CORPORATION LAW CASES (WEEK 1 & 2)

Jann Claudine M. Amago 3 A

1. Feliciano vs. COA

Facts: A special audit team from COA Regional office no. VIII audited the accounts of LMWD. Subsequently, LMWD received a letter from COA dated July 19, 1999
requesting payment of auditing fees. As general manager of LMWD, petitioner sent a reply dated October 12, 1999 informing COAs regional director that the water
district could not pay the auditing fees. Petitioner cited as basis for his action section 6 and 20 of Presidential Decree no. 198 as well as section 18 of RA 6758. The
regional director referred petitioner to reply o the COA Chairman on October 18, 1999. On October 19, 1999, petitioner wrote COA through the Regional Director
asking for refund of all auditing fees LMWD previously paid to COA. On March 16, 2000, petitioner received COA Chairman Celso D. Gangans resolution dated January
3, 2o00 denying his requests. Petitioner filed a motion for reconsideration on March 31, 2000, which COA denied on January 30, 2001.

Issue: Whether or not petitioner LMWD is a private corporation exempt from the auditing jurisdiction of COA.

Held: No. Private corporations may exist only under a general law. If the corporation is private, it must necessarily exist under a general law. Stated differently, only
corporations created under a general law can qualify as private corporations under existing laws, that general law is the corporation code, except that the
cooperative code governs the incorporation of cooperatives.

Obviously, LWDs are not private corporations because they are not created under the corporation code. LWDs are registered with the Securities and Exchange
Commission (SEC). Section 14 of the corporation code states that all corporations under this code shall file with the SEC articles of incorporation. LWDs have no
articles of incorporation, no incorporators and no stockholders or members. There are no stockholders or members to elect the board of directors of LWDs as in the
case of all corporations registered with the SEC. The local mayor or the provincial governor appoints the directors of LWDs for a fixed term of office. This court has
ruled that LWDs are not created under the corporation code.

The determining factor of COAs audit jurisdiction is government ownership or control of the corporation. The criterion of ownership and control is more important
than the issue of original charter.

Certainly, the government owns and controls LWDs. The government organizes LWDs in accordance with a specific law, PD 198. There is no private party involved as
co-owner in the creation of and LWD. Just prior to the creation of LWDs, the national or local government owns and controls all their assets. The government controls
LWDs because under PD 198 the municipal or city mayor, or the provincial governor, appoints all the board of directors of an LWD for a fixed term of six (6) years. The
board of directors of LWDs are not co-owners of the LWDs. LWD have no private stockholders or members. The board of directors and other personnel of LWDs are
government employees subject to civil service laws, anti-graft laws.

Section 18 of RA 6758 prohibits COA Personnel from receiving any kind of compensation from any government except compensation paid directly by COA out of its
appropriations and contributions. Thus, RA 6758 itself recognizes an exception to the statutory ban by COA personnel receiving compensation from GOCCs.

2. Manila International Airport Authority vs. CA

Facts:
Manila International Airport Authority (MIAA) is the operator of the Ninoy International Airport located at Paranaque City. The Officers of Paranaque City
sent notices to MIAA due to real estate tax delinquency. MIAA then settled some of the amount. When MIAA failed to settle the entire amount, the officers of
Paranaque city threatened to levy and subject to auction the land and buildings of MIAA, which they did. MIAA sought for a Temporary Restraining Order from the CA
but failed to do so within the 60 days reglementary period, so the petition was dismissed. MIAA then sought for the TRO with the Supreme Court a day before the
public auction, MIAA was granted with the TRO but unfortunately the TRO was received by the Paranaque City officers 3 hours after the public auction.

MIAA claims that although the charter provides that the title of the land and building are with MIAA still the ownership is with the Republic of the
Philippines. MIAA also contends that it is an instrumentality of the government and as such exempted from real estate tax. That the land and buildings of MIAA are of
public dominion therefore cannot be subjected to levy and auction sale. On the other hand, the officers of Paranaque City claim that MIAA is a government owned
and controlled corporation therefore not exempted to real estate tax.

Issues:
Whether or not MIAA is an instrumentality of the government and not a government owned and controlled corporation and as such exempted from tax.
Whether or not the land and buildings of MIAA are part of the public dominion and thus cannot be the subject of levy and auction sale.

Ruling:
Under the Local government code, government owned and controlled corporations are not exempted from real estate tax. MIAA is not a government
owned and controlled corporation, for to become one MIAA should either be a stock or non stock corporation. MIAA is not a stock corporation for its capital is not
divided into shares. It is not a non stock corporation since it has no members. MIAA is an instrumentality of the government vested with corporate powers and
government functions.

Under the civil code, property may either be under public dominion or private ownership. Those under public dominion are owned by the State and are
utilized for public use, public service and for the development of national wealth. The ports included in the public dominion pertain either to seaports or airports.
When properties under public dominion cease to be for public use and service, they form part of the patrimonial property of the State.

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 The court held that the land and buildings of MIAA are part of the public dominion. Since the airport is devoted for public use, for the domestic and
international travel and transportation. Even if MIAA charge fees, this is for support of its operation and for regulation and does not change the character of the land
and buildings of MIAA as part of the public dominion. As part of the public dominion the land and buildings of MIAA are outside the commerce of man. To subject
them to levy and public auction is contrary to public policy. Unless the President issues a proclamation withdrawing the airport land and buildings from public use,
these properties remain to be of public dominion and are inalienable. As long as the land and buildings are for public use the ownership is with the Republic of the
Philippines.

3. Magsaysay-Labrador vs. CA

In this petition for review on certiorari, petitioners seek to reverse and set aside [1] the decision of the Court of Appeals dated July l3, 1981, 1 affirming that of the
Court of First Instance of Zambales and Olongapo City which denied petitioners' motion to intervene in an annulment suit filed by herein private respondent, and [2]
its resolution dated September 7, 1981, denying their motion for reconsideration.

Petitioners are raising a purely legal question; whether or not respondent Court of Appeals correctly denied their motion for intervention.

The facts are not controverted.

On February 9, 1979, Adelaida Rodriguez-Magsaysay, widow and special administratix of the estate of the late Senator Genaro Magsaysay, brought before the then
Court of First Instance of Olongapo an action against Artemio Panganiban, Subic Land Corporation (SUBIC), Filipinas Manufacturer's Bank (FILMANBANK) and the
Register of Deeds of Zambales. In her complaint, she alleged that in 1958, she and her husband acquired, thru conjugal funds, a parcel of land with improvements,
known as "Pequena Island", covered by TCT No. 3258; that after the death of her husband, she discovered [a] an annotation at the back of TCT No. 3258 that "the
land was acquired by her husband from his separate capital;" [b] the registration of a Deed of Assignment dated June 25, 1976 purportedly executed by the late
Senator in favor of SUBIC, as a result of which TCT No. 3258 was cancelled and TCT No. 22431 issued in the name of SUBIC; and [c] the registration of Deed of
Mortgage dated April 28, 1977 in the amount of P 2,700,000.00 executed by SUBIC in favor of FILMANBANK; that the foregoing acts were void and done in an attempt
to defraud the conjugal partnership considering that the land is conjugal, her marital consent to the annotation on TCT No. 3258 was not obtained, the change made
by the Register of Deeds of the titleholders was effected without the approval of the Commissioner of Land Registration and that the late Senator did not execute the
purported Deed of Assignment or his consent thereto, if obtained, was secured by mistake, violence and intimidation. She further alleged that the assignment in favor
of SUBIC was without consideration and consequently null and void. She prayed that the Deed of Assignment and the Deed of Mortgage be annulled and that the
Register of Deeds be ordered to cancel TCT No. 22431 and to issue a new title in her favor.

On March 7, 1979, herein petitioners, sisters of the late senator, filed a motion for intervention on the ground that on June 20, 1978, their brother conveyed to them
one-half (1/2 ) of his shareholdings in SUBIC or a total of 416,566.6 shares and as assignees of around 41 % of the total outstanding shares of such stocks of SUBIC,
they have a substantial and legal interest in the subject matter of litigation and that they have a legal interest in the success of the suit with respect to SUBIC.

On July 26, 1979, the court denied the motion for intervention, and ruled that petitioners have no legal interest whatsoever in the matter in litigation and their being
alleged assignees or transferees of certain shares in SUBIC cannot legally entitle them to intervene because SUBIC has a personality separate and distinct from its
stockholders.

On appeal, respondent Court of Appeals found no factual or legal justification to disturb the findings of the lower court. The appellate court further stated that
whatever claims the petitioners have against the late Senator or against SUBIC for that matter can be ventilated in a separate proceeding, such that with the denial of
the motion for intervention, they are not left without any remedy or judicial relief under existing law.

Petitioners' motion for reconsideration was denied. Hence, the instant recourse.

Petitioners anchor their right to intervene on the purported assignment made by the late Senator of a certain portion of his shareholdings to them as evidenced by a
Deed of Sale dated June 20, 1978. 2 Such transfer, petitioners posit, clothes them with an interest, protected by law, in the matter of litigation.

Invoking the principle enunciated in the case of PNB v. Phil. Veg. Oil Co., 49 Phil. 857,862 & 853 (1927), 3petitioners strongly argue that their ownership of 41.66% of
the entire outstanding capital stock of SUBIC entitles them to a significant vote in the corporate affairs; that they are affected by the action of the widow of their late
brother for it concerns the only tangible asset of the corporation and that it appears that they are more vitally interested in the outcome of the case than SUBIC.

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, 4 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. 5

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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. 6

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. 7

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. 8

Petitioners further contend that the availability of other remedies, as declared by the Court of appeals, is totally immaterial to the availability of the remedy of
intervention.

We cannot give credit to such averment. As earlier stated, that the movant's interest may be protected in a separate proceeding is a factor to be considered in
allowing or disallowing a motion for intervention. It is significant to note at this juncture that as per records, there are four pending cases involving the parties herein,
enumerated as follows: [1] Special Proceedings No. 122122 before the CFI of Manila, Branch XXII, entitled "Concepcion Magsaysay-Labrador, et al. v. Subic Land
Corp., et al.", involving the validity of the transfer by the late Genaro Magsaysay of one-half of his shareholdings in Subic Land Corporation; [2] Civil Case No. 2577-0
before the CFI of Zambales, Branch III, "Adelaida Rodriguez-Magsaysay v. Panganiban, etc.; Concepcion Labrador, et al. Intervenors", seeking to annul the purported
Deed of Assignment in favor of SUBIC and its annotation at the back of TCT No. 3258 in the name of respondent's deceased husband; [3] SEC Case No. 001770, filed
by respondent praying, among other things that she be declared in her capacity as the surviving spouse and administratrix of the estate of Genaro Magsaysay as the
sole subscriber and stockholder of SUBIC. There, petitioners, by motion, sought to intervene. Their motion to reconsider the denial of their motion to intervene was
granted; [4] SP No. Q-26739 before the CFI of Rizal, Branch IV, petitioners herein filing a contingent claim pursuant to Section 5, Rule 86, Revised Rules of
Court. 9 Petitioners' interests are no doubt amply protected in these cases.

Neither do we lend credence to petitioners' argument that they are more interested in the outcome of the case than the corporation-assignee, owing to the fact that
the latter is willing to compromise with widow-respondent and since a compromise involves the giving of reciprocal concessions, the only conceivable concession the
corporation may give is a total or partial relinquishment of the corporate assets. 10

Such claim all the more bolsters the contingent nature of petitioners' interest in the subject of litigation.

The factual findings of the trial court are clear on this point. The petitioners cannot claim the right to intervene on the strength of the transfer of shares allegedly
executed by the late Senator. The corporation did not keep books and records. 11 Perforce, no transfer was ever recorded, much less effected as to prejudice third
parties. The transfer must be registered in the books of the corporation to affect third persons. The law on corporations is explicit. Section 63 of the Corporation Code
provides, thus: "No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names
of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred."

And even assuming arguendo that there was a valid transfer, petitioners are nonetheless barred from intervening inasmuch as their rights can be ventilated and
amply protected in another proceeding. WHEREFORE, the instant petition is hereby DENIED. Costs against petitioners.

4. Sulo ng Bayan vs. Araneta

The issue posed in this appeal is whether or not plaintiff corporation (non- stock may institute an action in behalf of its individual members for the recovery of certain
parcels of land allegedly owned by said members; for the nullification of the transfer certificates of title issued in favor of defendants appellees covering the aforesaid
parcels of land; for a declaration of "plaintiff's members as absolute owners of the property" and the issuance of the corresponding certificate of title; and for
damages.

On April 26, 1966, plaintiff-appellant Sulo ng Bayan, Inc. filed an accion de revindicacion with the Court of First Instance of Bulacan, Fifth Judicial District, Valenzuela,
Bulacan, against defendants-appellees to recover the ownership and possession of a large tract of land in San Jose del Monte, Bulacan, containing an area of
27,982,250 square meters, more or less, registered under the Torrens System in the name of defendants-appellees' predecessors-in-interest. 1 The complaint, as
amended on June 13, 1966, specifically alleged that plaintiff is a corporation organized and existing under the laws of the Philippines, with its principal office and
place of business at San Jose del Monte, Bulacan; that its membership is composed of natural persons residing at San Jose del Monte, Bulacan; that the members of
the plaintiff corporation, through themselves and their predecessors-in-interest, had pioneered in the clearing of the fore-mentioned tract of land, cultivated the
same since the Spanish regime and continuously possessed the said property openly and public under concept of ownership adverse against the whole world; that
defendant-appellee Gregorio Araneta, Inc., sometime in the year 1958, through force and intimidation, ejected the members of the plaintiff corporation fro their
possession of the aforementioned vast tract of land; that upon investigation conducted by the members and officers of plaintiff corporation, they found out for the
first time in the year 1961 that the land in question "had been either fraudelently or erroneously included, by direct or constructive fraud, in Original Certificate of
Title No. 466 of the Land of Records of the province of Bulacan", issued on May 11, 1916, which title is fictitious, non-existent and devoid of legal efficacy due to the
fact that "no original survey nor plan whatsoever" appears to have been submitted as a basis thereof and that the Court of First Instance of Bulacan which issued the
decree of registration did not acquire jurisdiction over the land registration case because no notice of such proceeding was given to the members of the plaintiff
corporation who were then in actual possession of said properties; that as a consequence of the nullity of the original title, all subsequent titles derived therefrom,

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such as Transfer Certificate of Title No. 4903 issued in favor of Gregorio Araneta and Carmen Zaragoza, which was subsequently cancelled by Transfer Certificate of
Title No. 7573 in the name of Gregorio Araneta, Inc., Transfer Certificate of Title No. 4988 issued in the name of, the National Waterworks & Sewerage Authority
(NWSA), Transfer Certificate of Title No. 4986 issued in the name of Hacienda Caretas, Inc., and another transfer certificate of title in the name of Paradise Farms, Inc.,
are therefore void. Plaintiff-appellant consequently prayed (1) that Original Certificate of Title No. 466, as well as all transfer certificates of title issued and derived
therefrom, be nullified; (2) that "plaintiff's members" be declared as absolute owners in common of said property and that the corresponding certificate of title be
issued to plaintiff; and (3) that defendant-appellee Gregorio Araneta, Inc. be ordered to pay to plaintiff the damages therein specified.

On September 2, 1966, defendant-appellee Gregorio Araneta, Inc. filed a motion to dismiss the amended complaint on the grounds that (1) the complaint states no
cause of action; and (2) the cause of action, if any, is barred by prescription and laches. Paradise Farms, Inc. and Hacienda Caretas, Inc. filed motions to dismiss based
on the same grounds. Appellee National Waterworks & Sewerage Authority did not file any motion to dismiss. However, it pleaded in its answer as special and
affirmative defenses lack of cause of action by the plaintiff-appellant and the barring of such action by prescription and laches.

During the pendency of the motion to dismiss, plaintiff-appellant filed a motion, dated October 7, 1966, praying that the case be transferred to another branch of the
Court of First Instance sitting at Malolos, Bulacan, According to defendants-appellees, they were not furnished a copy of said motion, hence, on October 14, 1966, the
lower court issued an Order requiring plaintiff-appellant to furnish the appellees copy of said motion, hence, on October 14, 1966, defendant-appellant's motion
dated October 7, 1966 and, consequently, prayed that the said motion be denied for lack of notice and for failure of the plaintiff-appellant to comply with the Order
of October 14, 1966. Similarly, defendant-appellee paradise Farms, Inc. filed, on December 2, 1966, a manifestation information the court that it also did not receive a
copy of the afore-mentioned of appellant. On January 24, 1967, the trial court issued an Order dismissing the amended complaint.

On February 14, 1967, appellant filed a motion to reconsider the Order of dismissal on the grounds that the court had no jurisdiction to issue the Order of dismissal,
because its request for the transfer of the case from the Valenzuela Branch of the Court of First Instance to the Malolos Branch of the said court has been approved
by the Department of Justice; that the complaint states a sufficient cause of action because the subject matter of the controversy in one of common interest to the
members of the corporation who are so numerous that the present complaint should be treated as a class suit; and that the action is not barred by the statute of
limitations because (a) an action for the reconveyance of property registered through fraud does not prescribe, and (b) an action to impugn a void judgment may be
brought any time. This motion was denied by the trial court in its Order dated February 22, 1967. From the afore-mentioned Order of dismissal and the Order denying
its motion for reconsideration, plaintiff-appellant appealed to the Court of Appeals.

On September 3, 1969, the Court of Appeals, upon finding that no question of fact was involved in the appeal but only questions of law and jurisdiction, certified this
case to this Court for resolution of the legal issues involved in the controversy.

Appellant contends, as a first assignment of error, that the trial court acted without authority and jurisdiction in dismissing the amended complaint when the
Secretary of Justice had already approved the transfer of the case to any one of the two branches of the Court of First Instance of Malolos, Bulacan.

Appellant confuses the jurisdiction of a court and the venue of cases with the assignment of cases in the different branches of the same Court of First Instance.
Jurisdiction implies the power of the court to decide a case, while venue the place of action. There is no question that respondent court has jurisdiction over the case.
The venue of actions in the Court of First Instance is prescribed in Section 2, Rule 4 of the Revised Rules of Court. The laying of venue is not left to the caprice of
plaintiff, but must be in accordance with the aforesaid provision of the rules. 2 The mere fact that a request for the transfer of a case to another branch of the same
court has been approved by the Secretary of Justice does not divest the court originally taking cognizance thereof of its jurisdiction, much less does it change the
venue of the action. As correctly observed by the trial court, the indorsement of the Undersecretary of Justice did not order the transfer of the case to the Malolos
Branch of the Bulacan Court of First Instance, but only "authorized" it for the reason given by plaintiff's counsel that the transfer would be convenient for the parties.
The trial court is not without power to either grant or deny the motion, especially in the light of a strong opposition thereto filed by the defendant. We hold that the
court a quo acted within its authority in denying the motion for the transfer the case to Malolos notwithstanding the authorization" of the same by the Secretary of
Justice.

II

Let us now consider the substantive aspect of the Order of dismissal.

In dismissing the amended complaint, the court a quo said:

The issue of lack of cause of action raised in the motions to dismiss refer to the lack of personality of plaintiff to file the instant action.
Essentially, the term 'cause of action' is composed of two elements: (1) the right of the plaintiff and (2) the violation of such right by the
defendant. (Moran, Vol. 1, p. 111). For these reasons, the rules require that every action must be prosecuted and defended in the name of the
real party in interest and that all persons having an interest in the subject of the action and in obtaining the relief demanded shall be joined as
plaintiffs (Sec. 2, Rule 3). In the amended complaint, the people whose rights were alleged to have been violated by being deprived and
dispossessed of their land are the members of the corporation and not the corporation itself. The corporation has a separate. and distinct
personality from its members, and this is not a mere technicality but a matter of substantive law. There is no allegation that the members have
assigned their rights to the corporation or any showing that the corporation has in any way or manner succeeded to such rights. The
corporation evidently did not have any rights violated by the defendants for which it could seek redress. Even if the Court should find against
the defendants, therefore, the plaintiff corporation would not be entitled to the reliefs prayed for, which are recoveries of ownership and
possession of the land, issuance of the corresponding title in its name, and payment of damages. Neither can such reliefs be awarded to the
members allegedly deprived of their land, since they are not parties to the suit. It appearing clearly that the action has not been filed in the
names of the real parties in interest, the complaint must be dismissed on the ground of lack of cause of action. 3

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Viewed in the light of existing law and jurisprudence, We find that the trial court correctly dismissed the amended complaint.

It is a doctrine well-established and obtains both at law and in equity that a corporation is a distinct legal entity to be considered as separate and apart from the
individual stockholders or members who compose it, and is not affected by the personal rights, obligations and transactions of its stockholders or members. 4 The
property of the corporation is its property and not that of the stockholders, as owners, although they have equities in it. Properties registered in the name of the
corporation are owned by it as an entity separate and distinct from its members. 5 Conversely, a corporation ordinarily has no interest in the individual property of its
stockholders unless transferred to the corporation, "even in the case of a one-man corporation. 6 The mere fact that one is president of a corporation does not render
the property which he owns or possesses the property of the corporation, since the president, as individual, and the corporation are separate similarities. 7 Similarly,
stockholders in a corporation engaged in buying and dealing in real estate whose certificates of stock entitled the holder thereof to an allotment in the distribution of
the land of the corporation upon surrender of their stock certificates were considered not to have such legal or equitable title or interest in the land, as would
support a suit for title, especially against parties other than the corporation. 8

It must be noted, however, that the juridical personality of the corporation, as separate and distinct from the persons composing it, is but a legal fiction introduced
for the purpose of convenience and to subserve the ends of justice. 9 This separate personality of the corporation may be disregarded, or the veil of corporate fiction
pierced, in cases where it is used as a cloak or cover for fraud or illegality, or to work -an injustice, or where necessary to achieve equity. 10

Thus, when "the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, ... the law will regard the corporation as an
association of persons, or in the case of two corporations, merge them into one, the one being merely regarded as part or instrumentality of the other. 11 The same is
true where a corporation is a dummy and serves no business purpose and is intended only as a blind, or an alter ego or business conduit for the sole benefit of the
stockholders. 12 This doctrine of disregarding the distinct personality of the corporation has been applied by the courts in those cases when the corporate entity is
used for the evasion of taxes 13 or when the veil of corporate fiction is used to confuse legitimate issue of employer-employee relationship, 14 or when necessary for
the protection of creditors, in which case the veil of corporate fiction may be pierced and the funds of the corporation may be garnished to satisfy the debts of a
principal stockholder. 15 The aforecited principle is resorted to by the courts as a measure protection for third parties to prevent fraud, illegality or injustice. 16

It has not been claimed that the members have assigned or transferred whatever rights they may have on the land in question to the plaintiff corporation. Absent any
showing of interest, therefore, a corporation, like plaintiff-appellant herein, has no personality to bring an action for and in behalf of its stockholders or members for
the purpose of recovering property which belongs to said stockholders or members in their personal capacities.

It is fundamental that there cannot be a cause of action 'without an antecedent primary legal right conferred' by law upon a person. 17 Evidently, there can be no
wrong without a corresponding right, and no breach of duty by one person without a corresponding right belonging to some other person. 18 Thus, the essential
elements of a cause of action are legal right of the plaintiff, correlative obligation of the defendant, an act or omission of the defendant in violation of the aforesaid
legal right. 19 Clearly, no right of action exists in favor of plaintiff corporation, for as shown heretofore it does not have any interest in the subject matter of the case
which is material and, direct so as to entitle it to file the suit as a real party in interest.

III

Appellant maintains, however, that the amended complaint may be treated as a class suit, pursuant to Section 12 of Rule 3 of the Revised Rules of Court.

In order that a class suit may prosper, the following requisites must be present: (1) that the subject matter of the controversy is one of common or general interest to
many persons; and (2) that the parties are so numerous that it is impracticable to bring them all before the court. 20

Under the first requisite, the person who sues must have an interest in the controversy, common with those for whom he sues, and there must be that unity of
interest between him and all such other persons which would entitle them to maintain the action if suit was brought by them jointly. 21

As to what constitutes common interest in the subject matter of the controversy, it has been explained in Scott v. Donald 22 thus:

The interest that will allow parties to join in a bill of complaint, or that will enable the court to dispense with the presence of all the parties,
when numerous, except a determinate number, is not only an interest in the question, but one in common in the subject Matter of the suit; ... a
community of interest growing out of the nature and condition of the right in dispute; for, although there may not be any privity between the
numerous parties, there is a common title out of which the question arises, and which lies at the foundation of the proceedings ... [here] the
only matter in common among the plaintiffs, or between them and the defendants, is an interest in the Question involved which alone cannot
lay a foundation for the joinder of parties. There is scarcely a suit at law, or in equity which settles a Principle or applies a principle to a given
state of facts, or in which a general statute is interpreted, that does not involved a Question in which other parties are interested. ... (Emphasis
supplied )

Here, there is only one party plaintiff, and the plaintiff corporation does not even have an interest in the subject matter of the controversy, and cannot, therefore,
represent its members or stockholders who claim to own in their individual capacities ownership of the said property. Moreover, as correctly stated by the appellees,
a class suit does not lie in actions for the recovery of property where several persons claim Partnership of their respective portions of the property, as each one could
alleged and prove his respective right in a different way for each portion of the land, so that they cannot all be held to have Identical title through acquisition
prescription. 23

Having shown that no cause of action in favor of the plaintiff exists and that the action in the lower court cannot be considered as a class suit, it would be
unnecessary and an Idle exercise for this Court to resolve the remaining issue of whether or not the plaintiffs action for reconveyance of real property based upon
constructive or implied trust had already prescribed.

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ACCORDINGLY, the instant appeal is hereby DISMISSED with costs against the plaintiff-appellant.

5. Bataan Shipyard vs. PCGG

When President Corazon Aquino took power, the Presidential Commission on Good Government (PCGG) was formed in order to recover ill gotten wealth allegedly
acquired by former President Marcos and his cronies. Aquino then issued two executive orders in 1986 and pursuant thereto, a sequestration and a takeover order
were issued against Bataan Shipyard & engineering Co., Inc. (BASECO). BASECO was alleged to be in actuality owned and controlled by the Marcoses through the
Romualdez family, and in turn, through dummy stockholders.
The sequestration order issued in 1986 required, among others, that BASECO produce corporate records from 1973 to 1986 under pain of contempt of the PCGG if it
fails to do so. BASECO assails this order as it avers, among others, that it is against BASECOs right against self incrimination and unreasonable searches and seizures.
ISSUE: Whether or not BASECO is correct.
HELD: No. First of all, PCGG has the right to require the production of such documents pursuant to the power granted to it. Second, and more importantly, right
against self-incrimination has no application to juridical persons. There is a reserve right in the legislature to investigate the contracts of a corporation and find out
whether it has exceeded its powers. It would be a strange anomaly to hold that a state, having chartered a corporation like BASECO to make use of certain franchises,
could not, in the exercise of sovereignty, inquire how these franchises had been employed, and whether they had been abused, and demand the production of the
corporate books and papers for that purpose.
Neither is the right against unreasonable searches and seizures applicable here. There were no searches made and no seizure pursuant to any search was ever made.
BASECO was merely ordered to produce the corporate records.
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

FACTS

Challenged in this special civil action of certiorari and prohibition by a private corporation known as the Bataan Shipyard and Engineering Co., Inc. are: (1) Executive
Orders Numbered 1 and 2, promulgated by President Corazon C. Aquino on February 28, 1986 and March 12, 1986, respectively, and (2) the sequestration, takeover,
and other orders issued, and acts done, in accordance with said executive orders by the Presidential Commission on Good Government and/or its Commissioners and
agents, affecting said corporation.

