
inchoate, prior to the dissolution of Freeman, Inc. . . . And
intervention under Sec. 2, Rule 12 of the Revised Rules of
Court is proper only when one's right is actual, material,
direct and immediate and not simply contingent or
expectant."
It also ruled against the petitioners' argument that because
they had already filed a notice of appeal, the trial judge had
lost jurisdiction over the case and could no longer issue the
writ of execution.
1. The Honorable Court of Appeals erred in holding
that the petitioners cannot intervene in Civil Case No.
88-44404 because their rights as stockholders of
Freeman are merely inchoate and not actual,
material, direct and immediate prior to the
dissolution of the corporation;
2. The Honorable Court of Appeals erred in holding
that the appeal of the petitioners in said Civil Case
No. 88-44404 was confined only to the order
denying their motion to intervene and did not divest
the trial court of its jurisdiction over the whole case.
The petitioners base their right to intervene for the
protection of their interests as stockholders on Everett v. Asia
Banking Corp.2 where it was held:
The well-known rule that shareholders cannot
ordinarily sue in equity to redress wrongs done to
the corporation, but that the action must be brought
by the Board of Directors, . . . has its exceptions. (If
the corporation [were] under the complete control
of the principal defendants, . . . it is obvious that a
demand upon the Board of Directors to institute
action and prosecute the same effectively would
have been useless, and the law does not require
litigants to perform useless acts.
Equitable demurs, contending that the collection suit against
Freeman, Inc, and Saw Chiao Lian is essentially in
personam and, as an action against defendants in their
personal capacities, will not prejudice the petitioners as
stockholders of the corporation. The Everett case is not
applicable because it involved an action filed by the minority
stockholders where the board of directors refused to bring an
action in behalf of the corporation. In the case at bar, it was
Freeman, Inc. that was being sued by the creditor bank.
Equitable also argues that the subject matter of the
intervention falls properly within the original and exclusive
jurisdiction of the Securities and Exchange Commission
under P.D. No. 902-A. In fact, at the time the motion for
intervention was filed, there was pending between Freeman,
Inc. and the petitioners SEC Case No. 03577 entitled
"Dissolution, Accounting, Cancellation of Certificate of
Registration with Restraining Order or Preliminary
Injunction and Appointment of Receiver." It also avers in its
Comment that the intervention of the petitioners could have
only caused delay and prejudice to the principal parties.
On the second assignment of error, Equitable maintains that
the petitioners' appeal could only apply to the denial of their
motion for intervention and not to the main case because
their personality as party litigants had not been recognized
by the trial court.
1
After examining the issues and arguments of the parties, the
Court finds that the respondent court committed no
reversible error in sustaining the denial by the trial court of
the petitioners' motion for intervention.
In the case of Magsaysay-Labrador v. Court of Appeals,3 we
ruled as follows:
Viewed in the light of Section 2, Rule 12 of the
Revised Rules of Court, this Court affirms the
respondent court's holding that petitioners herein
have no legal interest in the subject matter in
litigation so as to entitle them to intervene in the
proceedings below. In the case of Batama Farmers'
Cooperative Marketing Association, Inc. v. Rosal, we
held: "As clearly stated in Section 2 of Rule 12 of the
Rules of Court, to be permitted to intervene in a
pending action, the party must have a legal interest
in the matter in litigation, or in the success of either
of the parties or an interest against both, or he must
be so situated as to be adversely affected by a
distribution or other disposition of the property in
the custody of the court or an officer thereof."
To allow intervention, [a] it must be shown that the
movant has legal interest in the matter in litigation,
or otherwise qualified; and [b] consideration must
be given as to whether the adjudication of the rights
of the original parties may be delayed or prejudiced,
or whether the intervenor's rights may be protected
in a separate proceeding or not. Both requirements
must concur as the first is not more important than
the second.
The interest which entitles a person to intervene in a
suit between other parties must be in the matter in
litigation and of such direct and immediate character
that the intervenor will either gain or lose by the
direct legal operation and effect of the judgment.
Otherwise, if persons not parties of the action could
be allowed to intervene, proceedings will become
unnecessarily complicated, expensive and
interminable. And this is not the policy of the law.
The words "an interest in the subject" mean a direct
interest in the cause of action as pleaded, and which
would put the intervenor in a legal position to litigate
a fact alleged in the complaint, without the
establishment of which plaintiff could not recover.
Here, the interest, if it exists at all, of petitioners-
movants is indirect, contingent, remote, conjectural,
consequential and collateral. At the very least, their
interest is purely inchoate, or in sheer expectancy of
a right in the management of the corporation and to
share in the profits thereof and in the properties and
assets thereof on dissolution, after payment of the
corporate debts and obligations.
While a share of stock represents a proportionate or
aliquot interest in the property of the corporation, it
does not vest the owner thereof with any legal right
or title to any of the property, his interest in the
corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the
corporation as a distinct legal person.
On the second assignment of error, the respondent court
correctly noted that the notice of appeal was filed by the
petitioners on October 24, 1988, upon the denial of their
motion to intervene, and the writ of execution was issued by
the lower court on January 30, 1989. The petitioners' appeal
could not have concerned the "whole" case (referring to the
decision) because the petitioners "did not appeal the decision
as indeed they cannot because they are not parties to the case
despite their being stockholders of respondent Freeman,
Inc." They could only appeal the denial of their motion for
intervention as they were never recognized by the trial court
as party litigants in the main case. Intervention is "an act or
proceeding by which a third person is permitted to become a
party to an action or proceeding between other persons, and
which results merely in the addition of a new party or parties
to an original action, for the purpose of hearing and
determining at the same time all conflicting claims which may
be made to the subject matter in litigation.4
It is not an independent proceeding, but an ancillary and
supplemental one which, in the nature of things, unless
otherwise provided for by the statute or Rules of Court, must
be in subordination to the main proceeding.5 It may be laid
down as a general rule that an intervenor is limited to the
field of litigation open to the original parties.6
In the case at bar, there is no more principal action to be
resolved as a writ of execution had already been issued by the
lower court and the claim of Equitable had already been
satisfied. The decision of the lower court had already become
final and in fact had already been enforced. There is therefore
no more principal proceeding in which the petitioners may
intervene.
As we held in the case of Barangay Matictic v. Elbinias:7
An intervention has been regarded, as merely
"collateral or accessory or ancillary to the principal
action and not an independent proceedings; and
interlocutory proceeding dependent on and
subsidiary to, the case between the original parties."
(Fransisco, Rules of Court, Vol. 1, p. 721). With the
final dismissal of the original action, the complaint in
intervention can no longer be acted upon. In the case
2
 of Clareza v. Resales, 2 SCRA 455, 457-458, it was
stated that:
That right of the intervenor should merely
be in aid of the right of the original party,
like the plaintiffs in this case. As this right of
the plaintiffs had ceased to exist, there is
nothing to aid or fight for. So the right of
intervention has ceased to exist.
Consequently, it will be illogical and of no useful
purpose to grant or even consider further herein
petitioner's prayer for the issuance of a writ
of mandamus to compel the lower court to allow and
admit the petitioner's complaint in intervention. The
dismissal of the expropriation case has no less the
inherent effect of also dismissing the motion for
intervention which is but the unavoidable
consequence.
The Court observes that even with the denial of the
petitioners' motion to intervene, nothing is really lost to
them.1wphi1The denial did not necessarily prejudice them
as their rights are being litigated in the case now before the
Securities and Exchange Commission and may be fully
asserted and protected in that separate proceeding.
WHEREFORE, the petition is DENIED, with costs against the
petitioners. It is so ordered.
[G.R. No. L-32409. February 27, 1971.]
BACHE & CO. (PHIL.), INC. and FREDERICK E.
SEGGERMAN, Petitioners, v. HON. JUDGE VIVENCIO M.
RUIZ, MISAEL P. VERA, in his capacity as Commissioner of
Internal Revenue, ARTURO LOGRONIO, RODOLFO DE
LEON, GAVINO VELASQUEZ, MIMIR DELLOSA, NICANOR
ALCORDO, JOHN DOE, JOHN DOE, JOHN DOE, and JOHN
DOE, Respondents.
San Juan, Africa, Gonzales & San Agustin, for Petitioners.
Solicitor General Felix Q. Antonio, Assistant Solicitor
General Crispin V . Bautista, Solicitor Pedro A. Ramirez
and Special Attorney Jaime M. Maza for Respondents.
This is an original action of certiorari, prohibition and
mandamus, with prayer for a writ of preliminary mandatory
and prohibitory injunction. In their petition Bache & Co.
(Phil.), Inc., a corporation duly organized and existing under
the laws of the Philippines, and its President, Frederick E.
Seggerman, pray this Court to declare null and void Search
Warrant No. 2-M-70 issued by respondent Judge on February
25, 1970; to order respondents to desist from enforcing the
same and/or keeping the documents, papers and effects
seized by virtue thereof, as well as from enforcing the tax
assessments on petitioner corporation alleged by petitioners
to have been made on the basis of the said documents, papers
and effects, and to order the return of the latter to petitioners.
We gave due course to the petition but did not issue the writ
of preliminary injunction prayed for therein.
The pertinent facts of this case, as gathered from record, are
as follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael P. Vera,
Commissioner of Internal Revenue, wrote a letter addressed
to respondent Judge Vivencio M. Ruiz requesting the issuance
of a search warrant against petitioners for violation of Section
46(a) of the National Internal Revenue Code, in relation to all
other pertinent provisions thereof, particularly Sections 53,
72, 73, 208 and 209, and authorizing Revenue Examiner
Rodolfo de Leon, one of herein respondents, to make and file
the application for search warrant which was attached to the
letter.
In the afternoon of the following day, February 25, 1970,
respondent De Leon and his witness, respondent Arturo
Logronio, went to the Court of First Instance of Rizal. They
brought with them the following papers: respondent Veras
aforesaid letter-request; an application for search warrant
already filled up but still unsigned by respondent De Leon; an
affidavit of respondent Logronio subscribed before
respondent De Leon; a deposition in printed form of
respondent Logronio already accomplished and signed by
him but not yet subscribed; and a search warrant already
accomplished but still unsigned by respondent Judge.
At that time respondent Judge was hearing a certain case; so,
by means of a note, he instructed his Deputy Clerk of Court to
take the depositions of respondents De Leon and Logronio.
After the session had adjourned, respondent Judge was
informed that the depositions had already been taken. The
stenographer, upon request of respondent Judge, read to him
her stenographic notes; and thereafter, respondent Judge
asked respondent Logronio to take the oath and warned him
that if his deposition was found to be false and without legal
basis, he could be charged for perjury. Respondent Judge
signed respondent de Leons application for search warrant
and respondent Logronios deposition, Search Warrant No. 2-
M-70 was then sign by respondent Judge and accordingly
issued.
Three days later, or on February 28, 1970, which was a
Saturday, the BIR agents served the search warrant
petitioners at the offices of petitioner corporation on Ayala
Avenue, Makati, Rizal. Petitioners lawyers protested the
search on the ground that no formal complaint or transcript
of testimony was attached to the warrant. The agents
nevertheless proceeded with their search which yielded six
boxes of documents.
On March 3, 1970, petitioners filed a petition with the Court
of First Instance of Rizal praying that the search warrant be
quashed, dissolved or recalled, that preliminary prohibitory
and mandatory writs of injunction be issued, that the search
warrant be declared null and void, and that the respondents
3
be ordered to pay petitioners, jointly and severally, damages
and attorneys fees. On March 18, 1970, the respondents, thru
the Solicitor General, filed an answer to the petition. After
hearing, the court, presided over by respondent Judge, issued
on July 29, 1970, an order dismissing the petition for
dissolution of the search warrant. In the meantime, or on
April 16, 1970, the Bureau of Internal Revenue made tax
assessments on petitioner corporation in the total sum of
P2,594,729.97, partly, if not entirely, based on the documents
thus seized. Petitioners came to this Court.
The petition should be granted for the following
reasons:chanrob1es virtual 1aw library
1. Respondent Judge failed to personally examine the
complainant and his witness.
The pertinent provisions of the Constitution of the
Philippines and of the Revised Rules of Court
are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure in their persons,
houses, papers and effects against unreasonable searches
and seizures shall not be violated, and no warrants shall issue
but upon probable cause, to be determined by the judge after
examination under oath or affirmation of the complainant
and the witnesses he may produce, and particularly
describing the place to be searched, and the persons or things
to be seized." (Art. III, Sec. 1, Constitution.)
"SEC. 3. Requisites for issuing search warrant. A search
warrant shall not issue but upon probable cause in
connection with one specific offense to be determined by the
judge or justice of the peace after examination under oath or
affirmation of the complainant and the witnesses he may
produce, and particularly describing the place to be searched
and the persons or things to be seized.
"No search warrant shall issue for more than one specific
offense.
"SEC. 4. Examination of the applicant. The judge or justice
of the peace must, before issuing the warrant, personally
examine on oath or affirmation the complainant and any
witnesses he may produce and take their depositions in
writing, and attach them to the record, in addition to any
affidavits presented to him." (Rule 126, Revised Rules of
Court.)
The examination of the complainant and the witnesses he
may produce, required by Art. III, Sec. 1, par. 3, of the
Constitution, and by Secs. 3 and 4, Rule 126 of the Revised
Rules of Court, should be conducted by the judge himself and
not by others. The phrase "which shall be determined by the
judge after examination under oath or affirmation of the
complainant and the witnesses he may produce," appearing
in the said constitutional provision, was introduced by
Delegate Francisco as an amendment to the draft submitted
by the Sub-Committee of Seven. The following discussion in
the Constitutional Convention (Laurel, Proceedings of the
Philippine Constitutional Convention, Vol. III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compaero los piropos y vamos