The sequestration order which, in the view of the petitioner corporation, initiated all its misery was issued on April 14, 1986 by Commissioner Mary Concepcion
Bautista.

On the strength of the above sequestration order, Mr. Jose M. Balde, acting for the PCGG, addressed a letter dated April 18, 1986 to the President and other officers
of petitioner firm, reiterating an earlier request for the production of certain documents such as Stock Transfer Book and other Legal documents (Articles of
Incorporation, By-Laws, etc.)

Orders were also issued in connection with the sequestration and takeover, such as termination of Contract for Security Services and abortion of contract for
Improvement of Wharf at Engineer Island; Change of Mode of Payment of Entry Charges; Operation of Sesiman Rock Quarry, Mariveles, Bataa; disposal of scrap, etc.;
and the provisional takeover by the PCGG of BASECO, the Philippine Dockyard Corporation and all their affiliated companies.

While BASECO concedes that sequestration without resorting to judicial action, might be made within the context of Executive Orders Nos. 1 and 2 before March 25,
1986 when the Freedom Constitution was promulgated, under the principle that the law promulgated by the ruler under a revolutionary regime is the law of the land,
it ceased to be acceptable when the same ruler opted to promulgate the Freedom Constitution on March 25, 1986 wherein under Section I of the same,y Article IV
(Bill of Rights) of the 1973 Constitution was adopted providing, among others, that No person shall be deprived of life, liberty and property without due process of
law. (Const., Art. I V, Sec. 1).

It declares that its objection to the constitutionality of the Executive Orders as well as the Sequestration Order * * and Takeover Order * * issued purportedly under
the authority of said Executive Orders, rests on four fundamental considerations: First, no notice and hearing was accorded * * (it) before its properties and business
were taken over; Second, the PCGG is not a court, but a purely investigative agency and therefore not competent to act as prosecutor and judge in the same cause;
Third, there is nothing in the issuances which envisions any proceeding, process or remedy by which petitioner may expeditiously challenge the validity of the
takeover after the same has been effected; and Fourthly, being directed against specified persons, and in disregard of the constitutional presumption of innocence
and general rules and procedures, they constitute a Bill of Attainder.

It argues that the order to produce corporate records from 1973 to 1986, which it has apparently already complied with, was issued without court authority and
infringed its constitutional right against self-incrimination, and unreasonable search and seizure. 14

BASECO further contends that the PCGG had unduly interfered with its right of dominion and management of its business affairs.

ISSUE

Whether or not the sequestration order dated April 14, 1986, and all other orders subsequently issued and acts done on the basis thereof, inclusive of the takeover
order of July 14, 1986 and the termination of the services of the BASECO executives are valid;

DECISION

Yes. The petition cannot succeed. The writs of certiorari and prohibition prayed for will not be issued. Other evidence submitted to the Court by the Solicitor General
proves that President Marcos not only exercised control over BASECO, but also that he actually owns well nigh one hundred percent of its outstanding stock.

6
Executive Orders Not a Bill of Attainder In the first place, nothing in the executive orders can be reasonably construed as a determination or declaration of guilt. On
the contrary, the executive orders, inclusive of Executive Order No. 14, make it perfectly clear that any judgment of guilt in the amassing or acquisition of ill-gotten
wealth is to be handed down by a judicial tribunal, in this case, the Sandiganbayan, upon complaint filed and prosecuted by the PCGG. In the second place, no
punishment is inflicted by the executive orders, as the merest glance at their provisions will immediately make apparent. In no sense, therefore, may the executive
orders be regarded as a bill of attainder.

No Violation of Right against Self-Incrimination and Unreasonable Searches and Seizures It is elementary that the right against self-incrimination has no application
to juridical persons. While an individual may lawfully refuse to answer incriminating questions unless protected by an immunity statute, it does not follow that a
corporation, vested with special privileges and franchises, may refuse to show its hand when charged with an abuse ofsuchprivileges * *

Scope and Extent of Powers of the PCGG PCGG cannot exercise acts of dominion over property sequestered, frozen or provisionally taken over. AS already earlier
stressed with no little insistence, the act of sequestration; freezing or provisional takeover of property does not import or bring about a divestment of title over said
property; does not make the PCGG the owner thereof.

The PCGG may thus exercise only powers of administration over the property or business sequestered or provisionally taken over, much like a court-appointed
receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as
may be necessary to fulfill its mission as conservator and administrator.

Powers over Business Enterprises Taken Over by Marcos or Entities or Persons Close to him; Limitations Thereon Now, in the special instance of a business
enterprise shown by evidence to have been taken over by the government of the Marcos Administration or by entities or persons close to former President Marcos,
the PCGG is given power and authority, as already adverted to, to provisionally take (it) over in the public interest or to prevent * * (its) disposal or dissipation; and
since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connoted;
the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the
intrusion into management should be restricted to the minimum degree necessary to accomplish the legislative will, which is to prevent the disposal or dissipation
of the business enterprise.

Voting of Sequestered Stock; Conditions Therefor So, too, it is within the parameters of these conditions and circumstances that the PCGG may properly exercise
the prerogative to vote sequestered stock of corporations, granted to it by the President of the Philippines through a Memorandum dated June 26, 1986. In the case
at bar, there was adequate justification to vote the incumbent directors out of office and elect others in their stead because the evidence showed prima facie that the
former were just tools of President Marcos and were no longer owners of any stock in the firm, if they ever were at all.

No Sufficient Showing of Other Irregularities -As to the other irregularities complained of by BASECO, i.e., the cancellation or revision, and the execution of certain
contracts, inclusive of the termination of the employment of some of its executives, this Court cannot, in the present state of the evidence on record, pass upon
them. It is not necessary to do so. The issues arising therefrom may and will be left for initial determination in the appropriate action.

WHEREFORE, the petition is dismissed. The temporary restraining order issued on October 14, 1986 is lifted

6. Luxuria Homes vs. CA

SYNOPSIS

Petitioner Aida M. Posadas and her two minor children co-owned a 1.6 hectare property in Sucat, Muntinlupa, which was occupied by squatters. Petitioner
Posadas entered into negotiations with private respondent Jaime T. Bravo regarding the development of the said property into a residential subdivision. On May 3,
1989, she authorized respondent Bravo to negotiate with the squatters to leave the said property. Seven months later, petitioner Posadas and her two children
assigned the said property to petitioner Luxuria Homes, Inc. wherein respondent Bravo signed as one of the witnesses to the execution of the Deed of
Assignment. However, sometime in 1992, the relationship of petitioner Posadas and respondent Bravo turned sour when the former could not accept the proposed
management contracts of the latter to develop the said property into a residential subdivision. Consequently, in September 1992, private respondents James Builder
Construction and Jaime T. Bravo instituted a complaint for specific performance before the trial court against petitioners Posadas and Luxuria Homes, Inc. On
September 27, 1993, the trial court declared petitioner Posadas in default and allowed private respondents to present their evidence ex-parte. On March 8, 1994, it
ordered petitioner Posadas, jointly and in solidum with Luxuria Homes, Inc. to pay private respondents damages and to execute the management contract. The Court
of Appeals modified the decision of the trial court by deleting the award of moral damages and reducing the award on exemplary damages

Hence, this petition.

The Court ruled that the burden of proof of the damages suffered is on the party claiming the same. It his duty to present evidence to support his claim for
actual damages.

On the other hand, since private respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of the supposed transactions, not even to
the agreement to negotiate with and relocate the squatters, it cannot be held liable, nay jointly and in solidum, to pay private respondents.

Further, the parties are bound to fulfill the stipulations in a contract only upon its perfection. At anytime prior to the perfection of a contract, unaccepted
offers and proposals remain as such and cannot be considered as binding commitments, hence not demandable

Petitioner Aida M. Posadas was ordered to pay private respondents the amount of P435,000.00 as balance for the preparation of the architectural design, site
development plan and survey. All other claims were denied for lack of merit.

SYLLABUS

7
1. REMEDIAL LAW; ACTIONS; COURT CANNOT GRANT AN AMOUNT HIGHER THAN THAT CLAIMED. We cannot award an amount higher than what was claimed in
the complaint. Consequently for the preparation of both the architectural design and site development plan, respondent is entitled to the amount
of P450,000.00 less partial payments made in the amount of P25,000.00. In Policarpio v. RTC of Quezon City, it was held that a court is bereft of jurisdiction to
award, in a judgment by default, a relief other than that specifically prayed for in the complaint.

2. ID.; EVIDENCE; BURDEN OF PROOF; RESTS ON PARTY ASSERTING AFFIRMATIVE OF AN ISSUE; CLAIM CANNOT BE GRANTED WHERE THERE IS FAILURE TO SHOW
PROOF OF CLAIM. For respondents failure to show proof of accomplishment of the aforesaid services, their claims cannot be granted. In P.T. Cerna Corp. v.
Court of Appeals, we ruled that in civil cases, the burden of proof rests upon the party who, as determined by the pleadings or the nature of the case, asserts
the affirmative of an issue. In this case the burden lies on the complainant, who is duty bound to prove the allegations in the complaint. As this Court has held,
he who alleges a fact has the burden of proving it and A MERE ALLEGATION IS NOT EVIDENCE.

3. ID.; ID.; ID.; ID.; ID.; RULES DO NOT CHANGE EVEN IF DEFENDANT IS DECLARED IN DEFAULT. And the rules do not change even if the defendant is declared in
default. In the leading case of Lopez v. Mendezona, this Court ruled that after entry of judgment in default against a defendant who has neither appeared nor
answered, and before final judgment in favor of the plaintiff, the latter must establish by competent evidence all the material allegations of his complaint upon
which he bases his prayer for relief. In De los Santos v. De la Cruz this Court declared that a judgment by default against a defendant does not imply a waiver of
rights except that of being heard and of presenting evidence in his favor. It does not imply admission by the defendant of the facts and causes of action of the
plaintiff, because the codal section requires the latter to adduce his evidence in support of his allegations as an indispensable condition before final judgment
could be given in his favor. Nor could it be interpreted as an admission by the defendant that the plaintiffs causes of action finds support in the law or that the
latter is entitled to the relief prayed for.

4. ID.; ID.; DEFAULT; COMPLAINANTS NOT AUTOMATICALLY ENTITLED TO RELIEF WHERE DEFENDANTS ARE DECLARED IN DEFAULT. We explained the rule in
judgments by default in Pascua v. Florendo, where we said that nowhere is it stated that the complainants are automatically entitled to the relief prayed for,
once the defendants are declared in default. Favorable relief can be granted only after the court has ascertained that the evidence offered and the facts
proven by the presenting party warrant the grant of the same. Otherwise it would be meaningless to require presentation of evidence if everytime the other
party is declared in default, a decision would automatically be rendered in favor of the non-defaulting party and exactly according to the tenor of his
prayer. In Lim Tanhu v. Ramolete we elaborated and said that a defaulted defendant is not actually thrown out of court. The rules see to it that any judgment
against him must be in accordance with law. The evidence to support the plaintiffs cause is, of course, presented in his absence, but the court is not supposed
to admit that which is basically incompetent. Although the defendant would not be in a position to object, elementary justice requires that only legal evidence
should be considered against him. If the evidence presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed the amount or be different in kind from what is prayed for in the complaint.

5. CIVIL LAW; DAMAGES; ACTUAL DAMAGES; EVIDENCE TO SUPPORT CLAIM, NECESSARY. The prayer for actual damages in the amount of P500,000.00, supposedly
for the bunkhouse/warehouse, hollow-block factory, lumber, cement, guard, etc., which the trial court granted and even increased to P1,500,000.00, and
which this Court would have rightly reduced to the amount prayed for in the complaint, was not established, as shown upon further review of the record. No
receipts or vouchers were presented by private respondents to show that they actually spent the amount. In Salas v. Court of Appeals, we said that the burden
of proof of the damages suffered is on the party claiming the same. It is his duty to present evidence to support his claim for actual damages. If he failed to do
so, he has only himself to blame if no award for actual damages is handed down. In fine, as we declared in PNOC Shipping Transport Corp. v. Court of Appeals,
basic is the rule that to recover actual damages, the amount of loss must not only be capable of proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence obtainable of the actual amount thereof.

6. COMMERCIAL LAW; CORPORATION; PIERCING THE VEIL OF CORPORATE ENTITY; WHEN ALLOWED. To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. It cannot be presumed. This is elementary. Thus in Bayer-Roxas v. Court of
Appeals, we said that the separate personality of the corporation may be disregarded only when the corporation is used as a cloak or cover for fraud or
illegality, or to work injustice, or where necessary for the protection of the creditors.

7. ID.; ID.; ID.; ID.; CASE AT BAR. Obviously in the instant case, private respondents failed to show proof that petitioner Posadas acted in bad faith. Consequently
since private respondents failed to show that petitioner Luxuria Homes, Inc., was a party to any of the supposed transactions, not even to the agreement to
negotiate with and relocate the squatters, it cannot be held liable, nay jointly and in solidum, to pay private respondents. In this case since it was petitioner
Aida M. Posadas who contracted respondent Bravo to render the subject services, only she is liable to pay the amounts adjudged herein.

8. CIVIL LAW; OBLIGATIONS AND CONTRACTS; THERE CAN BE NO CONTRACT IN ABSENCE OF MUTUAL, ASSENTOF PARTIES. It is fundamental that there can be no
contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. To compel petitioner Posadas, whether as
representative of petitioner Luxuria Homes or in her personal capacity, to execute a management contract under the terms and conditions of private
respondents would be to violate the principle of consensuality of contracts. In Philippine National Bank v. Court of Appeals, we held that if the assent is
wanting on the part of one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind. In ordering
petitioner Posadas to execute a management contract with private respondents, the trial court in effect is putting her under duress.

9. ID.; ID.; PRIOR TO PERFECTION OF CONTRACT, UNACCEPTED OFFERS AND PROPOSALS, NOT BINDING. The parties are bound to fulfill the stipulations in a contract
only upon its perfection. At anytime prior to the perfection of a contract, unaccepted offers and proposals remain as such and cannot be considered as binding
commitments; hence not demandable.

7. Concept Builders vs. NLRC

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.

8
 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:

1. All the employees inside petitioners premises at 355 Maysan Road, Valenzuela, Metro Manila, claimed that they were employees of Hydro Pipes Philippines, Inc.
(HPPI) and not by respondent;

2. Levy was made upon personal properties he found in the premises;

3. Security guards with high-powered guns prevented him from removing the properties he had levied upon.4

The said special sheriff recommended that a break-open order be issued to enable him to enter petitioners premises so that he could proceed with the public
auction sale of the aforesaid personal properties on November 7, 1989.

On November 6, 1989, a certain Dennis Cuyegkeng filed a third-party claim with the Labor Arbiter alleging that the properties sought to be levied upon by the
sheriff were owned by Hydro (Phils.), Inc. (HPPI) of which he is the Vice-President.

On November 23, 1989, private respondents filed a Motion for Issuance of a Break-Open Order, alleging that HPPI and petitioner corporation were owned by
the same incorporator! stockholders. They also alleged that petitioner temporarily suspended its business operations in order to evade its legal obligations to them
and that private respondents were willing to post an indemnity bond to answer for any damages which petitioner and HPPI may suffer because of the issuance of the
break-open order.

In support of their claim against HPPI, private respondents presented duly certified copies of the General Informations Sheet, dated May 15, 1987, submitted
by petitioner to the Securities and Exchange Commission (SEC) and the General Information Sheet, dated May 15, 1987, submitted by HPPI to the Securities and
Exchange Commission.

The General Information Sheet submitted by the petitioner1 revealed the following:

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.

9
 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;

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.

10
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.

8. Villaley Transit vs. Ferrer

This is a tri-party appeal from the decision of the Court of First Instance of Manila, Civil Case No. 41845, declaring null and void the sheriff's sale of two certificates of
public convenience in favor of defendant Eusebio E. Ferrer and the subsequent sale thereof by the latter to defendant Pangasinan Transportation Co., Inc.; declaring
the plaintiff Villa Rey Transit, Inc., to be the lawful owner of the said certificates of public convenience; and ordering the private defendants, jointly and severally, to
pay to the plaintiff, the sum of P5,000.00 as and for attorney's fees. The case against the PSC was dismissed.

The rather ramified circumstances of the instant case can best be understood by a chronological narration of the essential facts, to wit:

Prior to 1959, Jose M. Villarama was an operator of a bus transportation, under the business name of Villa Rey Transit, pursuant to certificates of public convenience
granted him by the Public Service Commission (PSC, for short) in Cases Nos. 44213 and 104651, which authorized him to operate a total of thirty-two (32) units on
various routes or lines from Pangasinan to Manila, and vice-versa. On January 8, 1959, he sold the aforementioned two certificates of public convenience to the
Pangasinan Transportation Company, Inc. (otherwise known as Pantranco), for P350,000.00 with the condition, among others, that the seller (Villarama) "shall not for
a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the buyer."

Barely three months thereafter, or on March 6, 1959: a corporation called Villa Rey Transit, Inc. (which shall be referred to hereafter as the Corporation) was
organized with a capital stock of P500,000.00 divided into 5,000 shares of the par value of P100.00 each; P200,000.00 was the subscribed stock; Natividad R.
Villarama (wife of Jose M. Villarama) was one of the incorporators, and she subscribed for P1,000.00; the balance of P199,000.00 was subscribed by the brother and
sister-in-law of Jose M. Villarama; of the subscribed capital stock, P105,000.00 was paid to the treasurer of the corporation, who was Natividad R. Villarama.

In less than a month after its registration with the Securities and Exchange Commission (March 10, 1959), the Corporation, on April 7, 1959, bought five certificates of
public convenience, forty-nine buses, tools and equipment from one Valentin Fernando, for the sum of P249,000.00, of which P100,000.00 was paid upon the signing
of the contract; P50,000.00 was payable upon the final approval of the sale by the PSC; P49,500.00 one year after the final approval of the sale; and the balance of
P50,000.00 "shall be paid by the BUYER to the different suppliers of the SELLER."

The very same day that the aforementioned contract of sale was executed, the parties thereto immediately applied with the PSC for its approval, with a prayer for the
issuance of a provisional authority in favor of the vendee Corporation to operate the service therein involved.1 On May 19, 1959, the PSC granted the provisional
permit prayed for, upon the condition that "it may be modified or revoked by the Commission at any time, shall be subject to whatever action that may be taken on
the basic application and shall be valid only during the pendency of said application." Before the PSC could take final action on said application for approval of sale,
11
however, the Sheriff of Manila, on July 7, 1959, levied on two of the five certificates of public convenience involved therein, namely, those issued under PSC cases Nos.
59494 and 63780, pursuant to a writ of execution issued by the Court of First Instance of Pangasinan in Civil Case No. 13798, in favor of Eusebio Ferrer, plaintiff,
judgment creditor, against Valentin Fernando, defendant, judgment debtor. The Sheriff made and entered the levy in the records of the PSC. On July 16, 1959, a
public sale was conducted by the Sheriff of the said two certificates of public convenience. Ferrer was the highest bidder, and a certificate of sale was issued in his
name.

Thereafter, Ferrer sold the two certificates of public convenience to Pantranco, and jointly submitted for approval their corresponding contract of sale to the
PSC.2 Pantranco therein prayed that it be authorized provisionally to operate the service involved in the said two certificates.

The applications for approval of sale, filed before the PSC, by Fernando and the Corporation, Case No. 124057, and that of Ferrer and Pantranco, Case No. 126278,
were scheduled for a joint hearing. In the meantime, to wit, on July 22, 1959, the PSC issued an order disposing that during the pendency of the cases and before a
final resolution on the aforesaid applications, the Pantranco shall be the one to operate provisionally the service under the two certificates embraced in the contract
between Ferrer and Pantranco. The Corporation took issue with this particular ruling of the PSC and elevated the matter to the Supreme Court,3 which decreed, after
deliberation, that until the issue on the ownership of the disputed certificates shall have been finally settled by the proper court, the Corporation should be the one
to operate the lines provisionally.

On November 4, 1959, the Corporation filed in the Court of First Instance of Manila, a complaint for the annulment of the sheriff's sale of the
aforesaid two certificates of public convenience (PSC Cases Nos. 59494 and 63780) in favor of the defendant Ferrer, and the subsequent sale thereof by the latter to
Pantranco, against Ferrer, Pantranco and the PSC. The plaintiff Corporation prayed therein that all the orders of the PSC relative to the parties' dispute over the said
certificates be annulled.

In separate answers, the defendants Ferrer and Pantranco averred that the plaintiff Corporation had no valid title to the certificates in question because the contract
pursuant to which it acquired them from Fernando was subject to a suspensive condition the approval of the PSC which has not yet been fulfilled, and,
therefore, the Sheriff's levy and the consequent sale at public auction of the certificates referred to, as well as the sale of the same by Ferrer to Pantranco, were valid
and regular, and vested unto Pantranco, a superior right thereto.

Pantranco, on its part, filed a third-party complaint against Jose M. Villarama, alleging that Villarama and the Corporation, are one and the same; that Villarama
and/or the Corporation was disqualified from operating the two certificates in question by virtue of the aforementioned agreement between said Villarama and
Pantranco, which stipulated that Villarama "shall not for a period of 10 years from the date of this sale, apply for any TPU service identical or competing with the
buyer."

Upon the joinder of the issues in both the complaint and third-party complaint, the case was tried, and thereafter decision was rendered in the terms, as above
stated.

As stated at the beginning, all the parties involved have appealed from the decision. They submitted a joint record on appeal.

Pantranco disputes the correctness of the decision insofar as it holds that Villa Rey Transit, Inc. (Corporation) is a distinct and separate entity from Jose M. Villarama;
that the restriction clause in the contract of January 8, 1959 between Pantranco and Villarama is null and void; that the Sheriff's sale of July 16, 1959, is likewise null
and void; and the failure to award damages in its favor and against Villarama.

Ferrer, for his part, challenges the decision insofar as it holds that the sheriff's sale is null and void; and the sale of the two certificates in question by Valentin
Fernando to the Corporation, is valid. He also assails the award of P5,000.00 as attorney's fees in favor of the Corporation, and the failure to award moral damages to
him as prayed for in his counterclaim.

The Corporation, on the other hand, prays for a review of that portion of the decision awarding only P5,000.00 as attorney's fees, and insisting that it is entitled to an
award of P100,000.00 by way of exemplary damages.

After a careful study of the facts obtaining in the case, the vital issues to be resolved are: (1) Does the stipulation between Villarama and Pantranco, as contained in
the deed of sale, that the former "SHALL NOT FOR A PERIOD OF 10 YEARS FROM THE DATE OF THIS SALE, APPLY FOR ANY TPU SERVICE IDENTICAL OR COMPETING
WITH THE BUYER," apply to new lines only or does it include existing lines?; (2) Assuming that said stipulation covers all kinds of lines, is such stipulation valid and
enforceable?; (3) In the affirmative, that said stipulation is valid, did it bind the Corporation?

For convenience, We propose to discuss the foregoing issues by starting with the last proposition.

The evidence has disclosed that Villarama, albeit was not an incorporator or stockholder of the Corporation, alleging that he did not become such, because he did not
have sufficient funds to invest, his wife, however, was an incorporator with the least subscribed number of shares, and was elected treasurer of the Corporation. The
finances of the Corporation which, under all concepts in the law, are supposed to be under the control and administration of the treasurer keeping them as trust fund
for the Corporation, were, nonetheless, manipulated and disbursed as if they were the private funds of Villarama, in such a way and extent that Villarama appeared
to be the actual owner-treasurer of the business without regard to the rights of the stockholders. The following testimony of Villarama,4 together with the other
evidence on record, attests to that effect:

Q. Doctor, I want to go back again to the incorporation of the Villa Rey Transit, Inc. You heard the testimony presented here by the bank regarding the
initial opening deposit of ONE HUNDRED FIVE THOUSAND PESOS, of which amount Eighty-Five Thousand Pesos was a check drawn by yourself personally.
In the direct examination you told the Court that the reason you drew a check for Eighty-Five Thousand Pesos was because you and your wife, or your

12
 wife, had spent the money of the stockholders given to her for incorporation. Will you please tell the Honorable Court if you knew at the time your wife
was spending the money to pay debts, you personally knew she was spending the money of the incorporators?

The evidence further shows that the initial cash capitalization of the corporation of P105,000.00 was mostly financed by Villarama. Of the P105,000.00 deposited in
the First National City Bank of New York, representing the initial paid-up capital of the Corporation, P85,000.00 was covered by Villarama's personal check. The
deposit slip for the said amount of P105,000.00 was admitted in evidence as Exh. 23, which shows on its face that P20,000.00 was paid in cash and P85,000.00
thereof was covered by Check No. F-50271 of the First National City Bank of New York. The testimonies of Alfonso Sancho5 and Joaquin Amansec,6 both employees of
said bank, have proved that the drawer of the check was Jose Villarama himself.

Another witness, Celso Rivera, accountant of the Corporation, testified that while in the books of the corporation there appears an entry that the treasurer received
P95,000.00 as second installment of the paid-in subscriptions, and, subsequently, also P100,000.00 as the first installment of the offer for second subscriptions worth
P200,000.00 from the original subscribers, yet Villarama directed him (Rivera) to make vouchers liquidating the sums.7 Thus, it was made to appear that the
P95,000.00 was delivered to Villarama in payment for equipment purchased from him, and the P100,000.00 was loaned as advances to the stockholders. The said
accountant, however, testified that he was not aware of any amount of money that had actually passed hands among the parties involved,8 and actually the only
money of the corporation was the P105,000.00 covered by the deposit slip Exh. 23, of which as mentioned above, P85,000.00 was paid by Villarama's personal check.

Further, the evidence shows that when the Corporation was in its initial months of operation, Villarama purchased and paid with his personal checks Ford trucks for
the Corporation. Exhibits 20 and 21 disclose that the said purchases were paid by Philippine Bank of Commerce Checks Nos. 992618-B and 993621-B, respectively.
These checks have been sufficiently established by Fausto Abad, Assistant Accountant of Manila Trading & Supply Co., from which the trucks were purchased9 and
Aristedes Solano, an employee of the Philippine Bank of Commerce,10 as having been drawn by Villarama.