al grano.
En los casos de una necesidad de actuar inmediatamente para
que no se frusten los fines de la justicia mediante el registro
inmediato y la incautacion del cuerpo del delito, no cree Su
Seoria que causaria cierta demora el procedimiento
apuntado en su enmienda en tal forma que podria frustrar los
fines de la justicia o si Su Seoria encuentra un remedio para
esto casos con el fin de compaginar los fines de la justicia con
los derechos del individuo en su persona, bienes etcetera,
etcetera.
"SR. FRANCISCO. No puedo ver en la practica el caso hipottico
que Su Seoria pregunta por la siguiente razon: el que solicita
un mandamiento de registro tiene que hacerlo por escrito y
ese escrito no aparecer en la Mesa del Juez sin que alguien
vaya el juez a presentar ese escrito o peticion de sucuestro.
Esa persona que presenta el registro puede ser el mismo
denunciante o alguna persona que solicita dicho
mandamiento de registro. Ahora toda la enmienda en esos
casos consiste en que haya peticion de registro y el juez no se
atendra solamente a sea peticion sino que el juez examiner a
ese denunciante y si tiene testigos tambin examiner a los
testigos.
"SR. ORENSE. No cree Su Seoria que el tomar le declaracion
de ese denunciante por escrito siempre requeriria algun
tiempo?.
"SR. FRANCISCO. Seria cuestio de un par de horas, pero por
otro lado minimizamos en todo lo posible las vejaciones
injustas con la expedicion arbitraria de los mandamientos de
registro. Creo que entre dos males debemos escoger. el
menor.
x x x
"MR. LAUREL. . . . The reason why we are in favor of this
amendment is because we are incorporating in our
constitution something of a fundamental character. Now,
before a judge could issue a search warrant, he must be under
the obligation to examine personally under oath the
complainant and if he has any witness, the witnesses that he
may produce . . ."cralaw virtua1aw library
The implementing rule in the Revised Rules of Court, Sec. 4,
Rule 126, is more emphatic and candid, for it requires the
judge, before issuing a search warrant, to "personally
examine on oath or affirmation the complainant and any
witnesses he may produce . . ."cralaw virtua1aw library
Personal examination by the judge of the complainant and his
witnesses is necessary to enable him to determine the
4
existence or non-existence of a probable cause, pursuant to
Art. III, Sec. 1, par. 3, of the Constitution, and Sec. 3, Rule 126
of the Revised Rules of Court, both of which prohibit the
issuance of warrants except "upon probable cause." The
determination of whether or not a probable cause exists calls
for the exercise of judgment after a judicial appraisal of facts
and should not be allowed to be delegated in the absence of
any rule to the contrary.
In the case at bar, no personal examination at all was
conducted by respondent Judge of the complainant
(respondent De Leon) and his witness (respondent
Logronio). While it is true that the complainants application
for search warrant and the witness printed-form deposition
were subscribed and sworn to before respondent Judge, the
latter did not ask either of the two any question the answer
to which could possibly be the basis for determining whether
or not there was probable cause against herein petitioners.
Indeed, the participants seem to have attached so little
significance to the matter that notes of the proceedings
before respondent Judge were not even taken. At this
juncture it may be well to recall the salient facts. The
transcript of stenographic notes (pp. 61-76, April 1, 1970,
Annex J-2 of the Petition) taken at the hearing of this case in
the court below shows that per instruction of respondent
Judge, Mr. Eleodoro V. Gonzales, Special Deputy Clerk of
Court, took the depositions of the complainant and his
witness, and that stenographic notes thereof were taken by
Mrs. Gaspar. At that time respondent Judge was at the sala
hearing a case. After respondent Judge was through with the
hearing, Deputy Clerk Gonzales, stenographer Gaspar,
complainant De Leon and witness Logronio went to
respondent Judges chamber and informed the Judge that
they had finished the depositions. Respondent Judge then
requested the stenographer to read to him her stenographic
notes. Special Deputy Clerk Gonzales testified as
follows:jgc:chanrobles.com.ph
"A And after finishing reading the stenographic notes, the
Honorable Judge requested or instructed them, requested Mr.
Logronio to raise his hand and warned him if his deposition
will be found to be false and without legal basis, he can be
charged criminally for perjury. The Honorable Court told Mr.
Logronio whether he affirms the facts contained in his
deposition and the affidavit executed before Mr. Rodolfo de
Leon.
"Q And thereafter?
"A And thereafter, he signed the deposition of Mr. Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw virtua1aw library
Thereafter, respondent Judge signed the search warrant.
The participation of respondent Judge in the proceedings
which led to the issuance of Search Warrant No. 2-M-70 was
thus limited to listening to the stenographers readings of her
notes, to a few words of warning against the commission of
perjury, and to administering the oath to the complainant and
his witness. This cannot be consider a personal examination.
If there was an examination at all of the complainant and his
witness, it was the one conducted by the Deputy Clerk of
Court. But, as stated, the Constitution and the rules require a
personal examination by the judge. It was precisely on
account of the intention of the delegates to the Constitutional
Convention to make it a duty of the issuing judge to
personally examine the complainant and his witnesses that
the question of how much time would be consumed by the
judge in examining them came up before the Convention, as
can be seen from the record of the proceedings quoted above.
The reading of the stenographic notes to respondent Judge
did not constitute sufficient compliance with the
constitutional mandate and the rule; for by that manner
respondent Judge did not have the opportunity to observe the
demeanor of the complainant and his witness, and to
propound initial and follow-up questions which the judicial
mind, on account of its training, was in the best position to
conceive. These were important in arriving at a sound
inference on the all-important question of whether or not
there was probable cause.
2. The search warrant was issued for more than one specific
offense.
Search Warrant No. 2-M-70 was issued for" [v]iolation of Sec.
46(a) of the National Internal Revenue Code in relation to all
other pertinent provisions thereof particularly Secs. 53, 72,
73, 208 and 209." The question is: Was the said search
warrant issued "in connection with one specific offense," as
required by Sec. 3, Rule 126?
To arrive at the correct answer it is essential to examine
closely the provisions of the Tax Code referred to above. Thus
we find the following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income tax returns by
corporations.
Sec. 53 requires the withholding of income taxes at source.
Sec. 72 imposes surcharges for failure to render income tax
returns and for rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to pay the income tax,
to make a return or to supply the information required under
the Tax Code.
Sec. 208 penalizes" [a]ny person who distills, rectifies,
repacks, compounds, or manufactures any article subject to a
specific tax, without having paid the privilege tax therefore,
or who aids or abets in the conduct of illicit distilling,
5
rectifying, compounding, or illicit manufacture of any article
subject to specific tax . . .," and provides that in the case of a
corporation, partnership, or association, the official and/or
employee who caused the violation shall be responsible.
Sec. 209 penalizes the failure to make a return of receipts,
sales, business, or gross value of output removed, or to pay
the tax due thereon.
The search warrant in question was issued for at least four
distinct offenses under the Tax Code. The first is the violation
of Sec. 46(a), Sec. 72 and Sec. 73 (the filing of income tax
returns), which are interrelated. The second is the violation
of Sec. 53 (withholding of income taxes at source). The third
is the violation of Sec. 208 (unlawful pursuit of business or
occupation); and the fourth is the violation of Sec. 209 (failure
to make a return of receipts, sales, business or gross value of
output actually removed or to pay the tax due thereon). Even
in their classification the six above-mentioned provisions are
embraced in two different titles: Secs. 46(a), 53, 72 and 73 are
under Title II (Income Tax); while Secs. 208 and 209 are
under Title V (Privilege Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al. v. Diokno, Et Al., L-
19550, June 19, 1967 (20 SCRA 383), is not applicable,
because there the search warrants were issued for "violation
of Central Bank Laws, Internal Revenue (Code) and Revised
Penal Code;" whereas, here Search Warrant No 2-M-70 was
issued for violation of only one code, i.e., the National Internal
Revenue Code. The distinction more apparent than real,
because it was precisely on account of the Stonehill incident,
which occurred sometime before the present Rules of Court
took effect on January 1, 1964, that this Court amended the
former rule by inserting therein the phrase "in connection
with one specific offense," and adding the sentence "No
search warrant shall issue for more than one specific
offense," in what is now Sec. 3, Rule 126. Thus we said in
Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the irregularities committed in
connection with the disputed search warrants, that this Court
deemed it fit to amend Section 3 of Rule 122 of the former
Rules of Court that a search warrant shall not issue but upon
probable cause in connection with one specific offense. Not
satisfied with this qualification, the Court added thereto a
paragraph, directing that no search warrant shall issue for
more than one specific offense."
3. The search warrant does not particularly describe the
things to be seized.
The documents, papers and effects sought to be seized are
described in Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph
"Unregistered and private books of accounts (ledgers,
journals, columnars, receipts and disbursements books,
customers ledgers); receipts for payments received;
certificates of stocks and securities; contracts, promissory
notes and deeds of sale; telex and coded messages; business
communications, accounting and business records; checks
and check stubs; records of bank deposits and withdrawals;
and records of foreign remittances, covering the years 1966
to 1970."cralaw virtua1aw library
The description does not meet the requirement in Art III, Sec.
1, of the Constitution, and of Sec. 3, Rule 126 of the Revised
Rules of Court, that the warrant should particularly describe
the things to be seized.
In Stonehill, this Court, speaking thru Mr. Chief Justice
Roberto Concepcion, said:jgc:chanrobles.com.ph
"The grave violation of the Constitution made in the
application for the contested search warrants was
compounded by the description therein made of the effects to
be searched for and seized, to wit:chanrob1es virtual 1aw
library
Books of accounts, financial records, vouchers, journals,
correspondence, receipts, ledgers, portfolios, credit journals,
typewriters, and other documents and/or paper showing all
business transactions including disbursement receipts,
balance sheets and related profit and loss statements.
"Thus, the warrants authorized the search for and seizure of
records pertaining to all business transactions of petitioners
herein, regardless of whether the transactions were legal or
illegal. The warrants sanctioned the seizure of all records of
the petitioners and the aforementioned corporations,
whatever their nature, thus openly contravening the explicit
command of our Bill of Rights that the things to be seized
be particularly described as well as tending to defeat its
major objective: the elimination of general warrants."cralaw
virtua1aw library
While the term "all business transactions" does not appear in
Search Warrant No. 2-M-70, the said warrant nevertheless
tends to defeat the major objective of the Bill of Rights, i.e.,
the elimination of general warrants, for the language used
therein is so all-embracing as to include all conceivable
records of petitioner corporation, which, if seized, could
possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et Al., 42 Phil. 886, 896,
this Court had occasion to explain the purpose of the
requirement that the warrant should particularly describe
the place to be searched and the things to be seized, to
wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and General Orders No. 58
(sec. 97) specifically require that a search warrant should
particularly describe the place to be searched and the things
to be seized. The evident purpose and intent of this
requirement is to limit the things to be seized to those, and
only those, particularly described in the search warrant to
leave the officers of the law with no discretion regarding
what articles they shall seize, to the end that unreasonable
6
searches and seizures may not be made, that abuses may
not be committed. That this is the correct interpretation of
this constitutional provision is borne out by American
authorities."cralaw virtua1aw library
The purpose as thus explained could, surely and effectively,
be defeated under the search warrant issued in this case.
A search warrant may be said to particularly describe the
things to be seized when the description therein is as specific
as the circumstances will ordinarily allow (People v. Rubio;
57 Phil. 384); or when the description expresses a conclusion
of fact not of law by which the warrant officer may be
guided in making the search and seizure (idem., dissent of
Abad Santos, J.,); or when the things described are limited to
those which bear direct relation to the offense for which the
warrant is being issued (Sec. 2, Rule 126, Revised Rules of
Court). The herein search warrant does not conform to any of
the foregoing tests. If the articles desired to be seized have
any direct relation to an offense committed, the applicant
must necessarily have some evidence, other than those
articles, to prove the said offense; and the articles subject of
search and seizure should come in handy merely to
strengthen such evidence. In this event, the description
contained in the herein disputed warrant should have
mentioned, at least, the dates, amounts, persons, and other
pertinent data regarding the receipts of payments,
certificates of stocks and securities, contracts, promissory
notes, deeds of sale, messages and communications, checks,
bank deposits and withdrawals, records of foreign
remittances, among others, enumerated in the warrant.
Respondents contend that certiorari does not lie because
petitioners failed to file a motion for reconsideration of
respondent Judges order of July 29, 1970. The contention is
without merit. In the first place, when the questions raised
before this Court are the same as those which were squarely
raised in and passed upon by the court below, the filing of a
motion for reconsideration in said court before certiorari can
be instituted in this Court is no longer a prerequisite. (Pajo,
etc., Et. Al. v. Ago, Et Al., 108 Phil., 905). In the second place,
the rule requiring the filing of a motion for reconsideration
before an application for a writ of certiorari can be
entertained was never intended to be applied without
considering the circumstances. (Matutina v. Buslon, Et Al.,
109 Phil., 140.) In the case at bar time is of the essence in view
of the tax assessments sought to be enforced by respondent
officers of the Bureau of Internal Revenue against petitioner
corporation, On account of which immediate and more direct
action becomes necessary. (Matute v. Court of Appeals, Et Al.,
26 SCRA 768.) Lastly, the rule does not apply where, as in this
case, the deprivation of petitioners fundamental right to due
process taints the proceeding against them in the court below
not only with irregularity but also with nullity. (Matute v.
Court of Appeals, Et Al., supra.)
It is next contended by respondents that a corporation is not