Exhibits 6 to 19 and Exh. 22, which are photostatic copies of ledger entries and vouchers showing that Villarama had co-mingled his personal funds and transactions
with those made in the name of the Corporation, are very illuminating evidence. Villarama has assailed the admissibility of these exhibits, contending that no
evidentiary value whatsoever should be given to them since "they were merely photostatic copies of the originals, the best evidence being the originals themselves."
According to him, at the time Pantranco offered the said exhibits, it was the most likely possessor of the originals thereof because they were stolen from the files of
the Corporation and only Pantranco was able to produce the alleged photostat copies thereof.

Section 5 of Rule 130 of the Rules of Court provides for the requisites for the admissibility of secondary evidence when the original is in the custody of the adverse
party, thus: (1) opponent's possession of the original; (2) reasonable notice to opponent to produce the original; (3) satisfactory proof of its existence; and (4) failure
or refusal of opponent to produce the original in court.11 Villarama has practically admitted the second and fourth requisites.12 As to the third, he admitted their
previous existence in the files of the Corporation and also that he had seen some of them.13 Regarding the first element, Villarama's theory is that since even at the
time of the issuance of the subpoena duces tecum, the originals were already missing, therefore, the Corporation was no longer in possession of the same. However,
it is not necessary for a party seeking to introduce secondary evidence to show that the original is in the actual possession of his adversary. It is enough that the
circumstances are such as to indicate that the writing is in his possession or under his control. Neither is it required that the party entitled to the custody of the
instrument should, on being notified to produce it, admit having it in his possession.14 Hence, secondary evidence is admissible where he denies having it in his
possession. The party calling for such evidence may introduce a copy thereof as in the case of loss. For, among the exceptions to the best evidence rule is "when the
original has been lost, destroyed, or cannot be produced in court."15 The originals of the vouchers in question must be deemed to have been lost, as even the
Corporation admits such loss. Viewed upon this light, there can be no doubt as to the admissibility in evidence of Exhibits 6 to 19 and 22.

Taking account of the foregoing evidence, together with Celso Rivera's testimony,16 it would appear that: Villarama supplied the organization expenses and the assets
of the Corporation, such as trucks and equipment;17there was no actual payment by the original subscribers of the amounts of P95,000.00 and P100,000.00 as
appearing in the books;18 Villarama made use of the money of the Corporation and deposited them to his private accounts;19 and the Corporation paid his personal
accounts.20

Villarama himself admitted that he mingled the corporate funds with his own money.21 He also admitted that gasoline purchases of the Corporation were made in his
name22 because "he had existing account with Stanvac which was properly secured and he wanted the Corporation to benefit from the rebates that he received."23

The foregoing circumstances are strong persuasive evidence showing that Villarama has been too much involved in the affairs of the Corporation to altogether
negative the claim that he was only a part-time general manager. They show beyond doubt that the Corporation is his alter ego.

It is significant that not a single one of the acts enumerated above as proof of Villarama's oneness with the Corporation has been denied by him. On the contrary, he
has admitted them with offered excuses.

Villarama has admitted, for instance, having paid P85,000.00 of the initial capital of the Corporation with the lame excuse that "his wife had requested him to
reimburse the amount entrusted to her by the incorporators and which she had used to pay the obligations of Dr. Villarama (her husband) incurred while he was still
the owner of Villa Rey Transit, a single proprietorship." But with his admission that he had received P350,000.00 from Pantranco for the sale of the two certificates
and one unit,24 it becomes difficult to accept Villarama's explanation that he and his wife, after consultation,25 spent the money of their relatives (the stockholders)
when they were supposed to have their own money. Even if Pantranco paid the P350,000.00 in check to him, as claimed, it could have been easy for Villarama to
have deposited said check in his account and issued his own check to pay his obligations. And there is no evidence adduced that the said amount of P350,000.00 was
all spent or was insufficient to settle his prior obligations in his business, and in the light of the stipulation in the deed of sale between Villarama and Pantranco that
P50,000.00 of the selling price was earmarked for the payments of accounts due to his creditors, the excuse appears unbelievable.

On his having paid for purchases by the Corporation of trucks from the Manila Trading & Supply Co. with his personal checks, his reason was that he was only sharing
with the Corporation his credit with some companies. And his main reason for mingling his funds with that of the Corporation and for the latter's paying his private
bills is that it would be more convenient that he kept the money to be used in paying the registration fees on time, and since he had loaned money to the

13
Corporation, this would be set off by the latter's paying his bills. Villarama admitted, however, that the corporate funds in his possession were not only for
registration fees but for other important obligations which were not specified.26

Indeed, while Villarama was not the Treasurer of the Corporation but was, allegedly, only a part-time manager,27he admitted not only having held the corporate
money but that he advanced and lent funds for the Corporation, and yet there was no Board Resolution allowing it.28

Villarama's explanation on the matter of his involvement with the corporate affairs of the Corporation only renders more credible Pantranco's claim that his control
over the corporation, especially in the management and disposition of its funds, was so extensive and intimate that it is impossible to segregate and identify which
money belonged to whom. The interference of Villarama in the complex affairs of the corporation, and particularly its finances, are much too inconsistent with the
ends and purposes of the Corporation law, which, precisely, seeks to separate personal responsibilities from corporate undertakings. It is the very essence of
incorporation that the acts and conduct of the corporation be carried out in its own corporate name because it has its own personality.

The doctrine that a corporation is a legal entity distinct and separate from the members and stockholders who compose it is recognized and respected in all cases
which are within reason and the law.29 When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime,30 the veil with which the
law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of
individuals.

Upon the foregoing considerations, We are of the opinion, and so hold, that the preponderance of evidence have shown that the Villa Rey Transit, Inc. is an alter
ego of Jose M. Villarama, and that the restrictive clause in the contract entered into by the latter and Pantranco is also enforceable and binding against the said
Corporation. For the rule is that a seller or promisor may not make use of a corporate entity as a means of evading the obligation of his covenant.31 Where the
Corporation is substantially the alter ego of the covenantor to the restrictive agreement, it can be enjoined from competing with the covenantee.32

The Corporation contends that even on the supposition that Villa Rey Transit, Inc. and Villarama are one and the same, the restrictive clause in the contract between
Villarama and Pantranco does not include the purchase of existing lines but it only applies to application for the new lines. The clause in dispute reads thus:

(4) The SELLER shall not, for a period of ten (10) years from the date of this sale apply for any TPU service identical or competing with the BUYER. (Emphasis
supplied)

As We read the disputed clause, it is evident from the context thereof that the intention of the parties was to eliminate the seller as a competitor of the buyer for ten
years along the lines of operation covered by the certificates of public convenience subject of their transaction. The word "apply" as broadly used has for frame of
reference, a service by the seller on lines or routes that would compete with the buyer along the routes acquired by the latter. In this jurisdiction, prior authorization
is needed before anyone can operate a TPU service,33whether the service consists in a new line or an old one acquired from a previous operator. The clear intention
of the parties was to prevent the seller from conducting any competitive line for 10 years since, anyway, he has bound himself not to apply for authorization to
operate along such lines for the duration of such period.34

If the prohibition is to be applied only to the acquisition of new certificates of public convenience thru an application with the Public Service Commission, this would,
in effect, allow the seller just the same to compete with the buyer as long as his authority to operate is only acquired thru transfer or sale from a previous operator,
thus defeating the intention of the parties. For what would prevent the seller, under the circumstances, from having a representative or dummy apply in the latter's
name and then later on transferring the same by sale to the seller? Since stipulations in a contract is the law between the contracting parties,

Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good
faith. (Art. 19, New Civil Code.)

We are not impressed of Villarama's contention that the re-wording of the two previous drafts of the contract of sale between Villarama and Pantranco is significant
in that as it now appears, the parties intended to effect the least restriction. We are persuaded, after an examination of the supposed drafts, that the scope of the
final stipulation, while not as long and prolix as those in the drafts, is just as broad and comprehensive. At most, it can be said that the re-wording was done merely
for brevity and simplicity.

The evident intention behind the restriction was to eliminate the sellers as a competitor, and this must be, considering such factors as the good will35 that the seller
had already gained from the riding public and his adeptness and proficiency in the trade. On this matter, Corbin, an authority on Contracts has this to say.36

When one buys the business of another as a going concern, he usually wishes to keep it going; he wishes to get the location, the building, the stock in
trade, and the customers. He wishes to step into the seller's shoes and to enjoy the same business relations with other men. He is willing to pay much
more if he can get the "good will" of the business, meaning by this the good will of the customers, that they may continue to tread the old footpath to his
door and maintain with him the business relations enjoyed by the seller.

... In order to be well assured of this, he obtains and pays for the seller's promise not to reopen business in competition with the business sold.

As to whether or not such a stipulation in restraint of trade is valid, our jurisprudence on the matter37says:

The law concerning contracts which tend to restrain business or trade has gone through a long series of changes from time to time with the changing
condition of trade and commerce. With trifling exceptions, said changes have been a continuous development of a general rule. The early cases show
plainly a disposition to avoid and annul all contract which prohibited or restrained any one from using a lawful trade "at any time or at any place," as being

14
 against the benefit of the state. Later, however, the rule became well established that if the restraint was limited to "a certain time" and within "a certain
place," such contracts were valid and not "against the benefit of the state." Later cases, and we think the rule is now well established, have held that a
contract in restraint of trade is valid providing there is a limitation upon either time or place. A contract, however, which restrains a man from entering into
business or trade without either a limitation as to time or place, will be held invalid.

The public welfare of course must always be considered and if it be not involved and the restraint upon one party is not greater than protection to the
other requires, contracts like the one we are discussing will be sustained. The general tendency, we believe, of modern authority, is to make the test
whether the restraint is reasonably necessary for the protection of the contracting parties. If the contract is reasonably necessary to protect the interest of
the parties, it will be upheld. (Emphasis supplied.)

Analyzing the characteristics of the questioned stipulation, We find that although it is in the nature of an agreement suppressing competition, it is, however, merely
ancillary or incidental to the main agreement which is that of sale. The suppression or restraint is only partial or limited: first, in scope, it refers only to application for
TPU by the seller in competition with the lines sold to the buyer; second, in duration, it is only for ten (10) years; and third, with respect to situs or territory, the
restraint is only along the lines covered by the certificates sold. In view of these limitations, coupled with the consideration of P350,000.00 for just two certificates of
public convenience, and considering, furthermore, that the disputed stipulation is only incidental to a main agreement, the same is reasonable and it is not harmful
nor obnoxious to public service.38 It does not appear that the ultimate result of the clause or stipulation would be to leave solely to Pantranco the right to operate
along the lines in question, thereby establishing monopoly or predominance approximating thereto. We believe the main purpose of the restraint was to protect for a
limited time the business of the buyer.

Indeed, the evils of monopoly are farfetched here. There can be no danger of price controls or deterioration of the service because of the close supervision of the
Public Service Commission.39 This Court had stated long ago,40that "when one devotes his property to a use in which the public has an interest, he virtually grants to
the public an interest in that use and submits it to such public use under reasonable rules and regulations to be fixed by the Public Utility Commission."

Regarding that aspect of the clause that it is merely ancillary or incidental to a lawful agreement, the underlying reason sustaining its validity is well explained in 36
Am. Jur. 537-539, to wit:

... Numerous authorities hold that a covenant which is incidental to the sale and transfer of a trade or business, and which purports to bind the seller not
to engage in the same business in competition with the purchaser, is lawful and enforceable. While such covenants are designed to prevent competition
on the part of the seller, it is ordinarily neither their purpose nor effect to stifle competition generally in the locality, nor to prevent it at all in a way or to
an extent injurious to the public. The business in the hands of the purchaser is carried on just as it was in the hands of the seller; the former merely takes
the place of the latter; the commodities of the trade are as open to the public as they were before; the same competition exists as existed before; there is
the same employment furnished to others after as before; the profits of the business go as they did before to swell the sum of public wealth; the public
has the same opportunities of purchasing, if it is a mercantile business; and production is not lessened if it is a manufacturing plant.

The reliance by the lower court on tile case of Red Line Transportation Co. v. Bachrach41 and finding that the stipulation is illegal and void seems misplaced. In the
said Red Line case, the agreement therein sought to be enforced was virtually a division of territory between two operators, each company imposing upon itself an
obligation not to operate in any territory covered by the routes of the other. Restraints of this type, among common carriers have always been covered by the
general rule invalidating agreements in restraint of trade. 42

Neither are the other cases relied upon by the plaintiff-appellee applicable to the instant case. In Pampanga Bus Co., Inc. v. Enriquez,43the undertaking of the
applicant therein not to apply for the lifting of restrictions imposed on his certificates of public convenience was not an ancillary or incidental agreement. The
restraint was the principal objective. On the other hand, in Red Line Transportation Co., Inc. v. Gonzaga,44 the restraint there in question not to ask for extension of
the line, or trips, or increase of equipment was not an agreement between the parties but a condition imposed in the certificate of public convenience itself.

Upon the foregoing considerations, Our conclusion is that the stipulation prohibiting Villarama for a period of 10 years to "apply" for TPU service along the lines
covered by the certificates of public convenience sold by him to Pantranco is valid and reasonable. Having arrived at this conclusion, and considering that the
preponderance of the evidence have shown that Villa Rey Transit, Inc. is itself the alter ego of Villarama, We hold, as prayed for in Pantranco's third party complaint,
that the said Corporation should, until the expiration of the 1-year period abovementioned, be enjoined from operating the line subject of the prohibition.

To avoid any misunderstanding, it is here to be emphasized that the 10-year prohibition upon Villarama is not against his application for, or purchase of, certificates
of public convenience, but merely the operation of TPU along the lines covered by the certificates sold by him to Pantranco. Consequently, the sale between
Fernando and the Corporation is valid, such that the rightful ownership of the disputed certificates still belongs to the plaintiff being the prior purchaser in good faith
and for value thereof. In view of the ancient rule of caveat emptorprevailing in this jurisdiction, what was acquired by Ferrer in the sheriff's sale was only the right
which Fernando, judgment debtor, had in the certificates of public convenience on the day of the sale.45

Accordingly, by the "Notice of Levy Upon Personalty" the Commissioner of Public Service was notified that "by virtue of an Order of Execution issued by the Court of
First Instance of Pangasinan, the rights, interests, or participation which the defendant, VALENTIN A. FERNANDO in the above entitled case may have in the
following realty/personalty is attached or levied upon, to wit: The rights, interests and participation on the Certificates of Public Convenience issued to Valentin A.
Fernando, in Cases Nos. 59494, etc. ... Lines Manila to Lingayen, Dagupan, etc. vice versa." Such notice of levy only shows that Ferrer, the vendee at auction of said
certificates, merely stepped into the shoes of the judgment debtor. Of the same principle is the provision of Article 1544 of the Civil Code, that "If the same thing
should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property."

There is no merit in Pantranco and Ferrer's theory that the sale of the certificates of public convenience in question, between the Corporation and Fernando, was not
consummated, it being only a conditional sale subject to the suspensive condition of its approval by the Public Service Commission. While section 20(g) of the Public
Service Act provides that "subject to established limitation and exceptions and saving provisions to the contrary, it shall be unlawful for any public service or for the
15
owner, lessee or operator thereof, without the approval and authorization of the Commission previously had ... to sell, alienate, mortgage, encumber or lease its
property, franchise, certificates, privileges, or rights or any part thereof, ...," the same section also provides:

... Provided, however, That nothing herein contained shall be construed to prevent the transaction from being negotiated or completed before its approval
or to prevent the sale, alienation, or lease by any public service of any of its property in the ordinary course of its business.

It is clear, therefore, that the requisite approval of the PSC is not a condition precedent for the validity and consummation of the sale.

Anent the question of damages allegedly suffered by the parties, each of the appellants has its or his own version to allege.

Villa Rey Transit, Inc. claims that by virtue of the "tortious acts" of defendants (Pantranco and Ferrer) in acquiring the certificates of public convenience in question,
despite constructive and actual knowledge on their part of a prior sale executed by Fernando in favor of the said corporation, which necessitated the latter to file the
action to annul the sheriff's sale to Ferrer and the subsequent transfer to Pantranco, it is entitled to collect actual and compensatory damages, and attorney's fees in
the amount of P25,000.00. The evidence on record, however, does not clearly show that said defendants acted in bad faith in their acquisition of the certificates in
question. They believed that because the bill of sale has yet to be approved by the Public Service Commission, the transaction was not a consummated sale, and,
therefore, the title to or ownership of the certificates was still with the seller. The award by the lower court of attorney's fees of P5,000.00 in favor of Villa Rey
Transit, Inc. is, therefore, without basis and should be set aside.

Eusebio Ferrer's charge that by reason of the filing of the action to annul the sheriff's sale, he had suffered and should be awarded moral, exemplary damages and
attorney's fees, cannot be entertained, in view of the conclusion herein reached that the sale by Fernando to the Corporation was valid.

Pantranco, on the other hand, justifies its claim for damages with the allegation that when it purchased ViIlarama's business for P350,000.00, it intended to build up
the traffic along the lines covered by the certificates but it was rot afforded an opportunity to do so since barely three months had elapsed when the contract was
violated by Villarama operating along the same lines in the name of Villa Rey Transit, Inc. It is further claimed by Pantranco that the underhanded manner in which
Villarama violated the contract is pertinent in establishing punitive or moral damages. Its contention as to the proper measure of damages is that it should be the
purchase price of P350,000.00 that it paid to Villarama. While We are fully in accord with Pantranco's claim of entitlement to damages it suffered as a result of
Villarama's breach of his contract with it, the record does not sufficiently supply the necessary evidentiary materials upon which to base the award and there is need
for further proceedings in the lower court to ascertain the proper amount.

PREMISES CONSIDERED, the judgment appealed from is hereby modified as follows:

1. The sale of the two certificates of public convenience in question by Valentin Fernando to Villa Rey Transit, Inc. is declared preferred over that made by the Sheriff
at public auction of the aforesaid certificate of public convenience in favor of Eusebio Ferrer;

2. Reversed, insofar as it dismisses the third-party complaint filed by Pangasinan Transportation Co. against Jose M. Villarama, holding that Villa Rey Transit, Inc. is an
entity distinct and separate from the personality of Jose M. Villarama, and insofar as it awards the sum of P5,000.00 as attorney's fees in favor of Villa Rey Transit,
Inc.;

3. The case is remanded to the trial court for the reception of evidence in consonance with the above findings as regards the amount of damages suffered by
Pantranco; and

4. On equitable considerations, without costs. So ordered.

9. Lipat vs. Pacific Banking

This petition for review on certiorari seeks the reversal of the Decision[1] dated October 21, 1999 of the Court of Appeals in CA-G.R. CV No. 41536 which
dismissed herein petitioners appeal from the Decision[2] dated February 10, 1993 of the Regional Trial Court (RTC) of Quezon City, Branch 84, in Civil Case No. Q-89-
4152. The trial court had dismissed petitioners complaint for annulment of real estate mortgage and the extra-judicial foreclosure thereof. Likewise brought for our
review is the Resolution[3] dated February 23, 2000 of the Court of Appeals which denied petitioners motion for reconsideration.

The facts, as culled from records, are as follows:

Petitioners, the spouses Alfredo Lipat and Estelita Burgos Lipat, owned Belas Export Trading (BET), a single proprietorship with principal office at No. 814
Aurora Boulevard, Cubao, Quezon City. BET was engaged in the manufacture of garments for domestic and foreign consumption. The Lipats also owned the Mystical
Fashions in the United States, which sells goods imported from the Philippines through BET. Mrs. Lipat designated her daughter, Teresita B. Lipat, to manage BET in
the Philippines while she was managing Mystical Fashions in the United States.

In order to facilitate the convenient operation of BET, Estelita Lipat executed on December 14, 1978, a special power of attorney appointing Teresita Lipat as
her attorney-in-fact to obtain loans and other credit accommodations from respondent Pacific Banking Corporation (Pacific Bank). She likewise authorized Teresita to
execute mortgage contracts on properties owned or co-owned by her as security for the obligations to be extended by Pacific Bank including any extension or
renewal thereof.

Sometime in April 1979, Teresita, by virtue of the special power of attorney, was able to secure for and in behalf of her mother, Mrs. Lipat and BET, a loan from
Pacific Bank amounting to P583,854.00 to buy fabrics to be manufactured by BET and exported to Mystical Fashions in the United States. As security therefor, the
Lipat spouses, as represented by Teresita, executed a Real Estate Mortgage over their property located at No. 814 Aurora Blvd., Cubao, Quezon City. Said property
was likewise made to secure other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor

16
and/or Debtor may subsequently obtain from the Mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said
original, additional or new loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other obligations of the
Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly, principal or secondary, as appears in the accounts, books and records of the
Mortgagee.[4]

On September 5, 1979, BET was incorporated into a family corporation named Belas Export Corporation (BEC) in order to facilitate the management of the
business. BEC was engaged in the business of manufacturing and exportation of all kinds of garments of whatever kind and description [5] and utilized the same
machineries and equipment previously used by BET. Its incorporators and directors included the Lipat spouses who owned a combined 300 shares out of the 420
shares subscribed, Teresita Lipat who owned 20 shares, and other close relatives and friends of the Lipats.[6] Estelita Lipat was named president of BEC, while Teresita
became the vice-president and general manager.

Eventually, the loan was later restructured in the name of BEC and subsequent loans were obtained by BEC with the corresponding promissory notes duly
executed by Teresita on behalf of the corporation. A letter of credit was also opened by Pacific Bank in favor of A. O. Knitting Manufacturing Co., Inc., upon the
request of BEC after BEC executed the corresponding trust receipt therefor. Export bills were also executed in favor of Pacific Bank for additional finances. These
transactions were all secured by the real estate mortgage over the Lipats property.

The promissory notes, export bills, and trust receipt eventually became due and demandable. Unfortunately, BEC defaulted in its payments. After receipt of
Pacific Banks demand letters, Estelita Lipat went to the office of the banks liquidator and asked for additional time to enable her to personally settle BECs
obligations. The bank acceded to her request but Estelita failed to fulfill her promise.

Consequently, the real estate mortgage was foreclosed and after compliance with the requirements of the law the mortgaged property was sold at public
auction. On January 31, 1989, a certificate of sale was issued to respondent Eugenio D. Trinidad as the highest bidder.

On November 28, 1989, the spouses Lipat filed before the Quezon City RTC a complaint for annulment of the real estate mortgage, extrajudicial foreclosure
and the certificate of sale issued over the property against Pacific Bank and Eugenio D. Trinidad. The complaint, which was docketed as Civil Case No. Q-89-4152,
alleged, among others, that the promissory notes, trust receipt, and export bills were all ultra vires acts of Teresita as they were executed without the requisite board
resolution of the Board of Directors of BEC. The Lipats also averred that assuming said acts were valid and binding on BEC, the same were the corporations sole
obligation, it having a personality distinct and separate from spouses Lipat. It was likewise pointed out that Teresitas authority to secure a loan from Pacific Bank was
specifically limited to Mrs. Lipats sole use and benefit and that the real estate mortgage was executed to secure the Lipats and BETs P583,854.00 loan only.

In their respective answers, Pacific Bank and Trinidad alleged in common that petitioners Lipat cannot evade payments of the value of the promissory notes,
trust receipt, and export bills with their property because they and the BEC are one and the same, the latter being a family corporation. Respondent Trinidad further
claimed that he was a buyer in good faith and for value and that petitioners are estopped from denying BECs existence after holding themselves out as a corporation.

After trial on the merits, the RTC dismissed the complaint, thus:

WHEREFORE, this Court holds that in view of the facts contained in the record, the complaint filed in this case must be, as is hereby, dismissed. Plaintiffs however has
five (5) months and seventeen (17) days reckoned from the finality of this decision within which to exercise their right of redemption. The writ of injunction issued is
automatically dissolved if no redemption is effected within that period.

The counterclaims and cross-claim are likewise dismissed for lack of legal and factual basis.

No costs.

IT IS SO ORDERED.[7]

The trial court ruled that there was convincing and conclusive evidence proving that BEC was a family corporation of the Lipats. As such, it was a mere
extension of petitioners personality and business and a mere alter ego or business conduit of the Lipats established for their own benefit. Hence, to allow petitioners
to invoke the theory of separate corporate personality would sanction its use as a shield to further an end subversive of justice.[8] Thus, the trial court pierced the veil
of corporate fiction and held that Belas Export Corporation and petitioners (Lipats) are one and the same.Pacific Bank had transacted business with both BET and BEC
on the supposition that both are one and the same. Hence, the Lipats were estopped from disclaiming any obligations on the theory of separate personality of
corporations, which is contrary to principles of reason and good faith.

The Lipats timely appealed the RTC decision to the Court of Appeals in CA-G.R. CV No. 41536. Said appeal, however, was dismissed by the appellate court for
lack of merit. The Court of Appeals found that there was ample evidence on record to support the application of the doctrine of piercing the veil of corporate
fiction. In affirming the findings of the RTC, the appellate court noted that Mrs. Lipat had full control over the activities of the corporation and used the same to
further her business interests.[9] In fact, she had benefited from the loans obtained by the corporation to finance her business. It also found unnecessary a board
resolution authorizing Teresita Lipat to secure loans from Pacific Bank on behalf of BEC because the corporations by-laws allowed such conduct even without a board
resolution. Finally, the Court of Appeals ruled that the mortgage property was not only liable for the original loan of P583,854.00 but likewise for the value of the
promissory notes, trust receipt, and export bills as the mortgage contract equally applies to additional or new loans, discounting lines, overdrafts, and credit
accommodations which petitioners subsequently obtained from Pacific Bank.

The Lipats then moved for reconsideration, but this was denied by the appellate court in its Resolution of February 23, 2000.[10]

Hence, this petition, with petitioners submitting that the court a quo erred

1) .IN HOLDING THAT THE DOCTRINE OF PIERCING THE VEIL OF CORPORATE FICTION APPLIES IN THIS CASE.

2) .IN HOLDING THAT PETITIONERS PROPERTY CAN BE HELD LIABLE UNDER THE REAL ESTATE MORTGAGE NOT ONLY FOR THE AMOUNT OF P583,854.00
BUT ALSO FOR THE FULL VALUE OF PROMISSORY NOTES, TRUST RECEIPTS AND EXPORT BILLS OF BELAS EXPORT CORPORATION.

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 3) .IN HOLDING THAT THE IMPOSITION OF 15% ATTORNEYS FEES IN THE EXTRA-JUDICIAL FORECLOSURE IS BEYOND THIS COURTS JURISDICTION FOR IT IS
BEING RAISED FOR THE FIRST TIME IN THIS APPEAL.

4) .IN HOLDING PETITIONER ALFREDO LIPAT LIABLE TO PAY THE DISPUTED PROMISSORY NOTES, THE DOLLAR ACCOMMODATIONS AND TRUST RECEIPTS
DESPITE THE EVIDENT FACT THAT THEY WERE NOT SIGNED BY HIM AND THEREFORE ARE NOT VALID OR ARE NOT BINDING TO HIM.

5) .IN DENYING PETITIONERS MOTION FOR RECONSIDERATION AND IN HOLDING THAT SAID MOTION FOR RECONSIDERATION IS AN UNAUTHORIZED
MOTION, A MERE SCRAP OF PAPER WHICH CAN NEITHER BIND NOR BE OF ANY CONSEQUENCE TO APPELLANTS.[11]

In sum, the following are the relevant issues for our resolution:

1. Whether or not the doctrine of piercing the veil of corporate fiction is applicable in this case;

2. Whether or not petitioners' property under the real estate mortgage is liable not only for the amount of P583,854.00 but also for the value of the
promissory notes, trust receipt, and export bills subsequently incurred by BEC; and

3. Whether or not petitioners are liable to pay the 15% attorneys fees stipulated in the deed of real estate mortgage.

On the first issue, petitioners contend that both the appellate and trial courts erred in holding them liable for the obligations incurred by BEC through the
application of the doctrine of piercing the veil of corporate fiction absent any clear showing of fraud on their part.

Respondents counter that there is clear and convincing evidence to show fraud on part of petitioners given the findings of the trial court, as affirmed by the
Court of Appeals, that BEC was organized as a business conduit for the benefit of petitioners.

Petitioners contentions fail to persuade this Court. A careful reading of the judgment of the RTC and the resolution of the appellate court show that in finding
petitioners mortgaged property liable for the obligations of BEC, both courts below relied upon the alter ego doctrine or instrumentality rule, rather than fraud in
piercing the veil of corporate fiction. When the corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be
disregarded.[12] This is commonly referred to as the instrumentality rule or the alter ego doctrine, which the courts have applied in disregarding the separate juridical
personality of corporations. As held in one case,

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. xxx[13]

We find that the evidence on record demolishes, rather than buttresses, petitioners contention that BET and BEC are separate business entities. Note that
Estelita Lipat admitted that she and her husband, Alfredo, were the owners of BET[14] and were two of the incorporators and majority stockholders of BEC.[15] It is also
undisputed that Estelita Lipat executed a special power of attorney in favor of her daughter, Teresita, to obtain loans and credit lines from Pacific Bank on her
behalf.[16] Incidentally, Teresita was designated as executive-vice president and general manager of both BET and BEC, respectively.[17] We note further that: (1)
Estelita and Alfredo Lipat are the owners and majority shareholders of BET and BEC, respectively; [18] (2) both firms were managed by their daughter, Teresita;[19] (3)
both firms were engaged in the garment business, supplying products to Mystical Fashion, a U.S. firm established by Estelita Lipat; (4) both firms held office in the
same building owned by the Lipats;[20] (5) BEC is a family corporation with the Lipats as its majority stockholders; (6) the business operations of the BEC were so
merged with those of Mrs. Lipat such that they were practically indistinguishable; (7) the corporate funds were held by Estelita Lipat and the corporation itself had no
visible assets; (8) the board of directors of BEC was composed of the Burgos and Lipat family members;[21] (9) Estelita had full control over the activities of and
decided business matters of the corporation;[22] and that (10) Estelita Lipat had benefited from the loans secured from Pacific Bank to finance her business
abroad[23] and from the export bills secured by BEC for the account of Mystical Fashion.[24] It could not have been coincidental that BET and BEC are so intertwined
with each other in terms of ownership, business purpose, and management. Apparently, BET and BEC are one and the same and the latter is a conduit of and
merely succeeded the former. Petitioners attempt to isolate themselves from and hide behind the corporate personality of BEC so as to evade their liabilities to
Pacific Bank is precisely what the classical doctrine of piercing the veil of corporate entity seeks to prevent and remedy. In our view, BEC is a mere continuation and
successor of BET, and petitioners cannot evade their obligations in the mortgage contract secured under the name of BEC on the pretext that it was signed for the
benefit and under the name of BET. We are thus constrained to rule that the Court of Appeals did not err when it applied the instrumentality doctrine in piercing the
corporate veil of BEC.

On the second issue, petitioners contend that their mortgaged property should not be made liable for the subsequent credit lines and loans incurred by BEC
because, first, it was not covered by the mortgage contract of BET which only covered the loan of P583,854.00 and which allegedly had already been paid; and,
second, it was secured by Teresita Lipat without any authorization or board resolution of BEC.

We find petitioners contention untenable. As found by the Court of Appeals, the mortgaged property is not limited to answer for the loan
of P583,854.00. Thus:

Finally, the extent to which the Lipats property can be held liable under the real estate mortgage is not limited to P583,854.00. It can be held liable for the value of
the promissory notes, trust receipt and export bills as well. For the mortgage was executed not only for the purpose of securing the Belas Export Tradings original
loan of P583,854.00, but also for other additional or new loans, discounting lines, overdrafts and credit accommodations, of whatever amount, which the Mortgagor
and/or Debtor may subsequently obtain from the mortgagee as well as any renewal or extension by the Mortgagor and/or Debtor of the whole or part of said
original, additional or new loans, discounting lines, overdrafts and other credit accommodations, including interest and expenses or other obligations of the
Mortgagor and/or Debtor owing to the Mortgagee, whether directly, or indirectly principal or secondary, as appears in the accounts, books and records of the
mortgagee.[25]

As a general rule, findings of fact of the Court of Appeals are final and conclusive, and cannot be reviewed on appeal by the Supreme Court, provided they are
borne out by the record or based on substantial evidence.[26] As noted earlier, BEC merely succeeded BET as petitioners alter ego; hence, petitioners mortgaged
property must be held liable for the subsequent loans and credit lines of BEC.

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 Further, petitioners contention that the original loan had already been paid, hence, the mortgaged property should not be made liable to the loans of BEC, is
unsupported by any substantial evidence other than Estelita Lipats self-serving testimony. Two disputable presumptions under the rules on evidence weigh against
petitioners, namely: (a) that a person takes ordinary care of his concerns;[27] and (b) that things have happened according to the ordinary course of nature and the
ordinary habits of life.[28] Here, if the original loan had indeed been paid, then logically, petitioners would have asked from Pacific Bank for the required documents
evidencing receipt and payment of the loans and, as owners of the mortgaged property, would have immediately asked for the cancellation of the mortgage in the
ordinary course of things. However, the records are bereft of any evidence contradicting or overcoming said disputable presumptions.

Petitioners contend further that the mortgaged property should not bind the loans and credit lines obtained by BEC as they were secured without any proper
authorization or board resolution.They also blame the bank for its laxity and complacency in not requiring a board resolution as a requisite for approving the loans.

Such contentions deserve scant consideration.

Firstly, it could not have been possible for BEC to release a board resolution since per admissions by both petitioner Estelita Lipat and Alice Burgos, petitioners
rebuttal witness, no business or stockholders meetings were conducted nor were there election of officers held since its incorporation. In fact, not a single board
resolution was passed by the corporate board[29] and it was Estelita Lipat and/or Teresita Lipat who decided business matters.[30]

Secondly, the principle of estoppel precludes petitioners from denying the validity of the transactions entered into by Teresita Lipat with Pacific Bank, who in
good faith, relied on the authority of the former as manager to act on behalf of petitioner Estelita Lipat and both BET and BEC. While the power and responsibility to
decide whether the corporation should enter into a contract that will bind the corporation is lodged in its board of directors, subject to the articles of incorporation,
by-laws, or relevant provisions of law, yet, just as a natural person may authorize another to do certain acts for and on his behalf, the board of directors may validly
delegate some of its functions and powers to officers, committees, or agents. The authority of such individuals to bind the corporation is generally derived from law,
corporate by-laws, or authorization from the board, either expressly or impliedly by habit, custom, or acquiescence in the general course of business.[31] Apparent
authority, is derived not merely from practice. Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent
as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular
nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers.[32]

In this case, Teresita Lipat had dealt with Pacific Bank on the mortgage contract by virtue of a special power of attorney executed by Estelita Lipat. Recall that
Teresita Lipat acted as the manager of both BEC and BET and had been deciding business matters in the absence of Estelita Lipat. Further, the export bills secured by
BEC were for the benefit of Mystical Fashion owned by Estelita Lipat.[33] Hence, Pacific Bank cannot be faulted for relying on the same authority granted to Teresita
Lipat by Estelita Lipat by virtue of a special power of attorney. It is a familiar doctrine that if a corporation knowingly permits one of its officers or any other agent to
act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; thus, the corporation will, as against anyone
who has in good faith dealt with it through such agent, be estopped from denying the agents authority.[34]

We find no necessity to extensively deal with the liability of Alfredo Lipat for the subsequent credit lines of BEC. Suffice it to state that Alfredo Lipat never
disputed the validity of the real estate mortgage of the original loan; hence, he cannot now dispute the subsequent loans obtained using the same mortgage contract
since it is, by its very terms, a continuing mortgage contract.

On the third and final issue, petitioners assail the decision of the Court of Appeals for not taking cognizance of the issue on attorneys fees on the ground that it
was raised for the first time on appeal. We find the conclusion of the Court of Appeals to be in accord with settled jurisprudence. Basic is the rule that matters not
raised in the complaint cannot be raised for the first time on appeal.[35] A close perusal of the complaint yields no allegations disputing the attorneys fees imposed
under the real estate mortgage and petitioners cannot now allege that they have impliedly disputed the same when they sought the annulment of the contract.

In sum, we find no reversible error of law committed by the Court of Appeals in rendering the decision and resolution herein assailed by petitioners.

WHEREFORE, the petition is DENIED. The Decision dated October 21, 1999 and the Resolution dated February 23, 2000 of the Court of Appeals in CA-G.R. CV
No. 41536 are AFFIRMED.Costs against petitioners.

10. Francisco Motors vs. CA

SYNOPSIS

Petitioner Francisco Motors Corporation filed a complaint for Sum of Money against private respondents spouses Gregorio and Librada Manuel for the balance
of the jeep body purchased by them from the petitioner, the cost of repair of the said vehicle and the costs of suit and attorneys fees. Spouses Manuel filed their
answer and interposed a counterclaim for unpaid legal services by Gregorio Manuel which was not faid by the incorporators, directors and officers of the petitioner
being the members of the Francisco family whom he represented in the intestate estate proceedings of the late Benita Trinidad at the time when he was still the
Assistant Legal Officer of the petitioner. The trial court decided the case by granting the claims of both sides. On appeal, the Court of Appeals affirmed the trial
courts decision. Hence, this petition.

The Court ruled that given the facts and circumstances of this case, the doctrine of piercing the corporate veil has no relevant application here. Respondent
court erred in permitting the trial courts resort to this doctrine. The rationale behind piercing a corporations identity in a given case is to remove the barrier between
the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking
certain proscribed activities. However, in the case at bar, instead of holding certain individuals or persons responsible for an alleged corporate act, the situation has
been reversed. It is the petitioner as a corporation which is being ordered to answer for the personal liability of certain individual directors, officers and incorporators
concerned. Hence, the doctrine had been turned upside down because of its erroneous invocation. Note that according to private respondent Gregorio Manuel, his
services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidads estate. These estate
proceedings did not involve any business of petitioner.

However, with regard to the procedural issue raised by petitioners allegation, that it needed to be summoned anew in order for the court to acquire
jurisdiction over it, the Court agreed with respondent courts view to the contrary. Section 4, Rule 11 of the Rules of Court provides that a counterclaim or cross-claim
must be answered within (10) days from service. Nothing in the Rules of Court says that summons should first be served on the defendant before an answer to
counterclaim must be made. Under Rule 9, Sec. 3 of the 1997 Rules of Civil Procedure if a defendant fails to answer the counterclaim, then, upon plaintiffs motion,

19
the defendant may be declared in default. This is what happened to petitioner in this case and the Court found no procedural error in its disposition made by the
appellate court.

The petition was GRANTED.

SYLLABUS

1. COMMERCIAL LAW; CORPORATION; PIERCING THE VEIL OF CORPORATE ENTITY; EXPLAINED.- Basic in corporation law s the principle that a corporation has a
separated personality distinct from its stockholders and from other corporations. However, under the doctrine of piercing the veil of corporate entity, the
corporations separate juridical personality may be disregarded, when the corporate identity is used to defeat public convenience, justify wrong, protect fraud,
or defend crime. Also, where the corporation is a mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and
its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation, then its distinct personality may be
ignored. In these circumstances, the courts will treat the corporation as a mere aggrupation of persons and the liability will directly attach to them. The legal
fiction of a separate corporate personality in those cited instances, for reasons of public policy and in the interest of justice, will be justifiable set aside.

2. ID.; ID.; ID.; RATIONALE.- The rationale behind piercing a corporations identity to remove the barrier between the corporation and the persons comprising it, to
thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain proscribed activities.

3. ID.; ID.; ID.; NOT APPLICABLE IN PRESENT CASE.- However, here, instead of holding certain individuals or persons responsible for an alleged corporate act, the
situation has been reversed. It is the corporation which is being ordered to answer for the personal liabilities of certain individual directors, officers and
incorporators concerned. The doctrine has been turned upside down because of its erroneous invocation. According to private respondent Gregorio Manuel
his services were solicited as counsel for members of the Francisco family to represent them in the intestate proceedings over Benita Trinidads estate. These
estate proceedings did not involve any business of petitioner.

4. ID.; ID.; HAS SEPARATE PERSONALITY FROM ITS INCORPORATORS.- The personality of the corporation and those of its incorporators, directors and officers in their
personal capacities ought to be kept separate. The claim for legal fees against the concerned individual incorporators, officers and directors could not be
properly directed against the corporation without violating basic principles governing corporations. Moreover, every action including a counterclaim must be
prosecuted or defended in the name of the real party-in-interest. It is plainly an error to lay the claim for legal fees of private respondent Gregorio Manuel at
the door of petitioner (FMC) rather than individual members of the Francisco family.

5. REMEDIAL LAW; CIVIL PROCEDURE; SUMMONS; NOT NECESSARY IN COUNTERCLAIM.- Section 4, Rule 11 of the Rules of Court provides that a counterclaim or
crossclaim must be answered within ten (10) days from service. Nothing in the Rules of Court says that summons should first be served on the defendant
before an answer to counterclaim must be made. The purpose of a summons is to enable the court to acquire jurisdiction over the person of the
defendant. Although a counterclaim is treated as an entirely distinct and independent action, the defendant in the counterclaim, being the plaintiff in the
original complaint, has already submitted to the jurisdiction of the court.

11. Times Transportation vs. Sotelo

This petition for review on certiorari assails the decision of the Court of Appeals dated January 30, 2004 in CA-G.R. SP No. 75291,[1] which set aside the decision
and resolution of the National Labor Relations Commission, and its resolution dated May 24, 2004[2] denying reconsideration thereof.

Petitioner Times Transportation Company, Inc. (Times) is a corporation engaged in the business of land transportation. Prior to its closure in 1997, the Times
Employees Union (TEU) was formed and issued a certificate of union registration. Times challenged the legitimacy of TEU by filing a petition for the cancellation of its
union registration.

On March 3, 1997, TEU held a strike in response to Times alleged attempt to form a rival union and its dismissal of the employees identified to be active union
members. Upon petition by Times, then Labor Secretary, and now Associate Justice of this Court, Leonardo A. Quisumbing, assumed jurisdiction over the case and
referred the matter to the NLRC for compulsory arbitration. The case was docketed as NLRC NCR CC-000134-97. A return-to-work order was likewise issued on March
10, 1997.

In a certification election held on July 1, 1997, TEU was certified as the sole and exclusive collective bargaining agent in Times. Consequently, TEUs president
wrote the management of Times and requested for collective bargaining. Times refused on the ground that the decision of the Med-Arbiter upholding the validity of
the certification election was not yet final and executory.

TEU filed a Notice of Strike on August 8, 1997. Another conciliation/mediation proceeding was conducted for the purpose of settling the brewing dispute. In
the meantime, Times management implemented a retrenchment program and notices of retrenchment dated September 16, 1997 were sent to some of its
employees, including the respondents herein, informing them of their retrenchment effective 30 days thereafter.

On October 17, 1997, TEU held a strike vote on grounds of unfair labor practice on the part of Times. For alleged participation in what it deemed was an illegal
strike, Times terminated all the 123 striking employees by virtue of two notices dated October 26, 1997 and November 24, 1997.[3] On November 17, 1997, then DOLE
Secretary Quisumbing issued the second return-to-work order certifying the dispute to the NLRC. While the strike was ended, the employees were no longer
admitted back to work.

In the meantime, by December 12, 1997, Mencorp Transport Systems, Inc. (Mencorp) had acquired ownership over Times Certificates of Public Convenience
and a number of its bus units by virtue of several deeds of sale.[4] Mencorp is controlled and operated by Mrs. Virginia Mendoza, daughter of Santiago Rondaris, the
majority stockholder of Times.

On May 21, 1998, the NLRC rendered a decision[5] in the cases certified to it by the DOLE, the dispositive portion of which read:

WHEREFORE, the respondents first strike, conducted from March 3, 1997 to March 12, 1997, is hereby declared LEGAL; its second strike, which commenced on
October 17, 1997, is hereby declared ILLEGAL. Consequently, those 23 persons who participated in the illegal strike are deemed to have lost their employment status
and were therefore validly dismissed from employment:
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The respondents Motion to Implead Mencorp Transport Systems, Inc. and/or Virginia Mendoza and/or Santiago Rondaris is hereby DENIED for lack of merit.

SO ORDERED.[6]

Times and TEU both appealed the decision of the NLRC, which the Court of Appeals affirmed on November 17, 2000. [7] Upon denial of its motion for
reconsideration, Times filed a petition for review on certiorari,[8] docketed as G.R. Nos. 148500-01, now pending with the Third Division of this Court. TEU likewise
appealed but its petition was denied due course.

In 1998, and after the closure of Times, the retrenched employees, including practically all the respondents herein, filed cases for illegal dismissal, money
claims and unfair labor practices against Times before the Regional Arbitration Branch in San Fernando City, La Union. Times filed a Motion to Dismiss but on October
30, 1998, the arbitration branch ordered the archiving of the cases pending resolution of G.R. Nos. 148500-01.[9]

The dismissed employees did not interpose an appeal from said Order. Instead, they withdrew their complaints with leave of court and filed a new set of cases
before the National Capital Region Arbitration Branch. This time, they impleaded Mencorp and the Spouses Reynaldo and Virginia Mendoza. Times sought the
dismissal of these cases on the ground of litis pendencia and forum shopping. On January 31, 2002, Labor Arbiter Renaldo O. Hernandez rendered a decision stating:

WHEREFORE, premises considered, judgment is hereby entered FINDING that the dismissals of complainants, excluding the expunged ones, by respondent Times
Transit (sic) Company, Inc. effected, participated in, authorized or ratified by respondent Santiago Rondaris constituted the prohibited act of unfair labor practice
under Article 248(a) and (e) of the Labor Code, as amended and hence, illegal and that the sale of said respondent company to respondents Mencorp Transport
Systems Company (sic), Inc. and/or Virginia Mendoza and Reynaldo Mendoza was simulated and/or effected in bad faith, ORDERING:

1. respondents Times Transit (sic) Company, Inc. and Santiago Rondaris as the officer administratively held liable of the unfair labor practice herein to CEASE AND
DESIST therefore (sic);

2. respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris and Mencorp Transport Systems Company, Inc. and/or Virginia Mendoza and Reynaldo
Mendoza to cause the reinstatement therein of complainants to their former positions without loss of seniority rights and benefits and to pay jointly and severally
said complainants full back wages reckoned from their respective dates of illegal dismissal as above-indicated, until actually reinstated or in lieu of such
reinstatement, at the option of said complainants, payment of their separation pay of one (1) month pay per year of service, reckoned from their date of hire as
above-indicated, until actual payment and/or finality of this decision;

3. and finally for respondents Times Transit (sic) Company, Inc. and/or Santiago Rondaris to pay jointly and severally said complainants as moral and exemplary
damages the combined amount of P75,000.00 and 5% of the total award as attorneys fees.

All other claims of complainants are dismissed for lack of merit.

SO ORDERED.[10]

The monetary award amounted to P43,347,341.69. On March 4, 2002, Times, Mencorp and the Spouses Mendoza submitted their respective memorandum of
appeal to the NLRC with motions to reduce the bond. Mencorp posted a P5 million bond issued by Security Pacific Assurance Corp. (SPAC). On April 30, 2002, the
NLRC issued an order disposing of the said motion, thus:

WHEREFORE, premises considered, the Urgent Motion for Reduction of Bond is denied for lack of merit. Respondents are hereby ordered to complete the bond
equivalent to the monetary award in the Labor Arbiters Decision, within an unextendible period of ten (10) days from receipt hereof, otherwise, the appeal shall be
dismissed for non-perfection thereof.

SO ORDERED.[11]

On May 18, 2002, Times moved to reconsider said order arguing mainly that it did not have sufficient funds to put up the required bond. On July 26, 2002,
Mencorp and the Spouses Mendoza posted an additional P10 million appeal bond. Thus far, the total amount of bond posted was P15 million. On August 7, 2002, the
NLRC granted the Motion for Reduction of Bond and approved the P10 million additional appeal bond.[12]

On September 17, 2002, the NLRC rendered its decision, stating:

WHEREFORE, the foregoing premises duly considered, the decision appealed from is hereby VACATED. The records of these consolidated cases are hereby ordered
REMANDED to the Arbitration Branch of origin for disposition and for the conduct of appropriate proceedings for a decision to be rendered with dispatch.

SO ORDERED.[13]

Reconsideration thereof was denied by the NLRC on October 30, 2002. Thus, the respondents appealed to the Court of Appeals by way of a petition
for certiorari, attributing grave abuse of discretion on the NLRC for: (1) not dismissing the appeals of Times, Mencorp and the Spouses Mendoza despite their failure
to post the required bond; (2) remanding the case for further proceedings despite the sufficiency of the evidence presented by the parties; (3) not sustaining the

21
labor arbiters ruling that they were illegally dismissed; (4) not affirming the labor arbiters ruling that there was no litis pendencia; and (5) not ruling that Times and
Mencorp are one and the same entity.

On January 30, 2004, the Court of Appeals rendered the decision now assailed in this petition, the decretal portion of which states:

WHEREFORE, based on the foregoing, the instant petition is hereby GRANTED. The assailed Decision and Resolution of the NLRC are hereby SET ASIDE. The Decision
of the Labor Arbiter dated January 31, 2002 is hereby REINSTATED.

SO ORDERED.[14]

Times, Mencorp and the Spouses Mendoza filed Motions for Reconsideration, which were denied in a resolution promulgated on May 24, 2004. Hence, this
petition for review based on the following grounds:

I. Petitioner respectfully maintains that the Honorable Court a quo, in not dismissing the complaints against the petitioner on the ground of lis pendens,
decided the matter in a way not in accord with existing laws and applicable decisions of this Honorable Court.

II. Petitioner, further, respectfully maintains that the Honorable Court a quo, in determining that herein petitioners hitherto lost their right to appeal to
the NLRC on account of their purported failure to post an adequate appeal bond, radically departed from the accepted and usual course of judicial
proceedings, not to mention resolved said issue in a manner and fashion antithetical to existing jurisprudence.

III. Petitioner, furthermore, respectfully maintains that the Honorable Court a quo, in applying wholesale the doctrine of piercing the veil of corporate
fiction and finding Times co-petitioners liable for the formers obligations, resolved the matter in a manner contradictory to existing applicable laws
and dispositions of this Honorable Court, and departed from the accepted and usual course of judicial proceedings with regard to admitting
evidence to sustain the application of such principle.[15]

The petition lacks merit.

As to the first issue, Times argues that there exists an identity of issues, rights asserted, relief sought and causes of action between the present case and the
one concerning the legality of the second strike, which is now pending with the Third Division of this Court. As such, the Court of Appeals erred in not dismissing the
case at bar on the ground of litis pendencia.

Litis pendencia as a ground for dismissal of an action refers to that situation wherein another action is pending between the same parties for the same cause of
action and the second action becomes unnecessary and vexatious.[16] We agree with the findings of the Court of Appeals that there is no litis pendencia as the two
cases involve dissimilar causes of action. The first case, now pending with the Third Division, pertains to the alleged error of the NLRC in not upholding the dismissal
of all the striking employees (not only of the 23 strikers so declared to have lost their employment) in spite of the latters ruling that the second strike was illegal.
None of the respondents herein were among those deemed terminated by virtue of the NLRC decision.

In the instant case, the issue is the validity of the retrenchment implemented by Times prior to the second strike and the subsequent dismissal of the striking
employees. As such, there can be no question that respondents were still employees of Times when they were retrenched. In short, the outcome of this case does
not hinge on the legality of the second strike or the validity of the dismissal of the striking employees, which issues are yet to be resolved in G.R. Nos. 148500-01.
Consequently, litis pendencia does not arise.

Anent the issue on whether Times perfected its appeal to the NLRC, the right to appeal is a statutory right and one who seeks to avail of the right must comply
with the statute or rules. The rules for perfecting an appeal must be strictly followed as they are considered indispensable interdictions against needless delays and
for orderly discharge of judicial business.[17] Section 3(a), Rule VI of the NLRC Rules of Procedure outlines the requisites for perfecting an appeal, to wit:

SECTION 3. Requisites for Perfection of Appeal. a) The Appeal shall be filed within the reglementary period as provided in Section 1 of this Rule and shall be under
oath with proof of payment of the required appeal fee and the posting of a cash or surety bond as provided in Section 6 of this Rule; shall be accompanied by
memorandum of appeal which shall state the grounds relied upon and the arguments in support thereof; the relief prayed for and a statement of the date when the
appellant received the appealed decision, order or award and proof of service on the other party of such appeal.

A mere notice of appeal without complying with the other requisites aforestated shall not stop the running of the period for perfecting an appeal. (Emphasis supplied)

Article 223 of the Labor Code provides that in case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon the
posting of a cash or surety bond issued by a reputable bonding company duly accredited by the NLRC in the amount equivalent to the monetary award in the
judgment appealed from. The perfection of an appeal in the manner and within the period prescribed by law is not only mandatory but also jurisdictional, and failure
to perfect an appeal has the effect of making the judgment final and executory.[18] However, in several cases, we have relaxed the rules regarding the appeal bond
especially where it must necessarily yield to the broader interest of substantial justice. [19] The Rules of Procedure of the NLRC allows for the reduction of the appeal
bond upon motion of the appellant and on meritorious grounds.[20] It is required however that such motion is filed within the reglementary period to appeal.

The records reveal that Times, Mencorp and the Spouses Mendozas motion to reduce the bond was denied and the NLRC ordered them to post the required
amount within an unextendible period of ten (10) days.[21] However, instead of complying with the directive, Times filed another motion for reconsideration of the
order of denial. Several weeks later, Mencorp posted an additional bond, which was still less than the required amount. Three (3) months after the filing of the
motion for reconsideration, the NLRC reversed its previous order and granted the motion for reduction of bond.