entitled to protection against unreasonable search and
seizures. Again, we find no merit in the contention.
"Although, for the reasons above stated, we are of the opinion
that an officer of a corporation which is charged with a
violation of a statute of the state of its creation, or of an act of
Congress passed in the exercise of its constitutional powers,
cannot refuse to produce the books and papers of such
corporation, we do not wish to be understood as holding that
a corporation is not entitled to immunity, under the 4th
Amendment, against unreasonable searches and seizures. A
corporation is, after all, but an association of individuals
under an assumed name and with a distinct legal entity. In
organizing itself as a collective body it waives no
constitutional immunities appropriate to such body. Its
property cannot be taken without compensation. It can only
be proceeded against by due process of law, and is protected,
under the 14th Amendment, against unlawful discrimination
. . ." (Hale v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470, 251 Fed. 476, 480, it
was thought that a different rule applied to a corporation, the
ground that it was not privileged from producing its books
and papers. But the rights of a corporation against unlawful
search and seizure are to be protected even if the same result
might have been achieved in a lawful way." (Silverthorne
Lumber Company, Et. Al. v. United States of America, 251 U.S.
385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al., supra, this Court impliedly
recognized the right of a corporation to object against
unreasonable searches and seizures,
thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that petitioners herein
have no cause of action to assail the legality of the contested
warrants and of the seizures made in pursuance thereof, for
the simple reason that said corporations have their
respective personalities, separate and distinct from the
personality of herein petitioners, regardless of the amount of
shares of stock or the interest of each of them in said
corporations, whatever, the offices they hold therein may be.
Indeed, it is well settled that the legality of a seizure can be
contested only by the party whose rights have been impaired
thereby, and that the objection to an unlawful search and
seizure is purely personal and cannot be availed of by third
parties. Consequently, petitioners herein may not validly
object to the use in evidence against them of the documents,
papers and things seized from the offices and premises of the
corporations adverted to above, since the right to object to
the admission of said papers in evidence belongs exclusively
to the corporations, to whom the seized effects belong, and
may not be invoked by the corporate officers in proceedings
against them in their individual capacity . . ."cralaw virtua1aw
library
In the Stonehill case only the officers of the various
corporations in whose offices documents, papers and effects
were searched and seized were the petitioners. In the case at
bar, the corporation to whom the seized documents belong,
and whose rights have thereby been impaired, is itself a
7
petitioner. On that score, petitioner corporation here stands
on a different footing from the corporations in Stonehill.
The tax assessments referred to earlier in this opinion were,
if not entirely as claimed by petitioners at least partly
as in effect admitted by respondents based on the
documents seized by virtue of Search Warrant No. 2-M-70.
Furthermore, the fact that the assessments were made some
one and one-half months after the search and seizure on
February 25, 1970, is a strong indication that the documents
thus seized served as basis for the assessments. Those
assessments should therefore not be enforced.
PREMISES CONSIDERED, the petition is granted. Accordingly,
Search Warrant No. 2-M-70 issued by respondent Judge is
declared null and void; respondents are permanently
enjoined from enforcing the said search warrant; the
documents, papers and effects seized thereunder are ordered
to be returned to petitioners; and respondent officials the
Bureau of Internal Revenue and their representatives are
permanently enjoined from enforcing the assessments
mentioned in Annex "G" of the present petition, as well as
other assessments based on the documents, papers and
effects seized under the search warrant herein nullified, and
from using the same against petitioners in any criminal or
other proceeding. No pronouncement as to costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando,
Teehankee and Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs with Mr. Justice Barredo.
Castro, J., concurs in the result.
Separate Opinions
BARREDO, J., concurring:chanrob1es virtual 1aw library
I concur.
I agree with the ruling that the search warrants in question
violates the specific injunction of Section 3, Rule 126 that "No
search warrant shall issue for more than one specific
offense." There is no question in my mind that, as very clearly
pointed out by Mr. Justice Villamor, the phrase "for violation
of Section 46 (a) of the National Internal Revenue Code in
relation to all other pertinent provisions thereof, particularly
Sections 53, 72, 73, 208 and 209" refers to more than one
specific offense, considering that the violation of Section 53
which refers to withholding of income taxes at the sources,
Section 208 which punishes pursuit of business or
occupation without payment of the corresponding specific or
privilege taxes, and Section 209 which penalizes failure to
make a return of receipts sales, business or gross value
output actually removed or to pay the taxes thereon in
connection with Title V on Privilege Taxes on Business and
Occupation can hardly be absorbed in a charge of alleged
violation of Section 46(a), which merely requires the filing of
income tax returns by corporations, so as to constitute with
it a single offense. I perceive here the danger that the result
of the search applied for may be used as basis not only for a
charge of violating Section 46(a) but also and separately of
Section 53, 208 and 209. Of course, it is to be admitted that
Sections 72 and 73, also mentioned in the application, are
really directly related to Section 46(a) because Section 72
provides for surcharges for failure to render, returns and for
rendering false and fraudulent returns and Section 73 refers
to the penalty for failure to file returns or to pay the
corresponding tax. Taken together, they constitute one single
offense penalized under Section 73. I am not and cannot be in
favor of any scheme which amounts to an indirect means of
achieving that which not allowed to be done directly. By
merely saying that a party is being charged with violation of
one section of the code in relation to a number of other
sections thereof which in truth have no clear or direct bearing
with the first is to me condemnable because it is no less than
a shotgun device which trenches on the basic liberties
intended to be protected by the unequivocal limitations
imposed by the Constitution and the Rules of Court on the
privilege to secure a search warrant with the aggravating
circumstance of being coupled with an attempt to mislead the
judge before whom the application for its issuance is
presented.
I cannot close this brief concurrence without expressing my
vehement disapproval of the action taken by respondent
internal revenue authorities in using the documents and
papers secured during the search, the legality of which was
pending resolution by the court, as basis of an assessment, no
matter how highly motivated such action might have been.
This smacks of lack of respect, if not contempt for the court
and is certainly intolerable. At the very least, it appears as an
attempt to render the court proceedings moot and academic,
and dealing as this case does with constitutionally protected
rights which are part and parcel of the basic concepts of
individual liberty and democracy, the government agents
should have been the first ones to refrain from trying to make
a farce of these court proceedings. Indeed, it is to be regretted
that the government agents and the court have acted
irregularly, for it is highly doubtful if it would be consistent
with the sacredness of the rights herein found to have been
violated to permit the filing of another application which
complies with the constitutional requirements above
discussed and the making of another search upon the return
of the papers and documents now in their illegal possession.
This could be an instance wherein taxes properly due the
State will probably remain unassessed and unpaid only
because the ones in charge of the execution of the laws did
not know how to respect basic constitutional rights and
liberties.
[G.R. Nos. 116124-25. November 22, 2000]
8
BIBIANO O. REYNOSO, IV, petitioner, vs. HON. COURT OF
APPEALS and GENERAL CREDIT
CORPORATION, respondents.
Assailed in this petition for review is the consolidated
decision of the Court of Appeals dated July 7, 1994, which
reversed the separate decisions of the Regional Trial Court of
Pasig City and the Regional Trial Court of Quezon City in two
cases between petitioner Reynoso and respondent General
Credit Corporation (GCC).
Sometime in the early 1960s, the Commercial Credit
Corporation (hereinafter, CCC), a financing and investment
firm, decided to organize franchise companies in different
parts of the country, wherein it shall hold thirty percent
(30%) equity. Employees of the CCC were designated as
resident managers of the franchise companies. Petitioner
Bibiano O. Reynoso, IV was designated as the resident
manager of the franchise company in Quezon City, known as
the Commercial Credit Corporation of Quezon City
(hereinafter, CCC-QC).
CCC-QC entered into an exclusive management contract
with CCC whereby the latter was granted the management
and full control of the business activities of the former. Under
the contract, CCC-QC shall sell, discount and/or assign its
receivables to CCC. Subsequently, however, this discounting
arrangement was discontinued pursuant to the so-called
DOSRI Rule, prohibiting the lending of funds by corporations
to its directors, officers, stockholders and other persons with
related interests therein.
On account of the new restrictions imposed by the
Central Bank policy by virtue of the DOSRI Rule, CCC decided
to form CCC Equity Corporation, (hereinafter, CCC-Equity), a
wholly-owned subsidiary, to which CCC transferred its thirty
(30%) percent equity in CCC-QC, together with two seats in
the latters Board of Directors.
Under the new set-up, several officials of Commercial
Credit Corporation, including petitioner Reynoso, became
employees of CCC-Equity. While petitioner continued to be
the Resident Manager of CCC-QC, he drew his salaries and
allowances from CCC-Equity. Furthermore, although an
employee of CCC-Equity, petitioner, as well as all employees
of CCC-QC, became qualified members of the Commercial
Credit Corporation Employees Pension Plan.
As Resident Manager of CCC-QC, petitioner oversaw the
operations of CCC-QC and supervised its employees. The
business activities of CCC-QC pertain to the acceptance of
funds from depositors who are issued interest-bearing
promissory notes. The amounts deposited are then loaned
out to various borrowers. Petitioner, in order to boost the
business activities of CCC-QC, deposited his personal funds in
the company. In return, CCC-QC issued to him its interest-
bearing promissory notes.
On August 15, 1980, a complaint for sum of money with
preliminary attachment,[1] docketed as Civil Case No. Q-
30583, was instituted in the then Court of First Instance of
Rizal by CCC-QC against petitioner, who had in the meantime
been dismissed from his employment by CCC-Equity. The
complaint was subsequently amended in order to include
Hidelita Nuval, petitioners wife, as a party defendant. [2] The
complaint alleged that petitioner embezzled the funds of CCC-
QC amounting to P1,300,593.11. Out of this amount, at least
P630,000.00 was used for the purchase of a house and lot
located at No. 12 Macopa Street, Valle Verde I, Pasig City. The
property was mortgaged to CCC, and was later foreclosed.
In his amended Answer, petitioner denied having
unlawfully used funds of CCC-QC and asserted that the sum of
P1,300,593.11 represented his money placements in CCC-QC,
as shown by twenty-three (23) checks which he issued to the
said company.[3]
The case was subsequently transferred to the Regional
Trial Court of Quezon City, Branch 86, pursuant to the
Judiciary Reorganization Act of 1980.
On January 14, 1985, the trial court rendered its
decision, the decretal portion of which states:
Premises considered, the Court finds the complaint without
merit. Accordingly, said complaint is hereby DISMISSED.
By reason of said complaint, defendant Bibiano Reynoso IV
suffered degradation, humiliation and mental anguish.
On the counterclaim, which the Court finds to be meritorious,
plaintiff corporation is hereby ordered:
a) to pay defendant the sum of P185,000.00 plus 14%
interest per annum from October 2, 1980 until fully paid;
b) to pay defendant P3,639,470.82 plus interest thereon at
the rate of 14% per annum from June 24, 1981, the date of
filing of Amended Answer, until fully paid; from this amount
may be deducted the remaining obligation of defendant
under the promissory note of October 24, 1977, in the sum
of P9,738.00 plus penalty at the rate of 1% per month from
December 24, 1977 until fully paid;
c) to pay defendants P200,000.00 as moral damages;
d) to pay defendants P100,000.00 as exemplary damages;
e) to pay defendants P25,000.00 as and for attorney's fees;
plus costs of the suit.
SO ORDERED.
Both parties appealed to the then Intermediate
Appellate Court. The appeal of Commercial Credit
Corporation of Quezon City was dismissed for failure to pay
docket fees. Petitioner, on the other hand, withdrew his
appeal.
9
 Hence, the decision became final and, accordingly, a
Writ of Execution was issued on July 24, 1989.[4] However,
the judgment remained unsatisfied,[5] prompting petitioner
to file a Motion for Alias Writ of Execution, Examination of
Judgment Debtor, and to Bring Financial Records for
Examination to Court. CCC-QC filed an Opposition to
petitioners motion,[6] alleging that the possession of its
premises and records had been taken over by CCC.
Meanwhile, in 1983, CCC became known as the General
Credit Corporation.
On November 22, 1991, the Regional Trial Court of
Quezon City issued an Order directing General Credit
Corporation to file its comment on petitioners motion for
alias writ of execution.[7] General Credit Corporation filed a
Special Appearance and Opposition on December 2,
1991,[8] alleging that it was not a party to the case, and
therefore petitioner should direct his claim against CCC-QC
and not General Credit Corporation. Petitioner filed his
reply,[9] stating that the CCC-QC is an adjunct instrumentality,
conduit and agency of CCC. Furthermore, petitioner invoked
the decision of the Securities and Exchange Commission in
SEC Case No. 2581, entitled, Avelina G. Ramoso, et al.,
Petitioner versus General Credit Corp., et al.,
Respondents, where it was declared that General Credit
Corporation, CCC-Equity and other franchised companies
including CCC-QC were declared as one corporation.
On December 9, 1991, the Regional Trial Court of
Quezon City ordered the issuance of an alias writ of
execution.[10] On December 20, 1991, General Credit
Corporation filed an Omnibus Motion,[11] alleging that SEC
Case No. 2581 was still pending appeal, and maintaining that
the levy on properties of the General Credit Corporation by
the deputy sheriff of the court was erroneous.
In his Opposition to the Omnibus Motion, petitioner
insisted that General Credit Corporation is just the new name
of Commercial Credit Corporation; hence, General Credit
Corporation and Commercial Credit Corporation should be
treated as one and the same entity.
On February 13, 1992, the Regional Trial Court of
Quezon City denied the Omnibus Motion.[12] On March 5,
1992, it issued an Order directing the issuance of an alias writ
of execution.[13]
Previously, on February 21, 1992, General Credit
Corporation instituted a complaint before the Regional Trial
Court of Pasig against Bibiano Reynoso IV and Edgardo C.
Tanangco, in his capacity as Deputy Sheriff of Quezon
City,[14] docketed as Civil Case No. 61777, praying that the