We agree with the Court of Appeals that the foregoing constitutes grave abuse of discretion on the part of the NLRC. By delaying the resolution of Times
motion for reconsideration, it has unnecessarily prolonged the period of appeal. We have held that to extend the period of appeal is to prolong the resolution of the
case, a circumstance which would give the employer the opportunity to wear out the energy and meager resources of the workers to the point that they would be
constrained to give up for less than what they deserve in law.[22] The NLRC is well to take notice of our pronouncement in Santos v. Velarde:[23]

22
The Court is aware that the NLRC is not bound by the technical rules of procedure and is allowed to be liberal in the interpretation of rules in deciding labor
cases. However, such liberality should not be applied in the instant case as it would render futile the very purpose for which the principle of liberality is adopted. From
the decision of the Labor Arbiter, it took the NLRC four months to rule on the motion for exemption to pay bond and another four months to decide the merits of the
case. This Court has repeatedly ruled that delay in the settlement of labor cases cannot be countenanced. Not only does it involve the survival of an employee and his
loved ones who are dependent on him, it also wears down the meager resources of the workers...[24] (Emphasis supplied)

The NLRCs reversal of its previous order of denial lacks basis. In the first motion, Mencorp and Spouses Mendoza moved for the reduction of the appeal bond
on the ground that the computation of the monetary award was highly suspicious and anomalous. In their motion for reconsideration of the NLRCs denial, Mencorp
and the Spouses Mendoza cited financial difficulties in completing the appeal bond. Neither ground is well-taken.

Times and Mencorp failed to substantiate their allegations of errors in the computation of the monetary award. They merely asserted inaccuracies without
specifying which aspect of the computation was inaccurate. If Times and Mencorp truly believed that there were errors in the computation, they could have
presented their own computation for comparison. As to the claim of financial difficulties, suffice it to say that the law does not require outright payment of the total
monetary award, but only the posting of a bond to ensure that the award will be eventually paid should the appeal fail. What Times has to pay is a moderate and
reasonable sum for the premium for such bond.[25] The impression thus created was that Times, Mencorp and the Spouses Mendoza were clearly circumventing, if not
altogether dodging, the rules on the posting of appeal bonds.

On the propriety of the piercing of the corporate veil, Times claims that to drag Mencorp, [Spouses] Mendoza and Rondaris into the picture on the purported
ground that a fictitious sale of Times assets in their favor was consummated with the end in view of frustrating the ends of justice and for purposes of evading
compliance with the judgment is the height of judicial arrogance.[26] The Court of Appeals believes otherwise and reckons that Times and Mencorp failed to adduce
evidence to refute allegations of collusion between them.

We have held that piercing the corporate veil is warranted only in cases when the separate legal entity is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, such that in the case of two corporations, the law will regard the corporations as merged into one.[27] It may be allowed only if the
following elements concur: (1) controlnot mere stock control, but complete dominationnot only of finances, but of policy and business practice in respect to the
transaction attacked; (2) such control must have been used to commit a fraud or a wrong to perpetuate the violation of a statutory or other positive legal duty, or a
dishonest and an unjust act in contravention of a legal right; and (3) the said control and breach of duty must have proximately caused the injury or unjust loss
complained of.[28]

The following findings of the Labor Arbiter, which were cited and affirmed by the Court of Appeals, have not been refuted by Times, to wit:

1. The sale was transferred to a corporation controlled by V. Mendoza, the daughter of respondent S. Rondaris of [Times] where she is/was also a
director, as proven by the articles of incorporation of [Mencorp];

2. All of the stockholders/incorporators of [Mencorp]: Reynaldo M. Mendoza, Virginia R. Mendoza, Vernon Gerard R. Mendoza, Vivian Charity R.
Mendoza, Vevey Rosario R. Mendoza are all relatives of respondent S. Rondaris;

3. The timing of the sale evidently was to negate the employees/complainants/members right to organization as it was effected when their union (TEU)
was just organized/requesting [Times] to bargain;

5. [Mencorp] never obtained a franchise since its supposed incorporation in 10 May 1994 but at present, all the buses of [Times] are already being
run/operated by respondent [Mencorp], the franchise of [Times] having been transferred to it.[29]

We uphold the findings of the labor arbiter and the Court of Appeals. The sale of Times franchise as well as most of its bus units to a company owned by
Rondaris daughter and family members, right in the middle of a labor dispute, is highly suspicious. It is evident that the transaction was made in order to remove
Times remaining assets from the reach of any judgment that may be rendered in the unfair labor practice cases filed against it.

WHEREFORE, premises considered, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 75291 dated January 30, 2004 and its
resolution dated May 24, 2004, are hereby AFFIRMED in toto.

12. Yao, Sr. vs. People et.al.

DOCTRINE: corporation is an entity separate and distinct from its stockholders, directors or officers. However, when the notion of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons, or in the case of two corporations merge
them into one. Where the separate corporate entity is disregarded, the corporation will be treated merely as an association of persons and the stockholders or
members will be considered as the corporation, that is, liability will attach personally or directly to the officers and stockholders.

FACTS:

Petitioners are incorporators and officers of MASAGANA GAS CORPORATION (MASAGANA), an entity engaged in the refilling, sale and distribution of LPG products.
Private respondents Petron Corporation (Petron) and Pilipinas Shell Petroleum Corporation (Pilipinas Shell) are two of the largest bulk suppliers and producers of LPG
in the Philippines. Petron is the registered owner in the Philippines of the trademarks GASUL and GASUL cylinders used for its LPG products. It is the sole entity in
the Philippines authorized to allow refillers and distributors to refill, use, sell, and distribute GASUL LPG containers, products and its trademarks. Pilipinas Shell, on the
other hand, is the authorized user in the Philippines of the tradename, trademarks, symbols, or designs of its principal, Shell International Petroleum Company
Limited (Shell International), including the marks SHELLANE and SHELL device in connection with the production, sale and distribution of SHELLANE LPGs. It is the only
corporation in the Philippinesauthorized to allow refillers and distributors to refill, use, sell and distribute SHELLANE LPG containers and products. On 3 April 2003,
(NBI) agent Ritche N. Oblanca (Oblanca) filed two applications for search warrant with the RTC, Cavite City, against petitioners and other occupants of the MASAGANA
compound for alleged violation of Section 155, in relation to Section 170 of The Intellectual Property Code of the Philippines. The two applications for search
warrant uniformly alleged that per information, belief, and personal verification of Oblanca, the petitioners are actually producing, selling, offering for sale and/or
distributing LPG products using steel cylinders owned by, and bearing the tradenames, trademarks, and devices of Petron and Pilipinas Shell, without authority and in
violation of the rights of the said entities. MASAGANA, as third party claimant, filed with the RTC a Motion for the Return of Motor Compressor and LPG Refilling
Machine.[15] It claimed that it is the owner of the said motor compressor and LPG refilling machine; that these items were used in the operation of its legitimate
23
business; and that their seizure will jeopardize its business interests. RTC resolved that MASAGANA cannot be considered a third party claimant whose rights were
violated as a result of the seizure since the evidence disclosed that petitioners are stockholders of MASAGANA and that they conduct their business through the same
juridical entity. CA affirmed RTCs decision

Issue:

Whether or not CA ERRED IN RULING THAT THE COMPLAINT IS DIRECTED AGAINST MASAGANA GAS CORPORATION, ACTING THROUGH ITS OFFICERS AND
DIRECTORS, HENCE MASAGANA GAS CORPORATION MAY NOT BE CONSIDERED AS THIRD PARTY CLAIMANT WHOSE RIGHTS WERE VIOLATED AS A RESULT OF THE
SEIZURE

Held:

No. It is an elementary and fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders, directors or officers.
However, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an
association of persons, or in the case of two corporations merge them into one.[46] In other words, the law will not recognize the separate corporate existence if the
corporation is being used pursuant to the foregoing unlawful objectives. This non-recognition is sometimes referred to as the doctrine of piercing the veil of
corporate entity or disregarding the fiction of corporate entity. Where the separate corporate entity is disregarded, the corporation will be treated merely as an
association of persons and the stockholders or members will be considered as the corporation, that is, liability will attach personally or directly to the officers and
stockholders. As we now find, the petitioners, as directors/officers of MASAGANA, are utilizing the latter in violating the intellectual property rights
ofPetron and Pilipinas Shell. Thus, petitioners collectively and MASAGANA should be considered as one and the same person for liability purposes.
Consequently, MASAGANAs third party claim serves no refuge for petitioners. The law does not require that the property to be seized should be owned by the
person against whom the search warrants is directed. Ownership, therefore, is of no consequence, and it is sufficient that the person against whom the warrant is
directed has control or possession of the property sought to be seized. Hence, even if, as petitioners claimed, the properties seized belong to MASAGANA as a
separate entity, their seizure pursuant to the search warrants is still valid.

Further, it is apparent that the motor compressor, LPG refilling machine and the GASUL and SHELL LPG cylinders seized were the corpusdelicti, the body or substance
of the crime, or the evidence of the commission of trademark infringement. These were the very instruments used or intended to be used by the petitioners in
trademark infringement. It is possible that, if returned to MASAGANA, these items will be used again in violating the intellectual property rights
of Petron and Pilipinas Shell

13. Hall vs. Piccio

This is petition to set aside all the proceedings had in civil case No. 381 of the Court of First Instance of Leyte and to enjoin the respondent judge from further acting
upon the same.

Facts: (1) on May 28, 1947, the petitioners C. Arnold Hall and Bradley P. Hall, and the respondents Fred Brown, Emma Brown, Hipolita D. Chapman and Ceferino S.
Abella, signed and acknowledged in Leyte, the article of incorporation of the Far Eastern Lumber and Commercial Co., Inc., organized to engage in a general lumber
business to carry on as general contractors, operators and managers, etc. Attached to the article was an affidavit of the treasurer stating that 23,428 shares of stock
had been subscribed and fully paid with certain properties transferred to the corporation described in a list appended thereto.

(2) Immediately after the execution of said articles of incorporation, the corporation proceeded to do business with the adoption of by-laws and the election of its
officers.

(3) On December 2, 1947, the said articles of incorporation were filed in the office of the Securities and Exchange Commissioner, for the issuance of the
corresponding certificate of incorporation.

(4) On March 22, 1948, pending action on the articles of incorporation by the aforesaid governmental office, the respondents Fred Brown, Emma Brown, Hipolita D.
Chapman and Ceferino S. Abella filed before the Court of First Instance of Leyte the civil case numbered 381, entitled "Fred Brown et al. vs. Arnold C. Hall et al.",
alleging among other things that the Far Eastern Lumber and Commercial Co. was an unregistered partnership; that they wished to have it dissolved because of bitter
dissension among the members, mismanagement and fraud by the managers and heavy financial losses.

(5) The defendants in the suit, namely, C. Arnold Hall and Bradley P. Hall, filed a motion to dismiss, contesting the court's jurisdiction and the sufficiently of the cause
of action.

(6) After hearing the parties, the Hon. Edmund S. Piccio ordered the dissolution of the company; and at the request of plaintiffs, appointed of the properties thereof,
upon the filing of a P20,000 bond.

(7) The defendants therein (petitioners herein) offered to file a counter-bond for the discharge of the receiver, but the respondent judge refused to accept the offer
and to discharge the receiver. Whereupon, the present special civil action was instituted in this court. It is based upon two main propositions, to wit:

(a) The court had no jurisdiction in civil case No. 381 to decree the dissolution of the company, because it being a de facto corporation, dissolution thereof may only
be ordered in a quo warranto proceeding instituted in accordance with section 19 of the Corporation Law.

(b) Inasmuch as respondents Fred Brown and Emma Brown had signed the article of incorporation but only a partnership.

24
Discussion: The second proposition may at once be dismissed. All the parties are informed that the Securities and Exchange Commission has not, so far, issued the
corresponding certificate of incorporation. All of them know, or sought to know, that the personality of a corporation begins to exist only from the moment such
certificate is issued not before (sec. 11, Corporation Law). The complaining associates have not represented to the others that they were incorporated any more
than the latter had made similar representations to them. And as nobody was led to believe anything to his prejudice and damage, the principle of estoppel does not
apply. Obviously this is not an instance requiring the enforcement of contracts with the corporation through the rule of estoppel.

The first proposition above stated is premised on the theory that, inasmuch as the Far Eastern Lumber and Commercial Co., is a de facto corporation, section 19 of
the Corporation Law applies, and therefore the court had not jurisdiction to take cognizance of said civil case number 381. Section 19 reads as follows:

. . . The due incorporation of any corporations claiming in good faith to be a corporation under this Act and its right to exercise corporate powers shall not
be inquired into collaterally in any private suit to which the corporation may be a party, but such inquiry may be had at the suit of the Insular Government
on information of the Attorney-General.

There are least two reasons why this section does not govern the situation. Not having obtained the certificate of incorporation, the Far Eastern Lumber and
Commercial Co. even its stockholders may not probably claim "in good faith" to be a corporation.

Under our statue it is to be noted (Corporation Law, sec. 11) that it is the issuance of a certificate of incorporation by the Director of the Bureau of
Commerce and Industry which calls a corporation into being. The immunity if collateral attack is granted to corporations "claiming in good faith to be a
corporation under this act." Such a claim is compatible with the existence of errors and irregularities; but not with a total or substantial disregard of the
law. Unless there has been an evident attempt to comply with the law the claim to be a corporation "under this act" could not be made "in good faith."
(Fisher on the Philippine Law of Stock Corporations, p. 75. See also Humphreys vs. Drew, 59 Fla., 295; 52 So., 362.)

Second, this is not a suit in which the corporation is a party. This is a litigation between stockholders of the alleged corporation, for the purpose of obtaining its
dissolution. Even the existence of a de jure corporation may be terminated in a private suit for its dissolution between stockholders, without the intervention of the
state.

There might be room for argument on the right of minority stockholders to sue for dissolution;1 but that question does not affect the court's jurisdiction, and is a
matter for decision by the judge, subject to review on appeal. Whkch brings us to one principal reason why this petition may not prosper, namely: the petitioners
have their remedy by appealing the order of dissolution at the proper time.

There is a secondary issue in connection with the appointment of a receiver. But it must be admitted that receivership is proper in proceedings for dissolution of a
company or corporation, and it was no error to reject the counter-bond, the court having declared the dissolution. As to the amount of the bond to be demanded of
the receiver, much depends upon the discretion of the trial court, which in this instance we do not believe has been clearly abused.

Judgment: The petition will, therefore, be dismissed, with costs. The preliminary injunction heretofore issued will be dissolved.

14. Seventh Day Adventist vs. Northeastern Mindanao Mission

This petition for review on certiorari assails the Court of Appeals (CA) decision[1] and resolution[2] in CA-G.R. CV No. 41966 affirming, with modification, the decision of
the Regional Trial Court (RTC) of Bayugan, Agusan del Sur, Branch 7 in Civil Case No. 63.

This case involves a 1,069 sq. m. lot covered by Transfer Certificate of Title (TCT) No. 4468 in Bayugan, Agusan del Sur originally owned by Felix Cosio and his
wife, Felisa Cuysona.

On April 21, 1959, the spouses Cosio donated the land to the South Philippine Union Mission of Seventh Day Adventist Church
of Bayugan Esperanza, Agusan (SPUM-SDA Bayugan).[3] Part of the deed of donation read:

KNOW ALL MEN BY THESE PRESENTS:

That we Felix Cosio[,] 49 years of age[,] and Felisa Cuysona[,] 40 years of age, [h]usband and wife, both are citizen[s] of the Philippines, and
resident[s] with post office address in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, do hereby grant,
convey and forever quit claim by way of Donation or gift unto the South Philippine [Union] Mission of Seventh Day Adventist Church
of Bayugan, Esperanza, Agusan, all the rights, title, interest, claim and demand both at law and as well in possession as in expectancy of in and
to all the place of land and portion situated in the Barrio of Bayugan, Municipality of Esperanza, Province of Agusan, Philippines, more
particularly and bounded as follows, to wit:

25
 1. a parcel of land for Church Site purposes only.

2. situated [in Barrio Bayugan, Esperanza].

3. Area: 30 meters wide and 30 meters length or 900 square meters.

4. Lot No. 822-Pls-225. Homestead Application No. V-36704, Title No. P-285.

5. Bounded Areas

North by National High Way; East by Bricio Gerona; South by Serapio Abijaron and West by Feliz Cosio xxx. [4]

The donation was allegedly accepted by one Liberato Rayos, an elder of the Seventh Day Adventist Church, on behalf of the donee.

Twenty-one years later, however, on February 28, 1980, the same parcel of land was sold by the spouses Cosio to the Seventh Day Adventist Church of
Northeastern Mindanao Mission (SDA-NEMM).[5] TCT No. 4468 was thereafter issued in the name of SDA-NEMM.[6]

Claiming to be the alleged donees successors-in-interest, petitioners asserted ownership over the property. This was opposed by respondents who argued that at the
time of the donation, SPUM-SDA Bayugan could not legally be a donee

because, not having been incorporated yet, it had no juridical personality. Neither were petitioners members of the local church then, hence, the donation could not
have been made particularly to them.

On September 28, 1987, petitioners filed a case, docketed as Civil Case No. 63 (a suit for cancellation of title, quieting of ownership and possession, declaratory relief
and reconveyance with prayer for preliminary injunction and damages), in the RTC of Bayugan, Agusan del Sur. After trial, the trial court rendered a decision[7] on
November 20, 1992 upholding the sale in favor of respondents.

On appeal, the CA affirmed the RTC decision but deleted the award of moral damages and attorneys fees.[8] Petitioners motion for reconsideration was
likewise denied. Thus, this petition.

The issue in this petition is simple: should SDA-NEMMs ownership of the lot covered by TCT No. 4468 be upheld?[9] We answer in the affirmative.

The controversy between petitioners and respondents involves two supposed transfers of the lot previously owned by the spouses Cosio: (1) a donation to
petitioners alleged predecessors-in-interest in 1959 and (2) a sale to respondents in 1980.

Donation is undeniably one of the modes of acquiring ownership of real property. Likewise, ownership of a property may be transferred by tradition
as a consequence of a sale.

Petitioners contend that the appellate court should not have ruled on the validity of the donation since it was not among the issues raised on appeal. This
is not correct because an appeal generally opens the entire case for review.

We agree with the appellate court that the alleged donation to petitioners was void.

Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person who accepts it. The donation could not have been
made in favor of an entity yet inexistent at the time it was made. Nor could it have been accepted as there was yet no one to accept it.

The deed of donation was not in favor of any informal group of SDA members but a supposed SPUM-SDA Bayugan (the local church) which, at the time,
had neither juridical personality nor capacity to accept such gift.

Declaring themselves a de facto corporation, petitioners allege that they should benefit from the donation.

But there are stringent requirements before one can qualify as a de facto corporation:

26
 (a) the existence of a valid law under which it may be incorporated;

(b) an attempt in good faith to incorporate; and

(c) assumption of corporate powers.[10]

While there existed the old Corporation Law (Act 1459),[11] a law under which SPUM-SDA Bayugan could have been organized, there is no proof that there was an
attempt to incorporate at that time.

The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation.[12] We have held that
an organization not registered with the Securities and Exchange Commission (SEC) cannot be considered a corporation in any concept, not even as a corporation de
facto.[13] Petitioners themselves admitted that at the time of the donation, they were not registered with the SEC, nor did they even attempt to organize[14] to comply
with legal requirements.

Corporate existence begins only from the moment a certificate of incorporation is issued. No such certificate was ever issued to petitioners or their
supposed predecessor-in-interest at the time of the donation. Petitioners obviously could not have claimed succession to an entity that never came to exist. Neither
could the principle of separate juridical personality apply since there was never any corporation [15] to speak of. And, as already stated, some of the representatives of
petitioner Seventh Day Adventist Conference Church of Southern Philippines, Inc. were not even members of the local church then, thus, they could not even claim
that the donation was particularly for them.[16]

The de facto doctrine thus effects a compromise between two conflicting public interest[s]the one opposed to an unauthorized assumption of
corporate privileges; the other in favor of doing justice to the parties and of establishing a general assurance of security in business dealing with
corporations.[17]

Generally, the doctrine exists to protect the public dealing with supposed corporate entities, not to favor the defective or non-
existent corporation.[18]

In view of the foregoing, petitioners arguments anchored on their supposed de facto status hold no water. We are convinced that there was no donation
to petitioners or their supposed predecessor-in-interest.

On the other hand, there is sufficient basis to affirm the title of SDA-NEMM. The factual findings of the trial court in this regard were not convincingly
disputed. This Court is not a trier of facts. Only questions of law are the proper subject of a petition for review on certiorari.[19]

Sustaining the validity of respondents title as well as their right of ownership over the property, the trial court stated:

[W]hen Felix Cosio was shown the Absolute Deed of Sale during the hearing xxx he acknowledged that the same was his xxx but that it was not
his intention to sell the controvertedproperty because he had previously donated the same lot to the South Philippine Union Mission of SDA
Church of Bayugan-Esperanza. Cosio avouched that had it been his intendment to sell, he would not have disposed of it for a mere P2,000.00 in
two installments but for P50,000.00 or P60,000.00. According to him, the P2,000.00 was not a consideration of the sale but only a form of help
extended.

A thorough analysis and perusal, nonetheless, of the Deed of Absolute Sale disclosed that it has the essential requisites of contracts
pursuant to xxx Article 1318 of the Civil Code, except that the consideration of P2,000.00 is somewhat insufficient for a [1,069-square meter]
land. Would then this inadequacy of the consideration render the contract invalid?

Article 1355 of the Civil Code provides:

Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence.

27
 No evidence [of fraud, mistake or undue influence] was adduced by [petitioners].

xxx

Well-entrenched is the rule that a Certificate of Title is generally a conclusive evidence of [ownership] of the land. There is that strong and
solid presumption that titles were legally issued and that they are valid. It is irrevocable and indefeasible and the duty of the Court is to see to it
that the title is maintained and respected unless challenged in a direct proceeding. xxx The title shall be received as evidence in all the Courts
and shall be conclusive as to all matters contained therein.

[This action was instituted almost seven years after the certificate of title in respondents name was issued in 1980.][20]

According to Art. 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery
thereof. On this, the noted author Arturo Tolentino had this to say:

The execution of [a] public instrument xxx transfers the ownership from the vendor to the vendee who may thereafter exercise the
rights of an owner over the same[21]

Here, transfer of ownership from the spouses Cosio to SDA-NEMM was made upon constructive delivery of the property on February 28, 1980 when the
sale was made through a public instrument.[22] TCT No. 4468 was thereafter issued and it remains in the name of SDA-NEMM.

WHEREFORE, the petition is hereby DENIED.

15. Lim Tong Lim vs. CA

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the profits or losses that may arise
therefrom, even if it is shown that they have not contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or industry,
not necessarily cash or fixed assets. Being partners, they are all liable for debts incurred by or on behalf of the partnership.The liability for a contract entered into on
behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from
that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of Appeals in CA-GR CV 41477,[1] which disposed
as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed.[2]

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made by reason of the special and unique facts
and circumstances and the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;

28
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990 (date of attachment) to September 12, 1991
(date of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount of P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be rendered in favor of
the plaintiff but, upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction
for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect,
the amount of P900,000.00 replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with the ownership and
possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that
ownership of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own
properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and
for the P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.

From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case will have to be satisfied from the amount
of P900,000.00 as this amount replaced the attached nets and floats.Considering, however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. [3]

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7, 1990, for the purchase of fishing nets
of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim
Tong Lim, who however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were
also sold to the Corporation.[4]

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit against Chua, Yao and Petitioner Lim
Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the three in their capacities as general partners, on the allegation that
Ocean Quest Fishing Corporation was a nonexistent corporation as shown by a Certification from the Securities and Exchange Commission.[5] On September 20, 1990,
the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the
Fisheries Port, Navotas, Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a reasonable time within which to pay. He also turned
over to respondent some of the nets which were in his possession.Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of Attachment.[6] The trial court maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales proceeds
of P900,000.[7]

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent.[8]

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2) on a Compromise
Agreement executed by the three[9] in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.[10] The Compromise
Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall
be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]

29
 The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability could be presumed from the equal
distribution of the profit and loss.[12]

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be held liable as a such for the fishing
nets and floats purchased by and for the use of the partnership.The appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a specific undertaking, that is for commercial
fishing x x x. Obviously, the ultimate undertaking of the defendants was to divide the profits among themselves which is what a partnership essentially is x x x. By a
contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits
among themselves (Article 1767, New Civil Code).[13]

Hence, petitioner brought this recourse before this Court.[14]

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE,
THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE
FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the Court must resolve this key issue: whether
by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

This Courts Ruling

The Petition is devoid of merit.

First and Second Issues: Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a partnership existed
between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct
participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of
the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed
that he had merely leased to the two the main asset of the purported partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental
of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there existed a partnership among Chua,
Yao and him, pursuant to Article 1767 of the Civil Code which provides:

Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings:[15]

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yaos partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses for the boats would be shouldered by Chua and Yao;
30
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a check, because of which,
Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of
nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they started by buying
boats worth P3.35 million, financed by a loan secured from Jesus Lim who was petitioners brother. In their Compromise Agreement, they subsequently revealed their
intention to pay the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss.These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term common fund under Article 1767. The contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the
floats, both essential to fishing, were obviously acquired in furtherance of their business. It would have been inconceivable for Lim to involve himself so much in
buying the boat but not in the acquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged in the fishing business. They purchased the boats,
which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should involve only questions of law. Thus, the foregoing factual findings of the RTC
and the CA are binding on this Court, absent any cogent proof that the present action is embraced by one of the exceptions to the rule.[16] In assailing the factual
findings of the two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the Compromise Agreement. He also claims that the
settlement was entered into only to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The
Agreement was but an embodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevant facts. Both lower courts have done so and
have found, correctly, a preexisting partnership among the parties.In implying that the lower courts have decided on the basis of one piece of document alone,
petitioner fails to appreciate that the CA and the RTC delved into the history of the document and explored all the possible consequential combinations in harmony
with law, logic and fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argument that the existence of a partnership was
based only on the Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture. His argument
allegedly finds support in the Contract of Lease and the registration papers showing that he was the owner of the boats, including F/B Lourdes where the nets were
found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the
excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a
preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in order to finance the
acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in the name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.

We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did not incur, if the relationship among the three of
them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not to him. Again, we disagree.

Section 21 of the Corporation Code of the Philippines provides:

31
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered
by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from denying its corporate existence. The reason
behind this doctrine is obvious - an unincorporated association has no personality and would be incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes personally liable for contracts entered
into or for other acts performed as such agent.[17]

The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first instance, an unincorporated association, which
represented itself to be a corporation, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which it received advantages
and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as a corporation and received benefits from it, may
be barred from denying its corporate existence in a suit brought against the alleged corporation. In such case, all those who benefited from the transaction made by
the ostensible corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here is whether
petitioner should be held jointly[18] liable with Chua and Yao.Petitioner contests such liability, insisting that only those who dealt in the name of the ostensible
corporation should be held liable. Since his name does not appear on any of the contracts and since he never directly transacted with the respondent corporation,
ergo, he cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the
partnership. He in fact questions the attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for unknown
reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting on
behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by
estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]

A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position , entraps and destroys the
other. It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and
indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers
thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy, deserves scant consideration from
courts. There should be no vested rights in technicalities.

Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this issue is now moot
and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the
debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design, and were bought and used in
the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

16. International Express Travel and Tours vs. CA

On June 30 1989, petitioner International Express Travel and Tour Services, Inc., through its managing director, wrote a letter to the Philippine Football
Federation (Federation), through its president private respondent Henri Kahn, wherein the former offered its services as a travel agency to the latter.[1] The offer was
accepted.

Petitioner secured the airline tickets for the trips of the athletes and officials of the Federation to the South East Asian Games in Kuala Lumpur as well as
various other trips to the People's Republic of China and Brisbane. The total cost of the tickets amounted to P449,654.83. For the tickets received, the Federation
made two partial payments, both in September of 1989, in the total amount of P176,467.50.[2]

On 4 October 1989, petitioner wrote the Federation, through the private respondent a demand letter requesting for the amount of P265,894.33.[3] On 30
October 1989, the Federation, through the Project Gintong Alay, paid the amount of P31,603.00.[4]

32
 On 27 December 1989, Henri Kahn issued a personal check in the amount of P50,000 as partial payment for the outstanding balance of the
Federation.[5] Thereafter, no further payments were made despite repeated demands.

This prompted petitioner to file a civil case before the Regional Trial Court of Manila. Petitioner sued Henri Kahn in his personal capacity and as President of the
Federation and impleaded the Federation as an alternative defendant. Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets purchased by
the Federation on the ground that Henri Kahn allegedly guaranteed the said obligation.[6]

Henri Kahn filed his answer with counterclaim. While not denying the allegation that the Federation owed the amount P207,524.20, representing the unpaid
balance for the plane tickets, he averred that the petitioner has no cause of action against him either in his personal capacity or in his official capacity as president of
the Federation. He maintained that he did not guarantee payment but merely acted as an agent of the Federation which has a separate and distinct juridical
personality.[7]

On the other hand, the Federation failed to file its answer, hence, was declared in default by the trial court.[8]

In due course, the trial court rendered judgment and ruled in favor of the petitioner and declared Henri Kahn personally liable for the unpaid obligation of the
Federation. In arriving at the said ruling, the trial court rationalized:

Defendant Henri Kahn would have been correct in his contentions had it been duly established that defendant Federation is a corporation. The trouble, however, is
that neither the plaintiff nor the defendant Henri Kahn has adduced any evidence proving the corporate existence of the defendant Federation. In paragraph 2 of its
complaint, plaintiff asserted that "Defendant Philippine Football Federation is a sports association xxx." This has not been denied by defendant Henri Kahn in his
Answer. Being the President of defendant Federation, its corporate existence is within the personal knowledge of defendant Henri Kahn. He could have easily denied
specifically the assertion of the plaintiff that it is a mere sports association, if it were a domestic corporation. But he did not.

xxx

A voluntary unincorporated association, like defendant Federation has no power to enter into, or to ratify, a contract. The contract entered into by its officers or
agents on behalf of such association is not binding on, or enforceable against it. The officers or agents are themselves personally liable.

x x x[9]

The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is rendered ordering defendant Henri Kahn to pay the plaintiff the principal sum of P207,524.20, plus the interest thereon at the legal rate
computed from July 5, 1990, the date the complaint was filed, until the principal obligation is fully liquidated; and another sum of P15,000.00 for attorney's fees.

The complaint of the plaintiff against the Philippine Football Federation and the counterclaims of the defendant Henri Kahn are hereby dismissed.

With the costs against defendant Henri Kahn.[10]

Only Henri Kahn elevated the above decision to the Court of Appeals. On 21 December 1994, the respondent court rendered a decision reversing the trial
court, the decretal portion of said decision reads:

WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED and SET ASIDE and another one is rendered dismissing the complaint against
defendant Henri S. Kahn.[11]

In finding for Henri Kahn, the Court of Appeals recognized the juridical existence of the Federation. It rationalized that since petitioner failed to prove that
Henri Kahn guaranteed the obligation of the Federation, he should not be held liable for the same as said entity has a separate and distinct personality from its
officers.

Petitioner filed a motion for reconsideration and as an alternative prayer pleaded that the Federation be held liable for the unpaid obligation. The same was
denied by the appellate court in its resolution of 8 February 1995, where it stated that:

As to the alternative prayer for the Modification of the Decision by expressly declaring in the dispositive portion thereof the Philippine Football Federation (PFF) as
liable for the unpaid obligation, it should be remembered that the trial court dismissed the complaint against the Philippine Football Federation, and the plaintiff did
not appeal from this decision. Hence, the Philippine Football Federation is not a party to this appeal and consequently, no judgment may be pronounced by this Court
against the PFF without violating the due process clause, let alone the fact that the judgment dismissing the complaint against it, had already become final by virtue
of the plaintiff's failure to appeal therefrom. The alternative prayer is therefore similarly DENIED.[12]

Petitioner now seeks recourse to this Court and alleges that the respondent court committed the following assigned errors:[13]

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

B. THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING PRIVATE RESPONDENT HENRI KAHN PERSONALLY LIABLE FOR THE OBLIGATION OF THE
UNINCORPORATED PFF, HAVING NEGOTIATED WITH PETITIONER AND CONTRACTED THE OBLIGATION IN BEHALF OF THE PFF, MADE A PARTIAL
PAYMENT AND ASSURED PETITIONER OF FULLY SETTLING THE OBLIGATION.

33
 C. ASSUMING ARGUENDO THAT PRIVATE RESPONDENT KAHN IS NOT PERSONALLY LIABLE, THE HONORABLE COURT OF APPEALS ERRED IN NOT
EXPRESSLY DECLARING IN ITS DECISION THAT THE PFF IS SOLELY LIABLE FOR THE OBLIGATION.

The resolution of the case at bar hinges on the determination of the existence of the Philippine Football Federation as a juridical person. In the assailed
decision, the appellate court recognized the existence of the Federation. In support of this, the CA cited Republic Act 3135, otherwise known as the Revised Charter of
the Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the laws from which said Federation derives its existence.

As correctly observed by the appellate court, both R.A. 3135 and P.D. No. 604 recognized the juridical existence of national sports associations. This may be
gleaned from the powers and functions granted to these associations. Section 14 of R.A. 3135 provides:

SEC. 14. Functions, powers and duties of Associations. - The National Sports' Association shall have the following functions, powers and duties:

1. To adopt a constitution and by-laws for their internal organization and government;

2. To raise funds by donations, benefits, and other means for their purposes.

3. To purchase, sell, lease or otherwise encumber property both real and personal, for the accomplishment of their purpose;

4. To affiliate with international or regional sports' Associations after due consultation with the executive committee;

xxx

13. To perform such other acts as may be necessary for the proper accomplishment of their purposes and not inconsistent with this Act.

Section 8 of P.D. 604, grants similar functions to these sports associations:

SEC. 8. Functions, Powers, and Duties of National Sports Association. - The National sports associations shall have the following functions, powers, and duties:

1. Adopt a Constitution and By-Laws for their internal organization and government which shall be submitted to the Department and any amendment thereto shall
take effect upon approval by the Department: Provided, however, That no team, school, club, organization, or entity shall be admitted as a voting member of an
association unless 60 per cent of the athletes composing said team, school, club, organization, or entity are Filipino citizens;

2. Raise funds by donations, benefits, and other means for their purpose subject to the approval of the Department;

3. Purchase, sell, lease, or otherwise encumber property, both real and personal, for the accomplishment of their purpose;

4. Conduct local, interport, and international competitions, other than the Olympic and Asian Games, for the promotion of their sport;

5. Affiliate with international or regional sports associations after due consultation with the Department;

xxx

13. Perform such other functions as may be provided by law.

The above powers and functions granted to national sports associations clearly indicate that these entities may acquire a juridical personality. The power to
purchase, sell, lease and encumber property are acts which may only be done by persons, whether natural or artificial, with juridical capacity. However, while we
agree with the appellate court that national sports associations may be accorded corporate status, such does not automatically take place by the mere passage of
these laws.

It is a basic postulate that before a corporation may acquire juridical personality, the State must give its consent either in the form of a special law or a general
enabling act. We cannot agree with the view of the appellate court and the private respondent that the Philippine Football Federation came into existence upon the
passage of these laws. Nowhere can it be found in R.A. 3135 or P.D. 604 any provision creating the Philippine Football Federation. These laws merely recognized the
existence of national sports associations and provided the manner by which these entities may acquire juridical personality. Section 11 of R.A. 3135 provides:

SEC. 11. National Sports' Association; organization and recognition. - A National Association shall be organized for each individual sports in the Philippines in the
manner hereinafter provided to constitute the Philippine Amateur Athletic Federation. Applications for recognition as a National Sports' Association shall be filed with
the executive committee together with, among others, a copy of the constitution and by-laws and a list of the members of the proposed association, and a filing fee
of ten pesos.

The Executive Committee shall give the recognition applied for if it is satisfied that said association will promote the purposes of this Act and particularly section three
thereof. No application shall be held pending for more than three months after the filing thereof without any action having been taken thereon by the executive
committee. Should the application be rejected, the reasons for such rejection shall be clearly stated in a written communication to the applicant. Failure to specify
the reasons for the rejection shall not affect the application which shall be considered as unacted upon: Provided, however, That until the executive committee herein

34
provided shall have been formed, applications for recognition shall be passed upon by the duly elected members of the present executive committee of the Philippine
Amateur Athletic Federation. The said executive committee shall be dissolved upon the organization of the executive committee herein provided: Provided,
further, That the functioning executive committee is charged with the responsibility of seeing to it that the National Sports' Associations are formed and organized
within six months from and after the passage of this Act.

Section 7 of P.D. 604, similarly provides:

SEC. 7. National Sports Associations. - Application for accreditation or recognition as a national sports association for each individual sport in the Philippines shall be
filed with the Department together with, among others, a copy of the Constitution and By-Laws and a list of the members of the proposed association.

The Department shall give the recognition applied for if it is satisfied that the national sports association to be organized will promote the objectives of this Decree
and has substantially complied with the rules and regulations of the Department: Provided, That the Department may withdraw accreditation or recognition for
violation of this Decree and such rules and regulations formulated by it.

The Department shall supervise the national sports association: Provided, That the latter shall have exclusive technical control over the development and promotion
of the particular sport for which they are organized.

Clearly the above cited provisions require that before an entity may be considered as a national sports association, such entity must be recognized by the
accrediting organization, the Philippine Amateur Athletic Federation under R.A. 3135, and the Department of Youth and Sports Development under P.D. 604. This fact
of recognition, however, Henri Kahn failed to substantiate.In attempting to prove the juridical existence of the Federation, Henri Kahn attached to his motion for
reconsideration before the trial court a copy of the constitution and by-laws of the Philippine Football Federation. Unfortunately, the same does not prove that said
Federation has indeed been recognized and accredited by either the Philippine Amateur Athletic Federation or the Department of Youth and Sports
Development. Accordingly, we rule that the Philippine Football Federation is not a national sports association within the purview of the aforementioned laws and
does not have corporate existence of its own.

Thus being said, it follows that private respondent Henry Kahn should be held liable for the unpaid obligations of the unincorporated Philippine Football
Federation. It is a settled principal in corporation law that any person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and becomes personally liable for contract entered into or for other acts performed as such agent. [14] As president of the Federation, Henri Kahn is
presumed to have known about the corporate existence or non-existence of the Federation. We cannot subscribe to the position taken by the appellate court that
even assuming that the Federation was defectively incorporated, the petitioner cannot deny the corporate existence of the Federation because it had contracted and
dealt with the Federation in such a manner as to recognize and in effect admit its existence. [15] The doctrine of corporation by estoppel is mistakenly applied by the
respondent court to the petitioner. The application of the doctrine applies to a third party only when he tries to escape liability on a contract from which he has
benefited on the irrelevant ground of defective incorporation.[16] In the case at bar, the petitioner is not trying to escape liability from the contract but rather is the
one claiming from the contract.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE. The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No. 90-53595
is hereby REINSTATED .
17. Filipinas Broadcasting vs. Ago

The Case

This petition for review[1] assails the 4 January 1999 Decision[2] and 26 January 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 40151. The Court of
Appeals affirmed with modification the 14 December 1992 Decision[3] of the Regional Trial Court of Legazpi City, Branch 10, in Civil Case No. 8236. The Court of
Appeals held Filipinas Broadcasting Network, Inc. and its broadcasters Hermogenes Alegre and Carmelo Rima liable for libel and ordered them to solidarily pay Ago
Medical and Educational Center-Bicol Christian College of Medicine moral damages, attorneys fees and costs of suit.

The Antecedents

Expos is a radio documentary[4] program hosted by Carmelo Mel Rima (Rima) and Hermogenes Jun Alegre (Alegre).[5] Expos is aired every morning over DZRC-
AM which is owned by Filipinas Broadcasting Network, Inc. (FBNI). Expos is heard over Legazpi City, the Albay municipalities and other Bicol areas.[6]

In the morning of 14 and 15 December 1989, Rima and Alegre exposed various alleged complaints from students, teachers and parents against Ago Medical
and Educational Center-Bicol Christian College of Medicine (AMEC) and its administrators. Claiming that the broadcasts were defamatory, AMEC and Angelita Ago
(Ago), as Dean of AMECs College of Medicine, filed a complaint for damages[7] against FBNI, Rima and Alegre on 27 February 1990. Quoted are portions of the
allegedly libelous broadcasts:

JUN ALEGRE:

Let us begin with the less burdensome: if you have children taking medical course at AMEC-BCCM, advise them to pass all subjects because if they fail in any
subject they will repeat their year level, taking up all subjects including those they have passed already. Several students had approached me stating that they had
consulted with the DECS which told them that there is no such regulation. If [there] is no such regulation why is AMEC doing the same?

35
xxx

Second: Earlier AMEC students in Physical Therapy had complained that the course is not recognized by DECS. xxx

Third: Students are required to take and pay for the subject even if the subject does not have an instructor - such greed for money on the part of AMECs
administration. Take the subject Anatomy: students would pay for the subject upon enrolment because it is offered by the school. However there would be no
instructor for such subject. Students would be informed that course would be moved to a later date because the school is still searching for the appropriate
instructor.

xxx

It is a public knowledge that the Ago Medical and Educational Center has survived and has been surviving for the past few years since its inception because of funds
support from foreign foundations. If you will take a look at the AMEC premises youll find out that the names of the buildings there are foreign soundings. There is a
McDonald Hall. Why not Jose Rizal or Bonifacio Hall? That is a very concrete and undeniable evidence that the support of foreign foundations for AMEC is substantial,
isnt it? With the report which is the basis of the expose in DZRC today, it would be very easy for detractors and enemies of the Ago family to stop the flow of support
of foreign foundations who assist the medical school on the basis of the latters purpose. But if the purpose of the institution (AMEC) is to deceive students at cross
purpose with its reason for being it is possible for these foreign foundations to lift or suspend their donations temporarily.[8]

xxx

On the other hand, the administrators of AMEC-BCCM, AMEC Science High School and the AMEC-Institute of Mass Communication in their effort to minimize
expenses in terms of salary are absorbing or continues to accept rejects. For example how many teachers in AMEC are former teachers of Aquinas University but
were removed because of immorality? Does it mean that the present administration of AMEC have the total definite moral foundation from catholic administrator of
Aquinas University. I will prove to you my friends, that AMEC is a dumping ground, garbage, not merely of moral and physical misfits. Probably they only qualify in
terms of intellect. The Dean of Student Affairs of AMEC is Justita Lola, as the family name implies. She is too old to work, being an old woman. Is the AMEC
administration exploiting the very [e]nterprising or compromising and undemanding Lola? Could it be that AMEC is just patiently making use of Dean Justita Lola were
if she is very old. As in atmospheric situation zero visibility the plane cannot land, meaning she is very old, low pay follows. By the way, Dean Justita Lola is also the
chairman of the committee on scholarship in AMEC. She had retired from Bicol University a long time ago but AMEC has patiently made use of her.

xxx

MEL RIMA:

xxx My friends based on the expose, AMEC is a dumping ground for moral and physically misfit people. What does this mean? Immoral and physically misfits as
teachers.

May I say Im sorry to Dean Justita Lola. But this is the truth. The truth is this, that your are no longer fit to teach. You are too old. As an aviation, your case is zero
visibility. Dont insist.

xxx Why did AMEC still absorb her as a teacher, a dean, and chairman of the scholarship committee at that. The reason is practical cost saving in salaries, because an
old person is not fastidious, so long as she has money to buy the ingredient of beetle juice. The elderly can get by thats why she (Lola) was taken in as Dean.

xxx

xxx On our end our task is to attend to the interests of students. It is likely that the students would be influenced by evil. When they become members of society
outside of campus will be liabilities rather than assets.What do you expect from a doctor who while studying at AMEC is so much burdened with unreasonable
imposition? What do you expect from a student who aside from peculiar problems because not all students are rich in their struggle to improve their social status are
even more burdened with false regulations. xxx[9] (Emphasis supplied)

The complaint further alleged that AMEC is a reputable learning institution. With the supposed exposs, FBNI, Rima and Alegre transmitted malicious
imputations, and as such, destroyed plaintiffs (AMEC and Ago) reputation. AMEC and Ago included FBNI as defendant for allegedly failing to exercise due diligence in
the selection and supervision of its employees, particularly Rima and Alegre.

On 18 June 1990, FBNI, Rima and Alegre, through Atty. Rozil Lozares, filed an Answer[10] alleging that the broadcasts against AMEC were fair and true. FBNI,
Rima and Alegre claimed that they were plainly impelled by a sense of public duty to report the goings-on in AMEC, [which is] an institution imbued with public
interest.

Thereafter, trial ensued. During the presentation of the evidence for the defense, Atty. Edmundo Cea, collaborating counsel of Atty. Lozares, filed a Motion to
Dismiss[11] on FBNIs behalf. The trial court denied the motion to dismiss. Consequently, FBNI filed a separate Answer claiming that it exercised due diligence in the
selection and supervision of Rima and Alegre. FBNI claimed that before hiring a broadcaster, the broadcaster should (1) file an application; (2) be interviewed; and (3)
undergo an apprenticeship and training program after passing the interview. FBNI likewise claimed that it always reminds its broadcasters to observe truth, fairness
and objectivity in their broadcasts and to refrain from using libelous and indecent language. Moreover, FBNI requires all broadcasters to pass the Kapisanan ng mga
Brodkaster sa Pilipinas (KBP) accreditation test and to secure a KBP permit.

36
 On 14 December 1992, the trial court rendered a Decision[12] finding FBNI and Alegre liable for libel except Rima. The trial court held that the broadcasts are
libelous per se. The trial court rejected the broadcasters claim that their utterances were the result of straight reporting because it had no factual basis. The
broadcasters did not even verify their reports before airing them to show good faith. In holding FBNI liable for libel, the trial court found that FBNI failed to exercise
diligence in the selection and supervision of its employees.

In absolving Rima from the charge, the trial court ruled that Rimas only participation was when he agreed with Alegres expos. The trial court found Rimas
statement within the bounds of freedom of speech, expression, and of the press. The dispositive portion of the decision reads:

WHEREFORE, premises considered, this court finds for the plaintiff. Considering the degree of damages caused by the controversial utterances, which are not found
by this court to be really very serious and damaging, and there being no showing that indeed the enrollment of plaintiff school dropped, defendants Hermogenes
Jun Alegre, Jr. and Filipinas Broadcasting Network (owner of the radio station DZRC), are hereby jointly and severally ordered to pay plaintiff Ago Medical and
Educational Center-Bicol Christian College of Medicine (AMEC-BCCM) the amount of P300,000.00 moral damages, plus P30,000.00 reimbursement of attorneys fees,
and to pay the costs of suit.

SO ORDERED. [13] (Emphasis supplied)

Both parties, namely, FBNI, Rima and Alegre, on one hand, and AMEC and Ago, on the other, appealed the decision to the Court of Appeals. The Court of
Appeals affirmed the trial courts judgment with modification. The appellate court made Rima solidarily liable with FBNI and Alegre. The appellate court denied Agos
claim for damages and attorneys fees because the broadcasts were directed against AMEC, and not against her. The dispositive portion of the Court of Appeals
decision reads:

WHEREFORE, the decision appealed from is hereby AFFIRMED, subject to the modification that broadcaster Mel Rima is SOLIDARILY ADJUDGED liable with FBN[I]
and Hermo[g]enes Alegre.

SO ORDERED.[14]

FBNI, Rima and Alegre filed a motion for reconsideration which the Court of Appeals denied in its 26 January 2000 Resolution.

Hence, FBNI filed this petition.[15]

The Ruling of the Court of Appeals

The Court of Appeals upheld the trial courts ruling that the questioned broadcasts are libelous per se and that FBNI, Rima and Alegre failed to overcome the
legal presumption of malice. The Court of Appeals found Rima and Alegres claim that they were actuated by their moral and social duty to inform the public of the
students gripes as insufficient to justify the utterance of the defamatory remarks.

Finding no factual basis for the imputations against AMECs administrators, the Court of Appeals ruled that the broadcasts were made with reckless disregard as
to whether they were true or false. The appellate court pointed out that FBNI, Rima and Alegre failed to present in court any of the students who allegedly
complained against AMEC. Rima and Alegre merely gave a single name when asked to identify the students. According to the Court of Appeals, these circumstances
cast doubt on the veracity of the broadcasters claim that they were impelled by their moral and social duty to inform the public about the students gripes.

The Court of Appeals found Rima also liable for libel since he remarked that (1) AMEC-BCCM is a dumping ground for morally and physically misfit teachers; (2)
AMEC obtained the services of Dean Justita Lola to minimize expenses on its employees salaries; and (3) AMEC burdened the students with unreasonable imposition
and false regulations.[16]

The Court of Appeals held that FBNI failed to exercise due diligence in the selection and supervision of its employees for allowing Rima and Alegre to make the
radio broadcasts without the proper KBP accreditation. The Court of Appeals denied Agos claim for damages and attorneys fees because the libelous remarks were
directed against AMEC, and not against her. The Court of Appeals adjudged FBNI, Rima and Alegre solidarily liable to pay AMEC moral damages, attorneys fees and
costs of suit.

Issues

FBNI raises the following issues for resolution:

I. WHETHER THE BROADCASTS ARE LIBELOUS;

II. WHETHER AMEC IS ENTITLED TO MORAL DAMAGES;

III. WHETHER THE AWARD OF ATTORNEYS FEES IS PROPER; and

IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH RIMA AND ALEGRE FOR PAYMENT OF MORAL DAMAGES, ATTORNEYS FEES AND COSTS OF SUIT.

37
 The Courts Ruling

We deny the petition.

This is a civil action for damages as a result of the allegedly defamatory remarks of Rima and Alegre against AMEC.[17] While AMEC did not point out clearly the
legal basis for its complaint, a reading of the complaint reveals that AMECs cause of action is based on Articles 30 and 33 of the Civil Code. Article 30[18] authorizes a
separate civil action to recover civil liability arising from a criminal offense. On the other hand, Article 33[19] particularly provides that the injured party may bring a
separate civil action for damages in cases of defamation, fraud, and physical injuries. AMEC also invokes Article 19[20] of the Civil Code to justify its claim for damages.
AMEC cites Articles 2176[21] and 2180[22] of the Civil Code to hold FBNI solidarily liable with Rima and Alegre.

I.
Whether the broadcasts are libelous

A libel[23] is a public and malicious imputation of a crime, or of a vice or defect, real or imaginary, or any act or omission, condition, status, or circumstance
tending to cause the dishonor, discredit, or contempt of a natural or juridical person, or to blacken the memory of one who is dead.[24]

There is no question that the broadcasts were made public and imputed to AMEC defects or circumstances tending to cause it dishonor, discredit and
contempt. Rima and Alegres remarks such as greed for money on the part of AMECs administrators; AMEC is a dumping ground, garbage of xxx moral and physical
misfits; and AMEC students who graduate will be liabilities rather than assets of the society are libelous per se. Taken as a whole, the broadcasts suggest that AMEC is
a money-making institution where physically and morally unfit teachers abound.

However, FBNI contends that the broadcasts are not malicious. FBNI claims that Rima and Alegre were plainly impelled by their civic duty to air the students
gripes. FBNI alleges that there is no evidence that ill will or spite motivated Rima and Alegre in making the broadcasts. FBNI further points out that Rima and Alegre
exerted efforts to obtain AMECs side and gave Ago the opportunity to defend AMEC and its administrators. FBNI concludes that since there is no malice, there is no
libel.

FBNIs contentions are untenable.

Every defamatory imputation is presumed malicious.[25] Rima and Alegre failed to show adequately their good intention and justifiable motive in airing the
supposed gripes of the students. As hosts of a documentary or public affairs program, Rima and Alegre should have presented the public issues free
from inaccurate and misleading information.[26] Hearing the students alleged complaints a month before the expos,[27] they had sufficient time to verify their sources
and information. However, Rima and Alegre hardly made a thorough investigation of the students alleged gripes. Neither did they inquire about nor confirm the
purported irregularities in AMEC from the Department of Education, Culture and Sports. Alegre testified that he merely went to AMEC to verify his report from an
alleged AMEC official who refused to disclose any information. Alegre simply relied on the words of the students because they were many and not because there is
proof that what they are saying is true.[28] This plainly shows Rima and Alegres reckless disregard of whether their report was true or not.

Contrary to FBNIs claim, the broadcasts were not the result of straight reporting. Significantly, some courts in the United States apply the privilege of neutral
reportage in libel cases involving matters of public interest or public figures. Under this privilege, a republisher who accurately and disinterestedly reports certain
defamatory statements made against public figures is shielded from liability, regardless of the republishers subjective awareness of the truth or falsity of the
accusation.[29] Rima and Alegre cannot invoke the privilege of neutral reportage because unfounded comments abound in the broadcasts. Moreover, there is no
existing controversy involving AMEC when the broadcasts were made. The privilege of neutral reportage applies where the defamed person is a public figure who is
involved in an existing controversy, and a party to that controversy makes the defamatory statement.[30]

However, FBNI argues vigorously that malice in law does not apply to this case. Citing Borjal v. Court of Appeals,[31] FBNI contends that the broadcasts fall
within the coverage of qualifiedly privileged communications for being commentaries on matters of public interest. Such being the case, AMEC should prove malice in
fact or actual malice. Since AMEC allegedly failed to prove actual malice, there is no libel.