levy on its parcel of land located in Pasig, Metro Manila and
covered by Transfer Certificate of Title No. 29940 be declared
null and void, and that defendant sheriff be enjoined from
consolidating ownership over the land and from further
levying on other properties of General Credit Corporation to
answer for any liability under the decision in Civil Case No. Q-
30583.
The Regional Trial Court of Pasig, Branch 167, did not
issue a temporary restraining order. Thus, General Credit
Corporation instituted two (2) petitions for certiorari with
the Court of Appeals, docketed as CA-G.R. SP No.
27518[15] and CA-G.R. SP No. 27683. These cases were later
consolidated.
On July 7, 1994, the Court of Appeals rendered a decision
in the two consolidated cases, the dispositive portion of
which reads:
WHEREFORE, in SP No. 27518 we declare the issue of the
respondent court's refusal to issue a restraining order as
having been rendered moot by our Resolution of 7 April 1992
which, by way of injunctive relief, provided that "the
respondents and their representatives are hereby enjoined
from conducting an auction sale (on execution) of petitioner's
properties as well as initiating similar acts of levying (upon)
and selling on execution other properties of said
petitioner". The injunction thus granted, as modified by the
words in parenthesis, shall remain in force until Civil Case No.
61777 shall have been finally terminated.
In SP No. 27683, we grant the petition for certiorari and
accordingly NULLIFY and SET ASIDE, for having been issued
in excess of jurisdiction, the Order of 13 February 1992 in
Civil Case No. Q-30583 as well as any other order or process
through which the petitioner is made liable under the
judgment in said Civil Case No. Q-30583.
No damages and no costs.
SO ORDERED.[16]
Hence, this petition for review anchored on the
following arguments:
1. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R.
SP NO. 27683 WHEN IT NULLIFIED AND SET ASIDE THE 13
FEBRUARY 1992 ORDER AND OTHER ORDERS OR PROCESS
OF BRANCH 86 OF THE REGIONAL TRIAL COURT OF
QUEZON CITY THROUGH WHICH GENERAL CREDIT
CORPORATION IS MADE LIABLE UNDER THE JUDGMENT
THAT WAS RENDERED IN CIVIL CASE NO. Q-30583.
2. THE HONORABLE COURT OF APPEALS ERRED IN CA-G.R.
SP NO. 27518 WHEN IT ENJOINED THE AUCTION SALE ON
EXECUTION OF THE PROPERTIES OF GENERAL CREDIT
CORPORATION AS WELL AS INITIATING SIMILAR ACTS OF
LEVYING UPON AND SELLING ON EXECUTION OF OTHER
PROPERTIES OF GENERAL CREDIT CORPORATION.
3. THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT GENERAL CREDIT CORPORATION IS A
STRANGER TO CIVIL CASE NO. Q-30583, INSTEAD OF,
DECLARING THAT COMMERCIAL CREDIT CORPORATION OF
QUEZON CITY IS THE ALTER EGO, INSTRUMENTALITY,
10
CONDUIT OR ADJUNCT OF COMMERCIAL CREDIT
CORPORATION AND ITS SUCCESSOR GENERAL CREDIT
CORPORATION.
At the outset, it must be stressed that there is no longer
any controversy over petitioners claims against his former
employer, CCC-QC, inasmuch as the decision in Civil Case No.
Q-30583 of the Regional Trial Court of Quezon City has long
become final and executory. The only issue, therefore, to be
resolved in the instant petition is whether or not the
judgment in favor of petitioner may be executed against
respondent General Credit Corporation. The latter contends
that it is a corporation separate and distinct from CCC-QC
and, therefore, its properties may not be levied upon to
satisfy the monetary judgment in favor of petitioner. In short,
respondent raises corporate fiction as its defense. Hence, we
are necessarily called upon to apply the doctrine of piercing
the veil of corporate entity in order to determine if General
Credit Corporation, formerly CCC, may be held liable for the
obligations of CCC-QC.
The petition is impressed with merit.
A corporation is an artificial being created by operation
of law, having the right of succession and the powers,
attributes, and properties expressly authorized by law or
incident to its existence.[17] It is an artificial being invested by
law with a personality separate and distinct from those of the
persons composing it as well as from that of any other legal
entity to which it may be related.[18] It was evolved to make
possible the aggregation and assembling of huge amounts of
capital upon which big business depends. It also has the
advantage of non-dependence on the lives of those who
compose it even as it enjoys certain rights and conducts
activities of natural persons.
Precisely because the corporation is such a prevalent
and dominating factor in the business life of the country, the
law has to look carefully into the exercise of powers by these
artificial persons it has created.
Any piercing of the corporate veil has to be done with
caution. However, the Court will not hesitate to use its
supervisory and adjudicative powers where the corporate
fiction is used as an unfair device to achieve an inequitable
result, defraud creditors, evade contracts and obligations, or
to shield it from the effects of a court decision. The corporate
fiction has to be disregarded when necessary in the interest
of justice.
In First Philippine International Bank v. Court of Appeals,
et al.,[19] we held:
When the fiction is urged as a means of perpetrating a fraud
or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and
isolates the corporation from the members or stockholders
who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals.
Also in the above-cited case, we stated that this Court
has pierced the veil of corporate fiction in numerous cases
where it was used, among others, to avoid a judgment
credit;[20] to avoid inclusion of corporate assets as part of the
estate of a decedent;[21] to avoid liability arising from
debt;[22] when made use of as a shield to perpetrate fraud
and/or confuse legitimate issues;[23] or to promote unfair
objectives or otherwise to shield them.[24]
In the appealed judgment, the Court of Appeals
sustained respondents arguments of separateness and its
character as a different corporation which is a non-party or
stranger to this case.
The defense of separateness will be disregarded where
the business affairs of a subsidiary corporation are so
controlled by the mother corporation to the extent that it
becomes an instrument or agent of its parent. But even when
there is dominance over the affairs of the subsidiary, the
doctrine of piercing the veil of corporate fiction applies only
when such fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime.[25]
We stated in Tomas Lao Construction v. National Labor
Relations Commission,[26] that the legal fiction of a corporation
being a judicial entity with a distinct and separate personality
was envisaged for convenience and to serve
justice. Therefore, it should not be used as a subterfuge to
commit injustice and circumvent the law.
Precisely for the above reasons, we grant the instant
petition.
It is obvious that the use by CCC-QC of the same name of
Commercial Credit Corporation was intended to publicly
identify it as a component of the CCC group of companies
engaged in one and the same business, i.e., investment and
financing. Aside from CCC-Quezon City, other franchise
companies were organized such as CCC-North Manila and
CCC-Cagayan Valley. The organization of subsidiary
corporations as what was done here is usually resorted to for
the aggrupation of capital, the ability to cover more territory
and population, the decentralization of activities best
decentralized, and the securing of other legitimate
advantages. But when the mother corporation and its
subsidiary cease to act in good faith and honest business
judgment, when the corporate device is used by the parent to
avoid its liability for legitimate obligations of the subsidiary,
and when the corporate fiction is used to perpetrate fraud or
promote injustice, the law steps in to remedy the
problem. When that happens, the corporate character is not
necessarily abrogated. It continues for legitimate
objectives. However, it is pierced in order to remedy
injustice, such as that inflicted in this case.
Factually and legally, the CCC had dominant control of
the business operations of CCC-QC. The exclusive
management contract insured that CCC-QC would be
11
managed and controlled by CCC and would not deviate from
the commands of the mother corporation. In addition to the
exclusive management contract, CCC appointed its own
employee, petitioner, as the resident manager of CCC-QC.
Petitioners designation as resident manager implies
that he was placed in CCC-QC by a superior authority. In fact,
even after his assignment to the subsidiary corporation,
petitioner continued to receive his salaries, allowances, and
benefits from CCC, which later became respondent General
Credit Corporation. Not only that. Petitioner and the other
permanent employees of CCC-QC were qualified members
and participants of the Employees Pension Plan of CCC.
There are other indications in the record which attest to
the applicability of the identity rule in this case, namely: the
unity of interests, management, and control; the transfer of
funds to suit their individual corporate conveniences; and the
dominance of policy and practice by the mother corporation
insure that CCC-QC was an instrumentality or agency of CCC.
As petitioner stresses, both CCC and CCC-QC were
engaged in the same principal line of business involving a
single transaction process. Under their discounting
arrangements, CCC financed the operations of CCC-QC. The
subsidiary sold, discounted, or assigned its accounts
receivables to CCC.
The testimony of Joselito D. Liwanag, accountant and
auditor of CCC since 1971, shows the pervasive and intensive
auditing function of CCC over CCC-QC.[27] The two
corporations also shared the same office space. CCC-QC had
no office of its own.
The complaint in Civil Case No. Q-30583, instituted by
CCC-QC, was even verified by the director-representative of
CCC. The lawyers who filed the complaint and amended
complaint were all in-house lawyers of CCC.
The challenged decision of the Court of Appeals states
that CCC, now General Credit Corporation, is not a formal
party in the case. The reason for this is that the complaint was
filed by CCC-QC against petitioner. The choice of parties was
with CCC-QC. The judgment award in this case arose from the
counterclaim which petitioner set up against CCC-QC.
The circumstances which led to the filing of the
aforesaid complaint are quite revealing. As narrated above,
the discounting agreements through which CCC controlled
the finances of its subordinates became unlawful when
Central Bank adopted the DOSRI prohibitions. Under this rule
the directors, officers, and stockholders are prohibited from
borrowing from their company. Instead of adhering to the
letter and spirit of the regulations by avoiding DOSRI loans
altogether, CCC used the corporate device to continue the
prohibited practice. CCC organized still another corporation,
the CCC-Equity Corporation. However, as a wholly owned
subsidiary, CCC-Equity was in fact only another name for
CCC. Key officials of CCC, including the resident managers of
subsidiary corporations, were appointed to positions in CCC-
Equity.
In order to circumvent the Central Banks disapproval of
CCC-QCs mode of reducing its DOSRI lender accounts and its
directive to follow Central Bank requirements, resident
managers, including petitioner, were told to observe a
pseudo-compliance with the phasing out orders. For his
unwillingness to satisfactorily conform to these directives
and his reluctance to resort to illegal practices, petitioner
earned the ire of his employers. Eventually, his services were
terminated, and criminal and civil cases were filed against
him.
Petitioner issued twenty-three checks as money
placements with CCC-QC because of difficulties faced by the
firm in implementing the required phase-out program. Funds
from his current account in the Far East Bank and Trust
Company were transferred to CCC-QC. These monies were
alleged in the criminal complaints against him as having been
stolen.Complaints for qualified theft and estafa were brought
by CCC-QC against petitioner. These criminal cases were later
dismissed. Similarly, the civil complaint which was filed with
the Court of First Instance of Pasig and later transferred to
the Regional Trial Court of Quezon City was dismissed, but his
counterclaims were granted.
Faced with the financial obligations which CCC-QC had
to satisfy, the mother firm closed CCC-QC, in obvious fraud of
its creditors. CCC-QC, instead of opposing its closure,
cooperated in its own demise. Conveniently, CCC-QC stated in
its opposition to the motion for alias writ of execution that all
its properties and assets had been transferred and taken over
by CCC.
Under the foregoing circumstances, the contention of
respondent General Credit Corporation, the new name of
CCC, that the corporate fiction should be appreciated in its
favor is without merit.
Paraphrasing the ruling in Claparols v. Court of
Industrial Relations,[28] reiterated in Concept Builders Inc. v.
National Labor Relations,[29] it is very obvious that
respondent seeks the protective shield of a corporate fiction
whose veil the present case could, and should, be pierced as
it was deliberately and maliciously designed to evade its
financial obligation of its employees.
If the corporate fiction is sustained, it becomes a handy
deception to avoid a judgment debt and work an
injustice. The decision raised to us for review is an invitation
to multiplicity of litigation. As we stated in Islamic
Directorate vs. Court of Appeals,[30] the ends of justice are not
served if further litigation is encouraged when the issue is
determinable based on the records.
A court judgment becomes useless and ineffective if the
employer, in this case CCC as a mother corporation, is placed
beyond the legal reach of the judgment creditor who, after
protracted litigation, has been found entitled to positive
relief. Courts have been organized to put an end to
controversy. This purpose should not be negated by an
inapplicable and wrong use of the fiction of the corporate veil.
12
 WHEREFORE, the decision of the Court of Appeals is
hereby REVERSED and ASIDE. The injunction against the
holding of an auction sale for the execution of the decision in
Civil Case No. Q-30583 of properties of General Credit
Corporation, and the levying upon and selling on execution of
other properties of General Credit Corporation, is LIFTED.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo,
JJ., concur.
[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,
Rogello Salut, Emilio Garcia, Jr., Mariano Rio,
Paulina Basea, Aifredo Albera, Paquito Salut,
Domingo Guarino, Romeo Galve, Dominador
Sabina, Felipe Radiana, Gavino Sualibio, Moreno
Escares, Ferdinand Torres, Felipe Basilan, and
Ruben Robalos, respondents.
DECISION
HERMOSISIMA, JR., J.:
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 corporations subsidiary liability for damages, the
corporation may not be heard to say that it has a personality
separate and distinct from the other corporation. The
piercing of the corporate veil comes into play.
This special civil action ostensibly raises the question of
whether the National Labor Relations Commission
committed grave abuse of discretion when it issued a break-
open order to the sheriff to be enforced against personal
property found in the premises of petitioners 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 respondents
employment, the project in which they were hired had not yet
been finished and completed. Petitioner had to engage the
services of sub-contractors whose workers performed the
functions of private respondents.
Aggrieved, private respondents filed a complaint for
illegal dismissal, unfair labor practice and non-payment of
their legal holiday pay, overtime pay and thirteenth-month
pay against petitioner.
On December 19, 1984, the Labor Arbiter rendered
judgment1 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 petitioners 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:
13
1. All the employees inside petitioners premises 2. Board of Directors
at 355 Maysan Road, Valenzuela, Metro Manila, claimed that
they were employees of Hydro Pipes Philippines, Inc. (HPPI) Antonio W. Lim Chairman
and not by respondent;
Dennis S. Cuyegkeng Member
2. Levy was made upon personal properties he found in the
premises; Elisa C. Lim Member