FBNIs reliance on Borjal is misplaced. In Borjal, the Court elucidated on the doctrine of fair comment, thus:

[F]air commentaries on matters of public interest are privileged and constitute a valid defense in an action for libel or slander. The doctrine of fair comment means
that while in general every discreditable imputation publicly made is deemed false, because every man is presumed innocent until his guilt is judicially proved, and
every false imputation is deemed malicious, nevertheless, when the discreditable imputation is directed against a public person in his public capacity, it is not
necessarily actionable. In order that such discreditable imputation to a public official may be actionable, it must either be a false allegation of fact or a comment
based on a false supposition. If the comment is an expression of opinion, based on established facts, then it is immaterial that the opinion happens to be mistaken,
as long as it might reasonably be inferred from the facts.[32](Emphasis supplied)

True, AMEC is a private learning institution whose business of educating students is genuinely imbued with public interest. The welfare of the youth in general
and AMECs students in particular is a matter which the public has the right to know. Thus, similar to the newspaper articles in Borjal, the subject broadcasts dealt
with matters of public interest. However, unlike in Borjal, the questioned broadcasts are not based on established facts. The record supports the following findings of
the trial court:

xxx Although defendants claim that they were motivated by consistent reports of students and parents against plaintiff, yet, defendants have not presented in court,
nor even gave name of a single student who made the complaint to them, much less present written complaint or petition to that effect. To accept this defense of
defendants is too dangerous because it could easily give license to the media to malign people and establishments based on flimsy excuses that there were reports to
them although they could not satisfactorily establish it. Such laxity would encourage careless and irresponsible broadcasting which is inimical to public interests.

38
Secondly, there is reason to believe that defendant radio broadcasters, contrary to the mandates of their duties, did not verify and analyze the truth of the reports
before they aired it, in order to prove that they are in good faith.

Alegre contended that plaintiff school had no permit and is not accredited to offer Physical Therapy courses. Yet, plaintiff produced a certificate coming from DECS
that as of Sept. 22, 1987 or more than 2 years before the controversial broadcast, accreditation to offer Physical Therapy course had already been given the plaintiff,
which certificate is signed by no less than the Secretary of Education and Culture herself, Lourdes R. Quisumbing (Exh. C-rebuttal). Defendants could have easily
known this were they careful enough to verify. And yet, defendants were very categorical and sounded too positive when they made the erroneous report that
plaintiff had no permit to offer Physical Therapy courses which they were offering.

The allegation that plaintiff was getting tremendous aids from foreign foundations like Mcdonald Foundation prove not to be true also. The truth is there is no
Mcdonald Foundation existing. Although a big building of plaintiff school was given the name Mcdonald building, that was only in order to honor the first missionary
in Bicol of plaintiffs religion, as explained by Dr. Lita Ago. Contrary to the claim of defendants over the air, not a single centavo appears to be received by plaintiff
school from the aforementioned McDonald Foundation which does not exist.

Defendants did not even also bother to prove their claim, though denied by Dra. Ago, that when medical students fail in one subject, they are made to repeat all the
other subject[s], even those they have already passed, nor their claim that the school charges laboratory fees even if there are no laboratories in the school. No
evidence was presented to prove the bases for these claims, at least in order to give semblance of good faith.

As for the allegation that plaintiff is the dumping ground for misfits, and immoral teachers, defendant[s] singled out Dean Justita Lola who is said to be so old, with
zero visibility already. Dean Lola testified in court last Jan. 21, 1991, and was found to be 75 years old. xxx Even older people prove to be effective teachers like
Supreme Court Justices who are still very much in demand as law professors in their late years. Counsel for defendants is past 75 but is found by this court to be still
very sharp and effective. So is plaintiffs counsel.

Dr. Lola was observed by this court not to be physically decrepit yet, nor mentally infirmed, but is still alert and docile.

The contention that plaintiffs graduates become liabilities rather than assets of our society is a mere conclusion. Being from the place himself, this court is aware that
majority of the medical graduates of plaintiffs pass the board examination easily and become prosperous and responsible professionals.[33]

Had the comments been an expression of opinion based on established facts, it is immaterial that the opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[34] However, the comments of Rima and Alegre were not backed up by facts. Therefore, the broadcasts are not privileged and
remain libelous per se.

The broadcasts also violate the Radio Code[35] of the Kapisanan ng mga Brodkaster sa Pilipinas, Ink. (Radio Code). Item I(B) of the Radio Code provides:

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND COMMENTARIES

1. x x x

4. Public affairs program shall present public issues free from personal bias, prejudice and inaccurate and misleading information. x x x Furthermore, the
station shall strive to present balanced discussion of issues. x x x.

xxx

7. The station shall be responsible at all times in the supervision of public affairs, public issues and commentary programs so that they conform to the
provisions and standards of this code.

8. It shall be the responsibility of the newscaster, commentator, host and announcer to protect public interest, general welfare and good order in the
presentation of public affairs and public issues.[36] (Emphasis supplied)

The broadcasts fail to meet the standards prescribed in the Radio Code, which lays down the code of ethical conduct governing practitioners in the radio
broadcast industry. The Radio Code is a voluntary code of conduct imposed by the radio broadcast industry on its own members. The Radio Code is a public warranty
by the radio broadcast industry that radio broadcast practitioners are subject to a code by which their conduct are measured for lapses, liability and sanctions.

The public has a right to expect and demand that radio broadcast practitioners live up to the code of conduct of their profession, just like other professionals. A
professional code of conduct provides the standards for determining whether a person has acted justly, honestly and with good faith in the exercise of his rights and
performance of his duties as required by Article 19[37] of the Civil Code. A professional code of conduct also provides the standards for determining whether a person
who willfully causes loss or injury to another has acted in a manner contrary to morals or good customs under Article 21[38] of the Civil Code.

II.
Whether AMEC is entitled to moral damages

FBNI contends that AMEC is not entitled to moral damages because it is a corporation.[39]

39
 A juridical person is generally not entitled to moral damages because, unlike a natural person, it cannot experience physical suffering or such sentiments as
wounded feelings, serious anxiety, mental anguish or moral shock.[40] The Court of Appeals cites Mambulao Lumber Co. v. PNB, et al.[41] to justify the award of moral
damages. However, the Courts statement in Mambulao that a corporation may have a good reputation which, if besmirched, may also be a ground for the award of
moral damages is an obiter dictum.[42]

Nevertheless, AMECs claim for moral damages falls under item 7 of Article 2219[43] of the Civil Code. This provision expressly authorizes the recovery of moral
damages in cases of libel, slander or any other form of defamation. Article 2219(7) does not qualify whether the plaintiff is a natural or juridical person. Therefore, a
juridical person such as a corporation can validly complain for libel or any other form of defamation and claim for moral damages.[44]

Moreover, where the broadcast is libelous per se, the law implies damages.[45] In such a case, evidence of an honest mistake or the want of character or
reputation of the party libeled goes only in mitigation of damages.[46] Neither in such a case is the plaintiff required to introduce evidence of actual damages as a
condition precedent to the recovery of some damages.[47] In this case, the broadcasts are libelous per se. Thus, AMEC is entitled to moral damages.

However, we find the award of P300,000 moral damages unreasonable. The record shows that even though the broadcasts were libelous per se, AMEC has not
suffered any substantial or material damage to its reputation. Therefore, we reduce the award of moral damages from P300,000 to P150,000.

III.
Whether the award of attorneys fees is proper

FBNI contends that since AMEC is not entitled to moral damages, there is no basis for the award of attorneys fees. FBNI adds that the instant case does not fall
under the enumeration in Article 2208[48] of the Civil Code.

The award of attorneys fees is not proper because AMEC failed to justify satisfactorily its claim for attorneys fees. AMEC did not adduce evidence to warrant
the award of attorneys fees. Moreover, both the trial and appellate courts failed to explicitly state in their respective decisions the rationale for the award of
attorneys fees.[49] In Inter-Asia Investment Industries, Inc. v. Court of Appeals,[50] we held that:

[I]t is an accepted doctrine that the award thereof as an item of damages is the exception rather than the rule, and counsels fees are not to be awarded every time a
party wins a suit. The power of the court to award attorneys fees under Article 2208 of the Civil Code demands factual, legal and equitable justification, without
which the award is a conclusion without a premise, its basis being improperly left to speculation and conjecture. In all events, the court must explicitly state in the
text of the decision, and not only in the decretal portion thereof, the legal reason for the award of attorneys fees.[51] (Emphasis supplied)

While it mentioned about the award of attorneys fees by stating that it lies within the discretion of the court and depends upon the circumstances of each
case, the Court of Appeals failed to point out any circumstance to justify the award.

IV.
Whether FBNI is solidarily liable with Rima and Alegre
for moral damages, attorneys fees
and costs of suit

FBNI contends that it is not solidarily liable with Rima and Alegre for the payment of damages and attorneys fees because it exercised due diligence in the
selection and supervision of its employees, particularly Rima and Alegre. FBNI maintains that its broadcasters, including Rima and Alegre, undergo a very regimented
process before they are allowed to go on air. Those who apply for broadcaster are subjected to interviews, examinations and an apprenticeship program.

FBNI further argues that Alegres age and lack of training are irrelevant to his competence as a broadcaster. FBNI points out that the minor deficiencies in the
KBP accreditation of Rima and Alegre do not in any way prove that FBNI did not exercise the diligence of a good father of a family in selecting and supervising them.
Rimas accreditation lapsed due to his non-payment of the KBP annual fees while Alegres accreditation card was delayed allegedly for reasons attributable to the KBP
Manila Office. FBNI claims that membership in the KBP is merely voluntary and not required by any law or government regulation.

FBNIs arguments do not persuade us.

The basis of the present action is a tort. Joint tort feasors are jointly and severally liable for the tort which they commit.[52] Joint tort feasors are all the persons
who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done
for their benefit.[53] Thus, AMEC correctly anchored its cause of action against FBNI on Articles 2176 and 2180 of the Civil Code.

As operator of DZRC-AM and employer of Rima and Alegre, FBNI is solidarily liable to pay for damages arising from the libelous broadcasts. As stated by the
Court of Appeals, recovery for defamatory statements published by radio or television may be had from the owner of the station, a licensee, the operator of the
station, or a person who procures, or participates in, the making of the defamatory statements.[54] An employer and employee are solidarily liable for a defamatory
statement by the employee within the course and scope of his or her employment, at least when the employer authorizes or ratifies the defamation.[55] In this case,
Rima and Alegre were clearly performing their official duties as hosts of FBNIs radio program Expos when they aired the broadcasts. FBNI neither alleged nor proved
that Rima and Alegre went beyond the scope of their work at that time. There was likewise no showing that FBNI did not authorize and ratify the defamatory
broadcasts.

Moreover, there is insufficient evidence on record that FBNI exercised due diligence in the selection and supervision of its employees, particularly Rima and
Alegre. FBNI merely showed that it exercised diligence in the selection of its broadcasters without introducing any evidence to prove that it observed the same
diligence in the supervision of Rima and Alegre. FBNI did not show how it exercised diligence in supervising its broadcasters. FBNIs alleged constant reminder to its
broadcasters to observe truth, fairness and objectivity and to refrain from using libelous and indecent language is not enough to prove due diligence in the
supervision of its broadcasters. Adequate training of the broadcasters on the industrys code of conduct, sufficient information on libel laws, and continuous
evaluation of the broadcasters performance are but a few of the many ways of showing diligence in the supervision of broadcasters.

40
 FBNI claims that it has taken all the precaution in the selection of Rima and Alegre as broadcasters, bearing in mind their qualifications. However, no clear and
convincing evidence shows that Rima and Alegre underwent FBNIs regimented process of application. Furthermore, FBNI admits that Rima and Alegre had
deficiencies in their KBP accreditation,[56] which is one of FBNIs requirements before it hires a broadcaster. Significantly, membership in the KBP, while voluntary,
indicates the broadcasters strong commitment to observe the broadcast industrys rules and regulations. Clearly, these circumstances show FBNIs lack of diligence in
selecting and supervising Rima and Alegre. Hence, FBNI is solidarily liable to pay damages together with Rima and Alegre.

WHEREFORE, we DENY the instant petition. We AFFIRM the Decision of 4 January 1999 and Resolution of 26 January 2000 of the Court of Appeals in CA-G.R.
CV No. 40151 with the MODIFICATION that the award of moral damages is reduced from P300,000 to P150,000 and the award of attorneys fees is deleted. Costs
against petitioner.

18. Coastal Pacific Trading vs. Southern Rolling Mills

FACTS: Southern Rolling Mills was renamed into Visayan Integrated Steel Corp (VISCO). On Dec. 11, 1961-VISCO obtained a loan from DBP amounting to P836,000. It
was secured by a Real Estate Mortgage covering VISCO's 3 parcels of land including the machinery and equipments therein. Second Loan: VISCO entered a Loan
Agreement with respondent banks ( referred as "Consortium") to finance its importation for various raw materials. VISCO executed a second mortgage over the
previous properties mentioned, however they were unrecorded VISCO was unable to pay its second mortgage with the consortium, which resulted in the latter
acquiring 90% of the equity of VISCO giving the Consortium the control and management of VISCO. Despite the acquisition, VISCO still remained indebted to the
Consortium.

Transaction to Coastal: Between 1964 to 1965, VISCO entered a processing agreement with Coastal wherein Coastal delivered 3,000 metric tons of hot rolled steel
coils which VISCO would process into block iron sheets. However, VISCO was only able to return 1,600 metric tons of those sheets.

On the loan to DBP: To pay its first mortgage with DBP, VISCO sold 2 of its generators to FILMAG Phils, Inc. DBP executed a Deed of Assignment of the mortgage in
favor of the consortium. The Consortium foreclosed the mortgage and was the highest bidder in an auction sale of VISCO's properties. The Consortium later sold the
properties in favor of National Steel Corporation.

Coastal files a civil action for Annulment or Rescission of Sale, Damages with Preliminary Injunction. Coastal imputes bad faith on the action of the Consortium, the
latter being able to sell the properties of VISCO despite the attachment of the properties, placing them beyond the reach of VISCO's other creditors.

The lower court ruled in favor of VISCO, declaring the sale valid and legal. The CA affirmed this.

ISSUE 1: Whether the consortium disposed VISCO's assets in fraud of creditors?

HELD: Yes. What the consortium did was to pay to them the proceeds from the sale of the generator sets which in turn they used to pay DBP. Due to the Deed of
Assignment issued by DBP, the respondent banks recovered what they remitted to DBP & it allowed the Consortium to acquire DBP's primary lien on the mortgaged
properties. Allowing them as unsecured creditors ( as the mortgage was unrecorded) to foreclose on the assets of the corporation without regard to inferior claims

ISSUE 2: Whether petitioner is entitled to moral damages?

No. As a rule, a corporation is not entitled to moral damages because, not being a natural person, it cannot experience physical suffering or sentiments like wounded
feelings, serious anxiety, mental anguish and moral shock. The only exception to this rule is when the corporation has a good reputation that is debased, resulting in
its humiliation in the business realm. In the present case, the records do not show any evidence that the name or reputation of petitioner has been sullied as a result
of the Consortium's fraudulent acts. Accordingly, moral damages are not warranted.

Petitioner was able to recover exemplary damages.

19. Tayag vs. Benguet Consolidated

Confronted by an obstinate and adamant refusal of the domiciliary administrator, the County Trust Company of New York, United States of America, of the estate of
the deceased Idonah Slade Perkins, who died in New York City on March 27, 1960, to surrender to the ancillary administrator in the Philippines the stock certificates
owned by her in a Philippine corporation, Benguet Consolidated, Inc., to satisfy the legitimate claims of local creditors, the lower court, then presided by the
Honorable Arsenio Santos, now retired, issued on May 18, 1964, an order of this tenor: "After considering the motion of the ancillary administrator, dated February
11, 1964, as well as the opposition filed by the Benguet Consolidated, Inc., the Court hereby (1) considers as lost for all purposes in connection with the
administration and liquidation of the Philippine estate of Idonah Slade Perkins the stock certificates covering the 33,002 shares of stock standing in her name in the
books of the Benguet Consolidated, Inc., (2) orders said certificates cancelled, and (3) directs said corporation to issue new certificates in lieu thereof, the same to be
delivered by said corporation to either the incumbent ancillary administrator or to the Probate Division of this Court."1

From such an order, an appeal was taken to this Court not by the domiciliary administrator, the County Trust Company of New York, but by the Philippine
corporation, the Benguet Consolidated, Inc. The appeal cannot possibly prosper. The challenged order represents a response and expresses a policy, to paraphrase
Frankfurter, arising out of a specific problem, addressed to the attainment of specific ends by the use of specific remedies, with full and ample support from legal
doctrines of weight and significance.

The facts will explain why. As set forth in the brief of appellant Benguet Consolidated, Inc., Idonah Slade Perkins, who died on March 27, 1960 in New York City, left
among others, two stock certificates covering 33,002 shares of appellant, the certificates being in the possession of the County Trust Company of New York, which as

41
noted, is the domiciliary administrator of the estate of the deceased.2 Then came this portion of the appellant's brief: "On August 12, 1960, Prospero Sanidad
instituted ancillary administration proceedings in the Court of First Instance of Manila; Lazaro A. Marquez was appointed ancillary administrator, and on January 22,
1963, he was substituted by the appellee Renato D. Tayag. A dispute arose between the domiciary administrator in New York and the ancillary administrator in the
Philippines as to which of them was entitled to the possession of the stock certificates in question. On January 27, 1964, the Court of First Instance of Manila ordered
the domiciliary administrator, County Trust Company, to "produce and deposit" them with the ancillary administrator or with the Clerk of Court. The domiciliary
administrator did not comply with the order, and on February 11, 1964, the ancillary administrator petitioned the court to "issue an order declaring the certificate or
certificates of stocks covering the 33,002 shares issued in the name of Idonah Slade Perkins by Benguet Consolidated, Inc., be declared [or] considered as lost."3

It is to be noted further that appellant Benguet Consolidated, Inc. admits that "it is immaterial" as far as it is concerned as to "who is entitled to the possession of the
stock certificates in question; appellant opposed the petition of the ancillary administrator because the said stock certificates are in existence, they are today in the
possession of the domiciliary administrator, the County Trust Company, in New York, U.S.A...."4

It is its view, therefore, that under the circumstances, the stock certificates cannot be declared or considered as lost. Moreover, it would allege that there was a
failure to observe certain requirements of its by-laws before new stock certificates could be issued. Hence, its appeal.

As was made clear at the outset of this opinion, the appeal lacks merit. The challenged order constitutes an emphatic affirmation of judicial authority sought to be
emasculated by the wilful conduct of the domiciliary administrator in refusing to accord obedience to a court decree. How, then, can this order be stigmatized as
illegal?

As is true of many problems confronting the judiciary, such a response was called for by the realities of the situation. What cannot be ignored is that conduct
bordering on wilful defiance, if it had not actually reached it, cannot without undue loss of judicial prestige, be condoned or tolerated. For the law is not so lacking in
flexibility and resourcefulness as to preclude such a solution, the more so as deeper reflection would make clear its being buttressed by indisputable principles and
supported by the strongest policy considerations.

It can truly be said then that the result arrived at upheld and vindicated the honor of the judiciary no less than that of the country. Through this challenged order,
there is thus dispelled the atmosphere of contingent frustration brought about by the persistence of the domiciliary administrator to hold on to the stock certificates
after it had, as admitted, voluntarily submitted itself to the jurisdiction of the lower court by entering its appearance through counsel on June 27, 1963, and filing a
petition for relief from a previous order of March 15, 1963.

Thus did the lower court, in the order now on appeal, impart vitality and effectiveness to what was decreed. For without it, what it had been decided would be set at
naught and nullified. Unless such a blatant disregard by the domiciliary administrator, with residence abroad, of what was previously ordained by a court order could
be thus remedied, it would have entailed, insofar as this matter was concerned, not a partial but a well-nigh complete paralysis of judicial authority.

1. Appellant Benguet Consolidated, Inc. did not dispute the power of the appellee ancillary administrator to gain control and possession of all assets of the decedent
within the jurisdiction of the Philippines. Nor could it. Such a power is inherent in his duty to settle her estate and satisfy the claims of local creditors.5 As Justice
Tuason speaking for this Court made clear, it is a "general rule universally recognized" that administration, whether principal or ancillary, certainly "extends to the
assets of a decedent found within the state or country where it was granted," the corollary being "that an administrator appointed in one state or country has no
power over property in another state or country."6

It is to be noted that the scope of the power of the ancillary administrator was, in an earlier case, set forth by Justice Malcolm. Thus: "It is often necessary to have
more than one administration of an estate. When a person dies intestate owning property in the country of his domicile as well as in a foreign country, administration
is had in both countries. That which is granted in the jurisdiction of decedent's last domicile is termed the principal administration, while any other administration is
termed the ancillary administration. The reason for the latter is because a grant of administration does not ex proprio vigore have any effect beyond the limits of the
country in which it is granted. Hence, an administrator appointed in a foreign state has no authority in the [Philippines]. The ancillary administration is proper,
whenever a person dies, leaving in a country other than that of his last domicile, property to be administered in the nature of assets of the deceased liable for his
individual debts or to be distributed among his heirs."7

It would follow then that the authority of the probate court to require that ancillary administrator's right to "the stock certificates covering the 33,002 shares ...
standing in her name in the books of [appellant] Benguet Consolidated, Inc...." be respected is equally beyond question. For appellant is a Philippine corporation
owing full allegiance and subject to the unrestricted jurisdiction of local courts. Its shares of stock cannot therefore be considered in any wise as immune from lawful
court orders.

Our holding in Wells Fargo Bank and Union v. Collector of Internal Revenue8 finds application. "In the instant case, the actual situs of the shares of stock is in the
Philippines, the corporation being domiciled [here]." To the force of the above undeniable proposition, not even appellant is insensible. It does not dispute it. Nor
could it successfully do so even if it were so minded.

2. In the face of such incontrovertible doctrines that argue in a rather conclusive fashion for the legality of the challenged order, how does appellant, Benguet
Consolidated, Inc. propose to carry the extremely heavy burden of persuasion of precisely demonstrating the contrary? It would assign as the basic error allegedly
committed by the lower court its "considering as lost the stock certificates covering 33,002 shares of Benguet belonging to the deceased Idonah Slade Perkins,
..."9 More specifically, appellant would stress that the "lower court could not "consider as lost" the stock certificates in question when, as a matter of fact, his Honor
the trial Judge knew, and does know, and it is admitted by the appellee, that the said stock certificates are in existence and are today in the possession of the
domiciliary administrator in New York."10

There may be an element of fiction in the above view of the lower court. That certainly does not suffice to call for the reversal of the appealed order. Since there is a
refusal, persistently adhered to by the domiciliary administrator in New York, to deliver the shares of stocks of appellant corporation owned by the decedent to the

42
ancillary administrator in the Philippines, there was nothing unreasonable or arbitrary in considering them as lost and requiring the appellant to issue new certificates
in lieu thereof. Thereby, the task incumbent under the law on the ancillary administrator could be discharged and his responsibility fulfilled.

Any other view would result in the compliance to a valid judicial order being made to depend on the uncontrolled discretion of the party or entity, in this case
domiciled abroad, which thus far has shown the utmost persistence in refusing to yield obedience. Certainly, appellant would not be heard to contend in all
seriousness that a judicial decree could be treated as a mere scrap of paper, the court issuing it being powerless to remedy its flagrant disregard.

It may be admitted of course that such alleged loss as found by the lower court did not correspond exactly with the facts. To be more blunt, the quality of truth may
be lacking in such a conclusion arrived at. It is to be remembered however, again to borrow from Frankfurter, "that fictions which the law may rely upon in the pursuit
of legitimate ends have played an important part in its development."11

Speaking of the common law in its earlier period, Cardozo could state fictions "were devices to advance the ends of justice, [even if] clumsy and at times
offensive."12 Some of them have persisted even to the present, that eminent jurist, noting "the quasi contract, the adopted child, the constructive trust, all of
flourishing vitality, to attest the empire of "as if" today."13 He likewise noted "a class of fictions of another order, the fiction which is a working tool of thought, but
which at times hides itself from view till reflection and analysis have brought it to the light."14

What cannot be disputed, therefore, is the at times indispensable role that fictions as such played in the law. There should be then on the part of the appellant a
further refinement in the catholicity of its condemnation of such judicial technique. If ever an occasion did call for the employment of a legal fiction to put an end to
the anomalous situation of a valid judicial order being disregarded with apparent impunity, this is it. What is thus most obvious is that this particular alleged error
does not carry persuasion.

3. Appellant Benguet Consolidated, Inc. would seek to bolster the above contention by its invoking one of the provisions of its by-laws which would set forth the
procedure to be followed in case of a lost, stolen or destroyed stock certificate; it would stress that in the event of a contest or the pendency of an action regarding
ownership of such certificate or certificates of stock allegedly lost, stolen or destroyed, the issuance of a new certificate or certificates would await the "final decision
by [a] court regarding the ownership [thereof]."15

Such reliance is misplaced. In the first place, there is no such occasion to apply such by-law. It is admitted that the foreign domiciliary administrator did not appeal
from the order now in question. Moreover, there is likewise the express admission of appellant that as far as it is concerned, "it is immaterial ... who is entitled to the
possession of the stock certificates ..." Even if such were not the case, it would be a legal absurdity to impart to such a provision conclusiveness and finality. Assuming
that a contrariety exists between the above by-law and the command of a court decree, the latter is to be followed.

It is understandable, as Cardozo pointed out, that the Constitution overrides a statute, to which, however, the judiciary must yield deference, when appropriately
invoked and deemed applicable. It would be most highly unorthodox, however, if a corporate by-law would be accorded such a high estate in the jural order that a
court must not only take note of it but yield to its alleged controlling force.

The fear of appellant of a contingent liability with which it could be saddled unless the appealed order be set aside for its inconsistency with one of its by-laws does
not impress us. Its obedience to a lawful court order certainly constitutes a valid defense, assuming that such apprehension of a possible court action against it could
possibly materialize. Thus far, nothing in the circumstances as they have developed gives substance to such a fear. Gossamer possibilities of a future prejudice to
appellant do not suffice to nullify the lawful exercise of judicial authority.

4. What is more the view adopted by appellant Benguet Consolidated, Inc. is fraught with implications at war with the basic postulates of corporate theory.

We start with the undeniable premise that, "a corporation is an artificial being created by operation of law...."16 It owes its life to the state, its birth being purely
dependent on its will. As Berle so aptly stated: "Classically, a corporation was conceived as an artificial person, owing its existence through creation by a sovereign
power."17As a matter of fact, the statutory language employed owes much to Chief Justice Marshall, who in the Dartmouth College decision defined a corporation
precisely as "an artificial being, invisible, intangible, and existing only in contemplation of law."18

The well-known authority Fletcher could summarize the matter thus: "A corporation is not in fact and in reality a person, but the law treats it as though it were a
person by process of fiction, or by regarding it as an artificial person distinct and separate from its individual stockholders.... It owes its existence to law. It is an
artificial person created by law for certain specific purposes, the extent of whose existence, powers and liberties is fixed by its charter."19 Dean Pound's terse
summary, a juristic person, resulting from an association of human beings granted legal personality by the state, puts the matter neatly. 20

There is thus a rejection of Gierke's genossenchaft theory, the basic theme of which to quote from Friedmann, "is the reality of the group as a social and legal entity,
independent of state recognition and concession."21 A corporation as known to Philippine jurisprudence is a creature without any existence until it has received the
imprimatur of the state according to law. It is logically inconceivable therefore that it will have rights and privileges of a higher priority than that of its creator. More
than that, it cannot legitimately refuse to yield obedience to acts of its state organs, certainly not excluding the judiciary, whenever called upon to do so.