3. Security guards with high-powered guns prevented him Teodulo R. Dino Member
from removing the properties he had levied upon.4
Virgilio O. Casino Member
The said special sheriff recommended that a break-open
order be issued to enable him to enter petitioners premises
so that he could proceed with the public auction sale of the 3. Corporate Officers
aforesaid personal properties on November 7, 1989.
Antonio W. Lim President
On November 6, 1989, a certain Dennis Cuyegkeng filed
a third-party claim with the Labor Arbiter alleging that the Dennis S. Cuyegkeng Assistant to the President
properties sought to be levied upon by the sheriff were
owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-
Elisa 0. Lim Treasurer
President.
On November 23, 1989, private respondents filed a Virgilio O. Casino Corporate Secretary
Motion for Issuance of a Break-Open Order, alleging that HPPI
and petitioner corporation were owned by the same 4. Principal Office
incorporator! stockholders. They also alleged that petitioner
temporarily suspended its business operations in order to
355 Maysan Road
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 Valenzuela, Metro Manila.5
suffer because of the issuance of the break-open order.
On the other hand, the General Information Sheet of
In support of their claim against HPPI, private HPPI revealed the following:
respondents presented duly certified copies of the General
Informations Sheet, dated May 15, 1987, submitted by
1. Breakdown of Subscribed Capital
petitioner to the Securities and Exchange Commission (SEC)
and the General Information Sheet, dated May 15, 1987,
submitted by HPPI to the Securities and Exchange Name of Stockholder Amount Subscribed
Commission.
Antonio W. Lim P400,000.00
The General Information Sheet submitted by the
petitioner1 revealed the following:
Elisa C. Lim 57,700.00

1. Breakdown of Subscribed Capital

AWL Trading 455,000.00

Name of Stockholder Amount Subscribed

Dennis S. Cuyegkeng 40,100.00

HPPI P6,999,500.00
Teodulo R. Dino 100.00

Antonio W. Lim 2,900,000.00

Virgilio O. Casino 100.00

Dennis S. Cuyegkeng 300.00

2. Board of Directors

Elisa C. Lim 100,000.00

Antonio W. Lim Chairman

Teodulo R. Dino 100.00

Elisa C. Lim Member

Virgilio O. Casino 100.00

Dennis S. Cuyegkeng Member
14
Virgilio O. Casino Member
Teodulo R. Dino Member
3. Corporate Officers
Antonio W. Lim President
Dennis S. Cuyegkeng Assistant to the President
Elisa O. Lim Treasurer
Virgilio O. Casino Corporate Secretary
4. Principal Office
355 Maysan Road, Valenzuela, Metro Manila.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
petitioners construction business. Hence, it is of no
consequence that petitioner and HPPI shared the same
premises, the same President and the same set of officers and
subscribers.7
We find petitioners 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;
15
2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of a
statutory or other positive legal duty, or dishonest and unjust
act in contravention of plaintiffs legal rights; and
3. The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
The absence of any one of these elements prevents piercing the
corporate veil. in applying the instrumentality or alter ego
doctrine, the courts are concerned with reality and not form,
with how the corporation operated and the individual
defendants relationship to that operation. 14
Thus, the question of whether a corporation is a mere
alter ego, a mere sheet or paper corporation, a sham or a
subterfuge is purely one of fact.15
In this case, the NLRC noted that, while petitioner
claimed that it ceased its business operations on April 29,
1986, it filed an Information Sheet with the Securities and
Exchange Commission on May 15, 1987, stating that its office
address is at 355 Maysan Road, Valenzuela, Metro Manila. On
the other hand, HPPI, the third-party claimant, submitted on
the same day, a similar information sheet stating that its
office address is at 355 Maysan Road, Valenzuela, Metro
Manila.
Furthermore, the NLRC stated that:
Both information sheets were filed by the same Virgilio O.
Casino 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 Relations17 where we had the occasion to rule:
Respondent courts 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 x x x. 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 x x x Claparols himself,
and all the assets of the dissolved Claparols Steel and Nail Plant
were turned over to the emerging Claparols Steel Corporation.
It is very obvious that the second corporation seeks the
protective shield of a corporate fiction whose veil in the
present case could, and should, be pierced as it was
deliberately and maliciously designed to evade its financial
obligation to its employees.
In view of the failure of the sheriff, in the case at bar, to
effect a levy upon the property subject of the execution,
private respondents had no other recourse but to apply for a
break-open order after the third-party claim of HPPI was
dismissed for lack of merit by the NLRC. This is in consonance
with Section 3, Rule VII of the NLRC Manual of Execution of
Judgment which provides that:
Should the losing party, his agent or representative, refuse or
prohibit the Sheriff or his representative entry to the place
where the property subject of execution is located or kept, the
judgment creditor may apply to the Commission or Labor
Arbiter concerned for a break-open order.
Furthermore, our perusal of the records shows that the
twin requirements of due notice and hearing were complied
with. Petitioner and the third-party claimant were given the
opportunity to submit evidence in support of their claim.
Hence, the NLRC did not commit any grave abuse of
discretion when it affirmed the break-open order issued by
the Labor Arbiter.
Finally, we do not find any reason to disturb the rule that
factual findings of quasi-judicial agencies supported by
substantial evidence are binding on this Court and are
entitled to great respect, in the absence of showing of grave
abuse of a discretion.18
WHEREFORE, the petition is DISMISSED and the
assailed resolutions of the NLRC, dated April 23,
1992 and December 3, 1992, are AFFIRMED.
SO ORDERED.
Padilla (Chairman), Bellosillo, Vitug, and Kapunan,
JJ., concur.
G.R. No. 155056-57 October 19, 2007
THE HEIRS OF THE LATE PANFILO V.
PAJARILLO, Petitioners,
16
vs.
THE HON. COURT OF APPEALS, NATIONAL LABOR
RELATIONS COMMISSION and SAMAHAN NG MGA
MANGGAGAWA NG PANFILO V. PAJARILLO, ALFREDO
HOYOHOY, HERMINIO CASTILLO, BERNARDO ROCO,
RODOLFO TORRES, JULIAN JORVINA, LOURDES ROCO,
FLORITA YAPOC, MARLON ALDANA, PARALUMAN
ULANG, TOLENTINO SANHI, JOHNNY SORIANO, ANDRES
CALAQUE, ROBERTO LAVAREZ, FRANCISCO MORALES,
SALVACION PERINA, ANTONIO ABALA, ROMEO SALONGA,
AUGUR M. MANIPOL, BIENVENIDA TEQUIL, MARIO ELEP,
ALADINO LATIGO, BERNARDINE BANSAL, PEDRO DE
BAGUIO, RICARDO CALICA, LAURA CO, VICENTE RECANA,
ELENA TOLLEDO, ALFREDO PLAZA, SR., HERMINIO
BALDONO, FELIPE YAPOC, ARISTON NIPA, and ALFONSO
C. BALDOMAR, Respondents.
DECISION
CHICO-NAZARIO, J.:
In this Petition for Review on Certiorari under Rule 45 of the
Rules of Court,1 petitioners, heirs of Panfilo V. Pajarillo, seek
to set aside the Decision,2 and Resolution,3 dated 12 March
2002 and 28 August 2002, respectively, of the Court of
Appeals in CA-G.R. SP No. 54330 and CA-G.R. SP No. 54331,
reversing the two Per Curiam Orders dated 28 October 1996
and 10 January 1997,4 of the National Labor Relations
Commission (NLRC) in NLRC NCR Cases No. 08-03013-87
and 01-00331-88.
Stripped of the non-essentials, the facts are as follows:
Panfilo V. Pajarillo (Panfilo) was the owner and operator of
several buses plying certain routes in Metro Manila. He used
the name "PVP Liner" in his buses. Private respondents were
employed as drivers, conductors and conductresses by
Panfilo.
During their employment with Panfilo, private respondents
worked at least four times a week or for an average of fifteen
working days per month. They were required to observe a
work schedule starting from 4:00 in the morning up to 10:00
in the evening on a straight time basis. Private respondent
drivers were paid a daily commission of 10%, while private
respondent conductors and conductresses received a daily
commission of 7%. In sum, each of the private respondents
earned an average daily commission of about 150.00 a day.
They were not given emergency cost of living allowance
(ECOLA), 13th month pay, legal holiday pay and service
incentive leave pay.5
The following were deducted from the private respondents
daily commissions: (a) costs of washing the assigned buses;
(b) terminal fees; (c) fees for sweeping the assigned buses;
(d) fees paid to the barangay tanod at bus terminals; and (e)
rental fees for the use of stereo in the assigned buses. Any
employee who refused such deductions were either barred
from working or dismissed from work.6
Thereafter, private respondents and several co-employees
formed a union called "SAMAHAN NG MGA MANGGAGAWA
NG PANFILO V. PAJARILLO" (respondent union). The
Department of Labor and Employment (DOLE) issued a
Certificate of Registration in favor of the respondent union.7
Upon learning of the formation of respondent union, Panfilo
and his children ordered some of the private respondents to
sign a document affirming their trust and confidence in
Panfilo and denying any irregularities on his part. Other
private respondents were directed to sign a blank document
which turned out to be a resignation letter. Private
respondents refused to sign the said documents, hence, they
were barred from working or were dismissed without
hearing and notice. Panfilo and his children and relatives also
formed a company union where they acted as its directors
and officers.8
On 25 August 1987, respondent union and several employees
filed a Complaint for unfair labor practice and illegal
deduction before the Labor Arbiter with "Panfilo V. Pajarillo
Liner" as party-respondent. This was docketed as NLRC/NCR
Case No. 00-08-03013-87.9 On 28 September 1987, the
respondent union filed an Amended Complaint alleging this
time not only unfair labor practice and illegal deduction but
also illegal dismissal.10
On 20 January 1988, respondent union and several
employees filed another Complaint for violation of labor
standard laws claiming non-payment of (1) ECOLA, (2) 13th
month pay, (3) overtime pay, (4) legal holiday pay, (5)
premium pay, and (6) service incentive leave. The party-
respondents in this complaint were "PVP LINER INC. and
PANFILO V. PAJARILLO, as its General Manager/Operator."
This was docketed as NLRC Case No. 00-01-00331-88.11
Notifications and summons with respect to NLRC/NCR Case
No. 00-08-03013-87 were addressed and sent to "PANFILO V.
PAJARILLO, President/Manager, Panfilo V. Pajarillo Liner,
Pasig Line St., Sta. Ana, Manila" on 31 August 1987. The
Registry Return Receipt dated 4 September 1987 was
addressed to Panfilo V. Pajarillo, and a signature therein
appears on top of the signature of the name of the
addressee.12 With regard to NLRC Case No. 00-01-00331-88,
notifications and summonses were addressed and sent to
"THE PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V.
Pajarillo, 2175 Zamora Street, Sta. Ana, Manila" on 25 January
1988. The Registry Return Receipt dated 4 February 1988
was addressed to "PVP Liner Inc." and was signed by a certain
"Irene G. Pajarillo" as the addressees agent.13
Panfilo denied the charges in the complaints. He maintained
that private respondents were not dismissed from work on
account of their union activities; that private respondents
17
and several of their co-employees either resigned or were
separated from work, or simply abandoned their
employment long before the respondent union was
organized and registered with the DOLE; that the private
respondents are not entitled to ECOLA and 13th month pay
because they received wages above the minimum provided
by law; that the private respondents are not entitled to
overtime and legal holiday pay because these are already
included in their daily commissions; that the private
respondents are not entitled to five days incentive leave pay
because they work only four days a week; that no deductions
were made in the daily commissions of the private
respondents; that the private respondents voluntarily and
directly paid certain individuals for barangay protection and
for the cleaning of the assigned buses; that he had no
participation in these activities/arrangements; that the
private respondents were not dismissed from work; and that
the private respondents either abandoned their jobs or
voluntarily resigned from work.14
Upon motion of Panfilo, the complaints in NLRC/NCR Case
No. 00-08-03013-87 and NLRC Case No. 00-01-00331-88
were consolidated.15 On 29 January 1991, Panfilo died.16
After hearing and submission by both parties of their
respective position papers and memoranda, Labor Arbiter
Manuel P. Asuncion (Arbiter Asuncion) rendered a
Decision17 dated 28 December 1992, dismissing the
consolidated complaints for lack of merit. Thus:
IN THE LIGHT OF ALL THE FOREGOING CONSIDERATIONS,
the complaint should be as it is hereby dismissed for lack of
merit.
Respondent union appealed to the NLRC. On 18 June 1996,
the NLRC reversed the decision of Arbiter Asuncion and
ordered the reinstatement of, and payment of backwages,
ECOLA, 13th month pay, legal holiday pay and service
incentive leave pay to, private respondents.18 The dispositive
portion of the NLRC decision reads:
Wherefore, the appealed decision is hereby set aside.
Accordingly, judgment is hereby rendered directing:
(1) The respondent, PVP Liner, Inc. to reinstate to
their former positions, without loss of seniority
rights and other benefits, the following
complainants: Alfredo [Hoyohoy], Bernardo Roco,
Rodolfo Torres, Julian Jorvina, Florita Yapoc, Marlon
Aldana, Paraluman Ulang, Tolentino Sanhi, Johnny
Soriano, Andres Calaque, Roberto Lavarez, Francisco
Morales, Salvacion Perina, Antonio Abala, Alfonso
Baldomar, Jr., Romeo Salonga, Augur Manipol,
Bienvenida Tequil, Mario Elep, Aladino Latigo,
Bernardine Bansal, Pedro de Baguio, Ricardo Calica,
Laura Co, Vicente Recana, Elena Tolledo, Alfredo
Plaza, Sr., Herminio Baldono, Felioe Yapoc, Ariston
Nipa and Herminia Castillo and to pay them their
backwages corresponding to a period of three (3)
years without qualifications and deductions;
(2) The same respondent PVP Liner, Inc. to pay
amounts to be computed in a hearing called for said
purpose by the Arbitration Branch of Origin, the
aforesaid complainants their claims for emergency
cost of living allowance (ECOLA), 13th month pay,
legal holiday pay and service incentive leave benefits
subject to the three-year prescriptive period
provided under Article 291 of the Labor Code, as
amended;
(3) The dismissal of the claims on alleged illegal
deductions of the respondents for lack of merits; and
(4) The dismissal of the case of Lourdes Roco due to
prescription.
All other claims of the complainants and the respondents are
likewise DISMISSED, for being without merit.
The Arbitration Branch of Origin is hereby directed to enforce
this decision.
Panfilos counsel filed a motion for reconsideration which
was partially granted by the NLRC in its Order dated 28
October 1996, to wit:
Dictated, however, by the imperatives of due process, we find
it more judicious to just remand this case for further hearing
on key questions of:
1) whether or not PVP Liner Inc. was properly
impleaded as party respondent in the consolidated
cases below;
2) whether or not summons was properly served on
said corporation below; and
3) whether or not the subject cases can be
considered as principally money claims which have
to be litigated in intestate/testate proceedings
involving the estate of the late Panfilo V. Pajarillo.
WHEREFORE, our decision dated June 18, 1996 is hereby set
aside. Let this case be remanded to the NCR Arbitration
Branch for further hearing on the questions above-
mentioned.19
Respondent union filed a motion for reconsideration of the
above-stated Order, but this was denied by the NLRC in its
Order dated 10 January 1997.20 Thus, respondent union filed
a Petition for Certiorari under Rule 65 before this Court.
Pursuant, however, to our ruling in St. Martin Funeral Home
18
v. National Labor Relations Commission,21 we remanded the
petition to the Court of Appeals for proper disposition.
On 12 March 2002, the Court of Appeals rendered a Decision
granting the respondent unions petition and nullifying the
Orders dated 28 October 1996 and 10 January 1997 of the
NLRC. It also reinstated the Decision dated 18 June 1986 of
the NLRC.22 The appellate court decreed:
WHEREFORE, premises considered, the PETITION FOR
CERTIORARI is hereby GRANTED. Accordingly, the Order
dated October 28 1996 and January 10, 1997 of the NLRC are
hereby NULLIFIED and its Decision dated 18 June 1986 be
REINSTATED.
Panfilos counsel filed a motion for reconsideration of the said
decision but this was denied by the appellate court in its
Resolution dated 28 August 2002.23
Herein petitioners, as heirs of Panfilo, filed the instant
petition before this Court assigning the following errors:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN ARRIVING AT THE CONCLUSION THAT
PVP LINER INC. WAS PROPERLY MISPLEADED,
WHICH IS A NON-EXISTING CORPORATION.
II.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN NOT CONSIDERING THAT THERE WAS NO
PROPER AND EFFECTIVE SERVICE OF SUMMONS.
III.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN PIERCING THE VEIL OF CORPORATE
ENTITY OF PVP PAJARILLO LINER INC.
IV.
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN REINSTATING THE ORDER OF THE NLRC
DATED JUNE 18, 1996, WHICH DECLARED THAT
PRIVATE RESPONDENTS WERE ILLEGALLY
DISMISSED.24
Anent the first issue, petitioners alleged that the Decision
dated 18 June 1996 of the NLRC, ordered PVP Liner Inc. to
reinstate private respondents and pay their backwages,
ECOLA, 13th month pay, legal holiday pay and service
incentive leave pay; that there was no such entity as PVP
Liner Inc. organized and existing in the Philippines; that it
was not possible for Arbiter Asuncion and the NLRC to
acquire jurisdiction over a non-existing company; that there
can never be a service of summons or notice to a non-existent
entity; that the true employer of private respondents was
Panfilo as the sole proprietor/operator of passenger buses
doing business under the tradename, PVP Liner, and not PVP
Liner Inc. which was non-existent; that Panfilo never used
PVP Liner Inc. as his tradename; that the present operator of
PVP Liner buses is P.V. PAJARILLO LINER, a corporation duly
registered with the Securities and Exchange Commission;
that at the time the instant case was filed before Arbiter
Asuncion in 1987, the latter did not have jurisdiction over
P.V. PAJARILLO LINER because it was organized and duly
registered only on 22 January 1990; that P.V. PAJARILLO
LINER has a separate and distinct personality from Panfilo as
the sole operator of PVP Liner buses; that, therefore, P.V.
PAJARILLO LINER cannot be made a party or impleaded in
the present case; that the amended complaint in NLRC/NCR
Case No. 00-08-03013-87 impleaded as party-respondent
"PANFILO V. PAJARILLO LINER and PANFILO V. PAJARILLO,
as operator and responsible officer"; that PVP Liner Inc. was
not impleaded in the instant case; and that no summons was
ever served on PVP Liner Inc. in NLRC/NCR Case No. 00-08-
03013-87.25
The contentions are bereft of merit.
In the Complaint dated 20 January 1988, PVP Liner Inc. and
Panfilo were impleaded as party-respondents, thus:
That respondent PVP Liner, Inc., is a private business entity,
engaged in transportation of passengers, duly organized and
existing pursuant to law and for this purpose maintains its
principal office at 2175, Zamora Street, Sta. Ana, Manila;
while individual respondent [Panfilo] is the General
Manager/Operator and may be served with summons,
notices and other processes at the aforementioned principal
office.26
Panfilo did not question in his position paper or in his motion
for consolidation of the complaints the foregoing allegations.
Neither did he assail the inclusion of PVP Liner Inc. as party-
respondent in respondent unions position paper dated 6
June 1988.
In Panfilos position paper as well as in the records of the
proceedings before Arbiter Asuncion, there is nothing that
shows that Panfilo challenged the jurisdiction of Arbiter
Asuncion over PVP Liner Inc. When Arbiter Asuncion decided
in favor of Panfilo, the latter said nothing about the inclusion
of PVP Liner Inc. as party respondent and the lack of
jurisdiction of Arbiter Asuncion over the same. It was only
when the NLRC rendered a Decision adverse to Panfilo that
the latter alleged the non-existence of PVP Liner Inc. and the
fact that Arbiter Asuncion and the NLRC had no jurisdiction
over it.
19
Petitioners are now precluded from questioning the inclusion
of PVP Liner Inc. as party-respondent as well as the
jurisdiction of Arbiter Asuncion and the NLRC over them
under the principle of estoppel. It is settled that the active
participation of a party against whom the action was brought,
coupled with his failure to object to the jurisdiction of the
court or quasi-judicial body where the action is pending, is
tantamount to an invocation of that jurisdiction and a
willingness to abide by the resolution of the case and will bar
said party from later on impugning the court or bodys
jurisdiction.27 This Court has time and again frowned upon
the undesirable practice of a party submitting his case for
decision and then accepting the judgment only if favorable,
and attacking it for lack of jurisdiction when adverse.28
It is apparent that Panfilo V. Pajarillo Liner and PVP Liner Inc.
are one and the same entity belonging to one and the same
person, Panfilo. When PVP Liner Inc. and Panfilo V. Pajarillo
Liner were impleaded as party-respondents, it was Panfilo,
through counsel, who answered the complaints and filed the
position papers, motions for reconsideration and appeals. It
was also Panfilo, through counsel, who participated in the
hearings and proceedings. In fact, Abel Pajarillo (Abel), son of
Panfilo, testified before Arbiter Asuncion that he was the
operations manager of PVP Liner Inc.29 Further, both Panfilo
and PVP Liner Inc. were charged jointly and severally in the
aforesaid complaints.
Apropos the second issue, petitioners alleged that the notices
and summons were received by a certain Irene G. Pajarillo
(Irene) for and in behalf of the PVP Liner Inc.; that Irene was
neither and could not have been the President/Manager of
PVP Liner Inc., the latter being non-existent; and that Irene
was not an officer of P.V. Pajarillo Liner.30
Sections 4 and 5 of Rule IV of the Revised Rules of Procedure
of the NLRC provides the rule for the service of summonses
and notices in NLRC cases, viz:
Sec. 4. Service of notices and resolutions. a) Notices or
summons and copies of orders, resolutions or decisions shall
be served personally by the bailiff or the duly authorized
public officer or by registered mail on the parties to the case
within five (5) days from receipt thereof by the serving
officer.
Sec. 5. Proof and completeness of service. The return is
prima facie proof of the facts indicated therein. Service by
registered mail is complete upon receipt by the addressee or
his agent.31
Records show that Irene received the summons for NLRC
Case No. 00-01-00331-88 on 4 February 1988 in behalf of
PVP Liner Inc. These summonses were addressed and sent to
"THE PRESIDENT/MANAGER, PVP Liner Inc. and Panfilo V.
Pajarillo, 2175 Zamora Street, Sta. Ana, Manila" on 25 January
1988. The Registry Return Receipt dated 4 February 1988
was addressed to "PVP Liner Inc." and was signed by Irene as
the addressees agent.32Abel, one of the heirs of Panfilo and
the Operations Manager of PVP Liner Inc., testified during the
hearing before Arbiter Asuncion that Irene was one of the
secretaries of PVP Liner Inc.33 Hence, there was a valid
service of summons.
Regarding the third issue, petitioners posited that P.V.
Pajarillo Liner Inc. is an independent corporation and cannot
be considered as an adjunct or extension of Panfilo as the sole
operator of PVP Liner buses; and that at the time P.V. Pajarillo
Liner Inc. was established, it had no liability or obligation
which it tried to shield or circumvent.34
It is a fundamental principle of corporation law that a
corporation is an entity separate and distinct from its
stockholders and from other corporations to which it may be
connected. However, this separate and distinct personality of
a corporation is merely a fiction created by law for
convenience and to promote justice. Hence, when the notion
of separate juridical personality is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or
is used as a device to defeat labor laws, this separate
personality of the corporation may be disregarded or the veil
of the corporate fiction pierced. This is true likewise when the
corporation is merely an adjunct, a business conduit or an
alter ego of another corporation. The corporate mask may be
lifted and the corporate veil may be pierced when a
corporation is but the alter ego of a person or another
corporation.35
It is apparent that Panfilo started his transportation business
as the sole owner and operator of passenger buses utilizing
the name PVP Liner for his buses. After being charged by
respondent union of unfair labor practice, illegal deductions,
illegal dismissal and violation of labor standard laws, Panfilo
transformed his transportation business into a family
corporation, namely, P.V. Pajarillo Liner Inc. He and
petitioners were the incorporators, stockholders and officers
therein. P.V. Pajarillo Inc. and the sole proprietorship of
Panfilo have the same business address. P.V. Pajarillo Inc. also
uses the name "PVP Liner" in its buses. Further, the license to
operate or franchise of the sole proprietorship was merely
transferred to P.V. Pajarillo Liner Inc. The testimony of Abel
during the hearing before Arbiter Asuncion is revealing, thus:
Q: Mr. Pajarillo, when did you start assuming the
functions of operations manager of PVP Liner?
A: Seven years from now, sometime in the year 1984
or 1985, sir.
Q: Do you have any written appointment as
Operations Manager?
A: No, sir.
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 Q: I noticed that your surname is Pajarillo you are
one way or another related to Mr. Panfilo V. Pajarillo,
is that correct?
Witness:
A: I am the son of Panfilo Pajarillo, sir.
Q: In so far as PVP Liner is concerned and being the
operations manager, are you aware if it is a single
proprietor or a corporation?
A: At the start it was a single proprietorship, lately, it
has become a family corporation.
Atty. Flores, Jr. (to witness)
Q: When you became the Operations Manager of PVP
Liner, is it a single proprietor or a family
Corporation?
A: It was a single proprietorship.
Q: Mr. Witness, since PVP Liner is a transportation
business it has a license to operate these buses?
A: Yes, there is, sir.
Atty. Flores, Jr. (to witness)
Q: In whose name was it registered?
A: Before it was with my father Panfilo V. Pajarillo,
sir.
Q: Do I understand that the licensing of this
transportation company was transferred to another
person?
A: It was never transferred to another person, except
now, that it has been transferred to a corporation.36
It is clear from the foregoing that P.V. Pajarillo Liner Inc. was
a mere continuation and successor of the sole proprietorship
of Panfilo. It is also quite obvious that Panfilo transformed his
sole proprietorship into a family corporation in a
surreptitious attempt to evade the charges of respondent
union. Given these considerations, Panfilo and P.V. Pajarillo
Liner Inc. should be treated as one and the same person for
purposes of liability.37
Finally, petitioners averred that no unfair labor practice was
committed, and that private respondents were not illegally
dismissed from work.
In its Decision dated 18 June 1996, the NLRC made an
exhaustive discussion of the allegations and evidence of both
parties as regards unfair labor practice and illegal dismissal.
It concluded that private respondents, officers and members
of respondent union were dismissed by reason of their union
activities and that there was no compliance with substantial
and procedural due process in terminating their services. It
also held that the private respondents who were not
members of the respondent union were also dismissed
without just or valid cause, and that they were denied due
process. These factual findings and conclusions were
supported by substantial evidence comprised of affidavits,
sworn statements, testimonies of witnesses during hearings
before Arbiter Asuncion, and other documentary evidence.
These findings were sustained by the Court of Appeals.
The rule is that findings of fact of quasi-judicial agencies like
the NLRC are accorded by this Court not only respect but even
finality if they are supported by substantial evidence, or that
amount of relevant evidence which a reasonable mind might
accept as adequate to justify a conclusion.38 We find no
compelling reason to deviate from such findings of the NLRC
as affirmed by the Court of Appeals.
Consequently, the private respondents are entitled to
reinstatement, backwages and other privileges and benefits
under Article 279 of the Labor Code. Separation pay may be
given in lieu of reinstatement if the employee concerned
occupies a position of trust and confidence. In the case at bar,
however, the private respondents, as former bus drivers,
conductors and conductresses of petitioners, do not hold the
position of trust and confidence.39
Nonetheless, it appears from the records that some of the
private respondents, namely, Augur Manipol, Rodolfo Torres,
Ricardo Calica, Paraluman Ulang, Edith Chua, Alfredo
Hoyohoy, Johnny Soriano, Bernardo Roco, Tolentino Sanhi,
Salvacion Perina, Pedro L. de Baguio, Ariston Nipa, Felipe
Yapoc, Laura Co, Bienvenida Tequil, Roberto Lavarez,
Francisco Morales and Herminio Castillo, had executed a
Quitclaim/Release discharging petitioners "from any and all
claims by way of unpaid wages, separation pay, overtime pay,
differential pay, ECOLA, 13th month pay, holiday pay, service
incentive leave pay or otherwise."40
Generally, deeds of release, waivers, or quitclaims cannot bar
employees from demanding benefits to which they are legally
entitled or from contesting the legality of their dismissal,
since quitclaims are looked upon with disfavor and are
frowned upon as contrary to public policy. Where, however,
the person making the waiver has done so voluntarily, with a
full understanding thereof, and the consideration for the
quitclaim is credible and reasonable, the transaction must be
recognized as being a valid and binding undertaking.41
There is no showing that the executions of these quitclaims
were tainted with deceit or coercion. On the contrary, each of
the private respondents Sinumpaang Salaysay, which
21
accompanied the quitclaims, evinces voluntariness and full
understanding of the execution and consequence of the
quitclaim. In their said Sinumpaang Salaysay, the private
respondents stated that their lawyer had extensively
explained to them the computation and the actual amount of
consideration they would receive; that they were not forced
or tricked by their lawyer in accepting the same; and that they
already received the amount of consideration.42

Further, the considerations received by the private

respondents were credible and reasonable because they
were not grossly disproportionate to the computation by the
NLRC of the amount of backwages and other money claims.43

Given these circumstances, the quitclaims should be

considered as binding on the private respondents who
executed them. It is settled that a legitimate waiver which
represents a voluntary and reasonable settlement of a
workers claim should be respected as the law between the
parties.44 Accordingly, the private respondents who made
such quitclaims are already precluded from claiming
reinstatement, backwages, ECOLA, 13TH month pay, legal
holiday pay, service incentive leave pay, and other monetary
claims.

With regard to the other private respondents who did not

execute such quitclaims, they are entitled to reinstatement,
backwages, ECOLA, 13TH month pay, legal holiday pay and
service incentive leave pay in accordance with the
computation of the NLRC.

WHEREFORE, the petition is hereby DENIED. The Decision

and Resolution dated 12 March 2002 and 28 August 2002,
respectively, of the Court of Appeals in CA-G.R. SP No. 54330
and CA-G.R. SP No. 54331, are hereby AFFIRMED with the
following MODIFICATIONS: (1) Private respondents Augur
Manipol, Rodolfo M. Torres, Ricardo Calica, Paraluman Ulang,
Edith Chua, Alfredo Hoyohoy, Johnny Soriano, Bernardo
Roco, Tolentino Sanhi, Salvacion Perina, Pedro L. de Baguio,
Ariston Nipa, Felipe Yapoc, Laura Co, Bienvenida Tequil,
Roberto Lavarez, Francisco Morales and Herminio Castillo
are hereby precluded from claiming reinstatement,
backwages, ECOLA, 13TH month pay, legal holiday pay and
service incentive leave pay by reason of their respective
quitclaims; (2) Petitioners are hereby ordered to reinstate
private respondents Julian Jorvina, Florita Yapoc, Marlon
Aldana, Andres Calaque, Antonio Abala, Alfonso Baldomar,
Romeo Salonga, Mario Elep, Aladino Latigo, Bernardine
Bansal, Vicente Recana, Elena Tolledo and Alfredo Plaza, Sr.,
and to pay these respondents backwages from the time of
their dismissal up to the finality of this Decision. Petitioners
are also ordered to pay the foregoing private respondents
ECOLA, 13TH month pay, legal holiday pay and service
incentive leave pay in accordance with the computation of the
NLRC. Costs against petitioners.

SO ORDERED.

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