As a matter of fact, a corporation once it comes into being, following American law still of persuasive authority in our jurisdiction, comes more often within the ken of
the judiciary than the other two coordinate branches. It institutes the appropriate court action to enforce its right. Correlatively, it is not immune from judicial control
in those instances, where a duty under the law as ascertained in an appropriate legal proceeding is cast upon it.

To assert that it can choose which court order to follow and which to disregard is to confer upon it not autonomy which may be conceded but license which cannot
be tolerated. It is to argue that it may, when so minded, overrule the state, the source of its very existence; it is to contend that what any of its governmental organs
may lawfully require could be ignored at will. So extravagant a claim cannot possibly merit approval.

43
5. One last point. In Viloria v. Administrator of Veterans Affairs,22 it was shown that in a guardianship proceedings then pending in a lower court, the United States
Veterans Administration filed a motion for the refund of a certain sum of money paid to the minor under guardianship, alleging that the lower court had previously
granted its petition to consider the deceased father as not entitled to guerilla benefits according to a determination arrived at by its main office in the United States.
The motion was denied. In seeking a reconsideration of such order, the Administrator relied on an American federal statute making his decisions "final and conclusive
on all questions of law or fact" precluding any other American official to examine the matter anew, "except a judge or judges of the United States
court."23 Reconsideration was denied, and the Administrator appealed.

In an opinion by Justice J.B.L. Reyes, we sustained the lower court. Thus: "We are of the opinion that the appeal should be rejected. The provisions of the U.S. Code,
invoked by the appellant, make the decisions of the U.S. Veterans' Administrator final and conclusive when made on claims property submitted to him for resolution;
but they are not applicable to the present case, where the Administrator is not acting as a judge but as a litigant. There is a great difference between actions against
the Administrator (which must be filed strictly in accordance with the conditions that are imposed by the Veterans' Act, including the exclusive review by United
States courts), and those actions where the Veterans' Administrator seeks a remedy from our courts and submits to their jurisdiction by filing actions therein. Our
attention has not been called to any law or treaty that would make the findings of the Veterans' Administrator, in actions where he is a party, conclusive on our
courts. That, in effect, would deprive our tribunals of judicial discretion and render them mere subordinate instrumentalities of the Veterans' Administrator."

It is bad enough as the Viloria decision made patent for our judiciary to accept as final and conclusive, determinations made by foreign governmental agencies. It is
infinitely worse if through the absence of any coercive power by our courts over juridical persons within our jurisdiction, the force and effectivity of their orders could
be made to depend on the whim or caprice of alien entities. It is difficult to imagine of a situation more offensive to the dignity of the bench or the honor of the
country.

Yet that would be the effect, even if unintended, of the proposition to which appellant Benguet Consolidated seems to be firmly committed as shown by its failure to
accept the validity of the order complained of; it seeks its reversal. Certainly we must at all pains see to it that it does not succeed. The deplorable consequences
attendant on appellant prevailing attest to the necessity of negative response from us. That is what appellant will get.

That is all then that this case presents. It is obvious why the appeal cannot succeed. It is always easy to conjure extreme and even oppressive possibilities. That is not
decisive. It does not settle the issue. What carries weight and conviction is the result arrived at, the just solution obtained, grounded in the soundest of legal doctrines
and distinguished by its correspondence with what a sense of realism requires. For through the appealed order, the imperative requirement of justice according to
law is satisfied and national dignity and honor maintained.

WHEREFORE, the appealed order of the Honorable Arsenio Santos, the Judge of the Court of First Instance, dated May 18, 1964, is affirmed. With costs against
oppositor-appelant Benguet Consolidated, Inc.

20. Torres vs. CA

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them
will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective
obligations to each other arising from acts executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR CV No. 42378 and
its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208,
which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The
counterclaims of the defendant are likewise ordered dismissed. No pronouncement as to costs.[3]

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres for the development
of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it
registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to
be used for the development of the subdivision.[4] All three of them also agreed to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of respondents lack of funds or means and skills. They add that respondent used the loan not for the
development of the subdivision, but in furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the
subdivision of the lots. He secured the Lapu Lapu City Councils approval of the subdivision project which he advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually
even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse
claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby
forcing him to give up on the project.[5]

44
 Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. Thereafter, they filed the present civil
case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court
remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition.[6]

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the development of the subdivision. Thus,
they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing with the trial courts
pronouncement that losses as well as profits in a joint venture should be distributed equally,[7] the CA invoked Article 1797 of the Civil Code which provides:

Article 1797 - The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his
services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

x x x [The] Court of Appeals erred in concluding that the transaction x x x between the petitioners and respondent was that of a joint venture/partnership, ignoring
outright the provision of Article 1769, and other related provisions of the Civil Code of the Philippines.[8]

The Courts Ruling

The Petition is bereft of merit.

Main Issue: Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which
were the bases of the appellate courts finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the
agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60
percent of the value of the property.[9]

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R. TORRES, x x x the FIRST PARTY,
likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the SECOND PARTY:

W I T N E S S E T H:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT
No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the execution of this
contract for the property entrusted by the SECOND PARTY, for sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as
follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN &
FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the
SECOND PARTY did not actually receive the payment.

45
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for
their personal obligations and this particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be
deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated and ready for sale to any interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST PARTY, exclusively and all the expenses will not be
deducted from the sales after the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and
additional profits or whatever income deriving from the sales will be divided equally according to the x x x percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and the
FIRST PARTY will be given a grace period to turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the uses and purposes therein stated.[10]

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides:

ART. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was to be developed into a
subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the
said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership.[11]

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the
respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the
land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the
property.

Respondents actions clearly belie petitioners contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may
contribute not only money or property, but also industry.

Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to all necessary consequences thereof,
as follows:

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they voluntarily signed. If it was not in
consonance with their expectations, they should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be
financially disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their
supposed misunderstanding of its terms.

Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

ART. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties,
and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void.

46
 We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited provision
which is a complement of Article 1771,[12] the execution of a public instrument would be useless if there is no inventory of the property contributed, because without
its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will result
in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared
void by the law when no such inventory is made. The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the
property.[13] They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the
parties rights and obligations to each other may be inferred and enforced

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 [14] of the Civil Code, because it is the direct result of an earlier illegal
contract, which was for the sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another.[15]

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project,
for which the land was intended to be used. As explained by the trial court, the land was in effect given to the partnership as [petitioners] participation therein. x x x
There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty
percent of the net profits.

Liability of the Parties

Claiming that respondent was solely responsible for the failure of the subdivision project, petitioners maintain that he should be made to pay damages
equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners acts were not the cause of the failure of the project.[16] But it also ruled that neither was
respondent responsible therefor.[17] In imputing the blame solely to him, petitioners failed to give any reason why we should disregard the factual findings of the
appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not
to say shown, that their Petition constitutes one of the exceptions to this doctrine.[18] Accordingly, we find no reversible error in the CA's ruling that petitioners are
not entitled to damages.

WHEREFORE, the Petition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

21. Philippine Stock Exchange vs. CA

The Securities and Exchange Commission is the government agency, under the direct general supervision of the Office of the President,[1] with the immense
task of enforcing the Revised Securities Act, and all other duties assigned to it by pertinent laws. Among its inumerable functions, and one of the most important, is
the supervision of all corporations, partnerships or associations, who are grantees or primary franchise and/or a license or permit issued by the government to
operate in the Philippines.[2] Just how far this regulatory authority extends, particularly, with regard to the Petitioner Philippine Stock Exchange, Inc. is the issue in the
case at bar.

In this Petition for Review of Certiorari, petitioner assails the resolution of the respondent Court of Appeals, dated June 27, 1996, which affirmed the decision
of the Securities and Exchange Commission ordering the petitioner Philippine Stock Exchange, Inc. to allow the private respondent Puerto Azul Land, Inc. to be listed
in its stock market, thus paving the way for the public offering of PALIs shares.

The facts of the case are undisputed, and are hereby restated in sum.

The Puerto Azul Land, Inc. (PALI), a domestic real estate corporation, had sought to offer its shares to the public in order to raise funds allegedly to develop its
properties and pay its loans with several banking institutions. In January, 1995, PALI was issued a Permit to Sell its shares to the public by the Securities and Exchange
Commission (SEC). To facilitate the trading of its shares among investors, PALI sought to course the trading of its shares through the Philippine Stock Exchange, Inc.
(PSE), for which purpose it filed with the said stock exchange an application to list its shares, with supporting documents attached.

On February 8, 1996, the Listing Committee of the PSE, upon a perusal of PALIs application, recommended to the PSEs Board of Governors the approval of
PALIs listing application.

On February 14, 1996, before it could act upon PALIs application, the Board of Governors of PSE received a letter from the heirs of Ferdinand E. Marcos,
claiming that the late President Marcos was the legal and beneficial owner of certain properties forming part of the Puerto Azul Beach Hotel and Resort Complex
which PALI claims to be among its assets and that the Ternate Development Corporation, which is among the stockholders of PALI, likewise appears to have been held
and continue to be held in trust by one Rebecco Panlilio for then President Marcos and now, effectively for his estate, and requested PALIs application to be
deferred. PALI was requested to comment upon the said letter.

PALIs answer stated that the properties forming part of Puerto Azul Beach Hotel and Resort Complex were not claimed by PALI as its assets. On the contrary,
the resort is actually owned by Fantasia Filipina Resort, Inc. and the Puerto Azul Country Club, entities distinct from PALI. Furthermore, the Ternate Development
Corporation owns only 1.20% of PALI. The Marcoses responded that their claim is not confined to the facilities forming part of the Puerto Azul Hotel and Resort
Complex, thereby implying that they are also asserting legal and beneficial ownership of other properties titled under the name of PALI.

47
 On February 20, 1996, the PSE wrote Chairman Magtanggol Gunigundo of the Presidential Commission on Good Government (PCGG) requesting for comments
on the letter of the PALI and the Marcoses. On March 4, 1996, the PSE was informed that the Marcoses received a Temporary Restraining Order on the same date,
enjoining the Marcoses from, among others, further impeding, obstructing, delaying or interfering in any manner by or any means with the consideration, processing
and approval by the PSE of the initial public offering of PALI. The TRO was issued by Judge Martin S. Villarama, Executive Judge of the RTC of Pasig City in Civil Case
No. 65561, pending in Branch 69 thereof.

In its regular meeting held on March 27, 1996, the Board of Governors of the PSE reached its decision to reject PALIs application, citing the existence of serious
claims, issues and circumstances surrounding PALIs ownership over its assets that adversely affect the suitability of listing PALIs shares in the stock exchange.

On April 11, 1996, PALI wrote a letter to the SEC addressed to the then Acting Chairman, Perfecto R. Yasay, Jr., bringing to the SECs attention the action taken
by the PSE in the application of PALI for the listing of its shares with the PSE, and requesting that the SEC, in the exercise of its supervisory and regulatory powers over
stock exchanges under Section 6(j) of P.D. No. 902-A, review the PSEs action on PALIs listing application and institute such measures as are just and proper and under
the circumstances.

On the same date, or on April 11, 1996, the SEC wrote to the PSE, attaching thereto the letter of PALI and directing the PSE to file its comments thereto within
five days from its receipt and for its authorized representative to appear for an inquiry on the matter. On April 22, 1996, the PSE submitted a letter to the SEC
containing its comments to the April 11, 1996 letter of PALI.

On April 24, 1996, the SEC rendered its Order, reversing the PSEs decision. The dispositive portion of the said order reads:

WHEREFORE, premises considered, and invoking the Commissioners authority and jurisdiction under Section 3 of the Revised Securities Act, in conjunction with
Section 3, 6(j) and 6(m) of the Presidential Decree No. 902-A, the decision of the Board of Governors of the Philippine Stock Exchange denying the listing of shares of
Puerto Azul Land, Inc., is hereby set aside, and the PSE is hereby ordered to immediately cause the listing of the PALI shares in the Exchange, without prejudice to its
authority to require PALI to disclose such other material information it deems necessary for the protection of the investing public.

This Order shall take effect immediately.

SO ORDERED.

PSE filed a motion for reconsideration of the said order on April 29, 1996, which was, however denied by the Commission in its May 9, 1996 Order which
states:

WHEREFORE, premises considered, the Commission finds no compelling reason to consider its order dated April 24, 1996, and in the light of recent developments on
the adverse claim against the PALI properties, PSE should require PALI to submit full disclosure of material facts and information to protect the investing public. In this
regard, PALI is hereby ordered to amend its registration statements filed with the Commission to incorporate the full disclosure of these material facts and
information.

Dissatisfied with this ruling, the PSE filed with the Court of Appeals on May 17, 1996 a Petition for Review (with application for Writ of Preliminary Injunction
and Temporary Restraining Order), assailing the above mentioned orders of the SEC, submitting the following as errors of the SEC:

I. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN ISSUING THE ASSAILED ORDERS WITHOUT POWER, JURISDICTION, OR
AUTHORITY; SEC HAS NO POWER TO ORDER THE LISTING AND SALE OF SHARES OF PALI WHOSE ASSETS ARE SEQUESTERED AND TO REVIEW AND
SUBSTITUTE DECISIONS OF PSE ON LISTING APPLICATIONS;

II. SEC COMMITTED SERIOUS ERROR AND GRAVE ABUSE OF DISCRETION IN FINDING THAT PSE ACTED IN AN ARBITRARY AND ABUSIVE MANNER IN
DISAPPROVING PALIS LISTING APPLICATION;

III. THE ASSAILED ORDERS OF SEC ARE ILLEGAL AND VOID FOR ALLOWING FURTHER DISPOSITION OF PROPERTIES IN CUSTODIA LEGIS AND WHICH FORM
PART OF NAVAL/MILITARY RESERVATION; AND

IV. THE FULL DISCLOSURE OF THE SEC WAS NOT PROPERLY PROMULGATED AND ITS IMPLEMENTATION AND APPLICATION IN THIS CASE VIOLATES THE
DUE PROCESS CLAUSE OF THE CONSTITUTION.

On June 4, 1996, PALI filed its Comment to the Petition for Review and subsequently, a Comment and Motion to Dismiss. On June 10, 1996, PSE filed its Reply
to Comment and Opposition to Motion to Dismiss.

On June 27, 1996, the Court of Appeals promulgated its Resolution dismissing the PSEs Petition for Review. Hence, this Petition by the PSE.

The appellate court had ruled that the SEC had both jurisdiction and authority to look into the decision of the petitioner PSE, pursuant to Section 3[3] of the
Revised Securities Act in relation to Section 6(j) and 6(m)[4] of P.D. No. 902-A, and Section 38(b)[5] of the Revised Securities Act, and for the purpose of ensuring fair
administration of the exchange. Both as a corporation and as a stock exchange, the petitioner is subject to public respondents jurisdiction, regulation and
control. Accepting the argument that the public respondent has the authority merely to supervise or regulate, would amount to serious consequences, considering
that the petitioner is a stock exchange whose business is impressed with public interest. Abuse is not remote if the public respondent is left without any system of
control. If the securities act vested the public respondent with jurisdiction and control over all corporations; the power to authorize the establishment of stock
exchanges; the right to supervise and regulate the same; and the power to alter and supplement rules of the exchange in the listing or delisting of securities, then the
law certainly granted to the public respondent the plenary authority over the petitioner; and the power of review necessarily comes within its authority.

All in all, the court held that PALI complied with all the requirements for public listing, affirming the SECs ruling to the effect that:

x x x the Philippine Stock Exchange has acted in an arbitrary and abusive manner in disapproving the application of PALI for listing of its shares in the face of the
following considerations:
48
1. PALI has clearly and admittedly complied with the Listing Rules and full disclosure requirements of the Exchange;

2. In applying its clear and reasonable standards on the suitability for listing of shares, PSE has failed to justify why it acted differently on the application of PALI, as
compared to the IPOs of other companies similarly that were allowed listing in the Exchange;

3. It appears that the claims and issues on the title to PALIs properties were even less serious than the claims against the assets of the other companies in that, the
assertions of the Marcoses that they are owners of the disputed properties were not substantiated enough to overcome the strength of a title to properties issued
under the Torrens System as evidence of ownership thereof;

4. No action has been filed in any court of competent jurisdiction seeking to nullify PALIs ownership over the disputed properties, neither has the government
instituted recovery proceedings against these properties. Yet the import of PSEs decision in denying PALIs application is that it would be PALI, not the Marcoses, that
must go to court to prove the legality of its ownership on these properties before its shares can be listed.

In addition, the argument that the PALI properties belong to the Military/Naval Reservation does not inspire belief. The point is, the PALI properties are now
titled. A property losses its public character the moment it is covered by a title. As a matter of fact, the titles have long been settled by a final judgment; and the final
decree having been registered, they can no longer be re-opened considering that the one year period has already passed. Lastly, the determination of what standard
to apply in allowing PALIs application for listing, whether the discretion method or the system of public disclosure adhered to by the SEC, should be addressed to the
Securities Commission, it being the government agency that exercises both supervisory and regulatory authority over all corporations.

On August 15, 1996, the PSE, after it was granted an extension, filed an instant Petition for Review on Certiorari, taking exception to the rulings of the SEC and
the Court of Appeals. Respondent PALI filed its Comment to the petition on October 17, 1996. On the same date, the PCGG filed a Motion for Leave to file a Petition
for Intervention. This was followed up by the PCGGs Petition for Intervention on October 21, 1996. A supplemental Comment was filed by PALI on October 25,
1997. The Office of the Solicitor General, representing the SEC and the Court of Appeals, likewise filed its Comment on December 26, 1996. In answer to the PCGGs
motion for leave to file petition for intervention, PALI filed its Comment thereto on January 17, 1997, whereas the PSE filed its own Comment on January 20, 1997.

On February 25, 1996, the PSE filed its Consolidated Reply to the comments of respondent PALI (October 17, 1996) and the Solicitor General (December 26,
1996). On may 16, 1997, PALI filed its Rejoinder to the said consolidated reply of PSE.

PSE submits that the Court of Appeals erred in ruling that the SEC had authority to order the PSE to list the shares of PALI in the stock exchange. Under
presidential decree No. 902-A, the powers of the SEC over stock exchanges are more limited as compared to its authority over ordinary corporations. In connection
with this, the powers of the SEC over stock exchanges under the Revised Securities Act are specifically enumerated, and these do not include the power to reverse the
decisions of the stock exchange. Authorities are in abundance even in the United States, from which the countrys security policies are patterned, to the effect of
giving the Securities Commission less control over stock exchanges, which in turn are given more lee-way in making the decision whether or not to allow corporations
to offer their stock to the public through the stock exchange. This is in accord with the business judgment rule whereby the SEC and the courts are barred from
intruding into business judgments of corporations, when the same are made in good faith. The said rule precludes the reversal of the decision of the PSE to deny
PALIs listing application, absent a showing a bad faith on the part of the PSE. Under the listing rule of the PSE, to which PALI had previously agreed to comply, the PSE
retains the discretion to accept or reject applications for listing. Thus, even if an issuer has complied with the PSE listing rules and requirements, PSE retains the
discretion to accept or reject the issuers listing application if the PSE determines that the listing shall not serve the interests of the investing public.

Moreover, PSE argues that the SEC has no jurisdiction over sequestered corporations, nor with corporations whose properties are under sequestration. A
reading of Republic of the Philippines vs. Sandiganbayan, G.R. No. 105205, 240 SCRA 376, would reveal that the properties of PALI, which were derived from the
Ternate Development Corporation (TDC) and the Monte del Sol Development Corporation (MSDC), are under sequestration by the PCGG, and the subject of forfeiture
proceedings in the Sandiganbayan. This ruling of the Court is the law of the case between the Republic and the TDC and MSDC. It categorically declares that the assets
of these corporations were sequestered by the PCGG on March 10, 1986 and April 4, 1988.

It is, likewise, intimidated that the Court of Appeals sanction that PALIs ownership over its properties can no longer be questioned, since certificates of title
have been issued to PALI and more than one year has since lapsed, is erroneous and ignores well settled jurisprudence on land titles. That a certificate of title issued
under the Torrens System is a conclusive evidence of ownership is not an absolute rule and admits certain exceptions. It is fundamental that forest lands or military
reservations are non-alienable. Thus, when a title covers a forest reserve or a government reservation, such title is void.

PSE, likewise, assails the SECs and the Court of Appeals reliance on the alleged policy of full disclosure to uphold the listing of the PALIs shares with the PSE, in
the absence of a clear mandate for the effectivity of such policy. As it is, the case records reveal the truth that PALI did not comply with the listing rules and disclosure
requirements. In fact, PALIs documents supporting its application contained misrepresentations and misleading statements, and concealed material information. The
matter of sequestration of PALIs properties and the fact that the same form part of military/naval/forest reservations were not reflected in PALIs application.

It is undeniable that the petitioner PSE is not an ordinary corporation, in that although it is clothed with the marking of a corporate entity, its functions as the
primary channel through which the vessels of capital trade ply. The PSEs relevance to the continued operation and filtration of the securities transactions in the
country gives it a distinct color of importance such that government intervention in its affairs becomes justified, if not necessary. Indeed, as the only operational stock
exchange in the country today, the PSE enjoys a monopoly of securities transactions, and as such, it yields an immense influence upon the countrys economy.

Due to this special nature of stock exchanges, the countrys lawmakers has seen it wise to give special treatment to the administration and regulation of stock
exchanges.[6]

These provisions, read together with the general grant of jurisdiction, and right of supervision and control over all corporations under Sec. 3 of P.D. 902-A, give
the SEC the special mandate to be vigilant in the supervision of the affairs of stock exchanges so that the interests of the investing public may be fully safeguarded.

Section 3 of Presidential Decree 902-A, standing alone, is enough authority to uphold the SECs challenged control authority over the petitioner PSE even as it
provides that the Commission shall have absolute jurisdiction, supervision, and control over all corporations, partnerships or associations, who are the grantees of
primary franchises and/or a license or permit issued by the government to operate in the Philippines The SECs regulatory authority over private corporations
encompasses a wide margin of areas, touching nearly all of a corporations concerns. This authority springs from the fact that a corporation owes its existence to the
concession of its corporate franchise from the state.

49
 The SECs power to look into the subject ruling of the PSE, therefore, may be implied from or be considered as necessary or incidental to the carrying out of the
SECs express power to insure fair dealing in securities traded upon a stock exchange or to ensure the fair administration of such exchange.[7] It is, likewise, observed
that the principal function of the SEC is the supervision and control over corporations, partnerships and associations with the end in view that investment in these
entities may be encouraged and protected, and their activities pursued for the promotion of economic development.[8]

Thus, it was in the alleged exercise of this authority that the SEC reversed the decision of the PSE to deny the application for listing in the stock exchange of the
private respondent PALI. The SECs action was affirmed by the Court of Appeals.

We affirm that the SEC is the entity with the primary say as to whether or not securities, including shares of stock of a corporation, may be traded or not in the
stock exchange. This is in line with the SECs mission to ensure proper compliance with the laws, such as the Revised Securities Act and to regulate the sale and
disposition of securities in the country.[9] As the appellate court explains:

Paramount policy also supports the authority of the public respondent to review petitioners denial of the listing. Being a stock exchange, the petitioner performs a
function that is vital to the national economy, as the business is affected with public interest. As a matter of fact, it has often been said that the economy moves on
the basis of the rise and fall of stocks being traded. By its economic power, the petitioner certainly can dictate which and how many users are allowed to sell
securities thru the facilities of a stock exchange, if allowed to interpret its own rules liberally as it may please. Petitioner can either allow or deny the entry to the
market of securities. To repeat, the monopoly, unless accompanied by control, becomes subject to abuse; hence, considering public interest, then it should be subject
to government regulation.

The role of the SEC in our national economy cannot be minimized. The legislature, through the Revised Securities Act, Presidential Decree No. 902-A, and other
pertinent laws, has entrusted to it the serious responsibility of enforcing all laws affecting corporations and other forms of associations not otherwise vested in some
other government office.[10]

This is not to say, however, that the PSEs management prerogatives are under the absolute control of the SEC. The PSE is, after all, a corporation authorized by
its corporate franchise to engage in its proposed and duly approved business. One of the PSEs main concerns, as such, is still the generation of profit for its
stockholders. Moreover, the PSE has all the rights pertaining to corporations, including the right to sue and be sued, to hold property in its own name, to enter (or not
to enter) into contracts with third persons, and to perform all other legal acts within its allocated express or implied powers.

A corporation is but an association of individuals, allowed to transact under an assumed corporate name, and with a distinct legal personality. In organizing
itself as a collective body, it waives no constitutional immunities and perquisites appropriate to such body. [11] As to its corporate and management decisions,
therefore, the state will generally not interfere with the same. Questions of policy and of management are left to the honest decision of the officers and directors of a
corporation, and the courts are without authority to substitute their judgment for the judgment of the board of directors. The board is the business manager of the
corporation, and so long as it acts in good faith, its orders are not reviewable by the courts.[12]

Thus, notwithstanding the regulatory power of the SEC over the PSE, and the resultant authority to reverse the PSEs decision in matters of application for
listing in the market, the SEC may exercise such power only if the PSEs judgment is attended by bad faith. In board of Liquidators vs. Kalaw,[13] it was held that bad
faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral obliquity and conscious doing of wrong. It means a breach
of a known duty through some motive or interest of ill will, partaking of the nature of fraud.

In reaching its decision to deny the application for listing of PALI, the PSE considered important facts, which in the general scheme, brings to serious question
the qualification of PALI to sell its shares to the public through the stock exchange. During the time for receiving objections to the application, the PSE heard from the
representative of the late President Ferdinand E. Marcos and his family who claim the properties of the private respondent to be part of the Marcos estate. In time,
the PCGG confirmed this claim. In fact, an order of sequestration has been issued covering the properties of PALI, and suit for reconveyance to the state has been
filed in the Sandiganbayan Court. How the properties were effectively transferred, despite the sequestration order, from the TDC and MSDC to Rebecco Panlilio, and
to the private respondent PALI, in only a short span of time, are not yet explained to the Court, but it is clear that such circumstances give rise to serious doubt as to
the integrity of PALI as a stock issuer. The petitioner was in the right when it refused application of PALI, for a contrary ruling was not to the best interest of the
general public. The purpose of the Revised Securities Act, after all, is to give adequate and effective protection to the investing public against fraudulent
representations, or false promises, and the imposition of worthless ventures.[14]

It is to be observed that the U.S. Securities Act emphasized its avowed protection to acts detrimental to legitimate business, thus:

The Securities Act, often referred to as the truth in securities Act, was designed not only to provide investors with adequate information upon which to base their
decisions to buy and sell securities, but also to protect legitimate business seeking to obtain capital through honest presentation against competition form crooked
promoters and to prevent fraud in the sale of securities. (Tenth Annual Report, U.S. Securities and Exchange Commission, p. 14).

As has been pointed out, the effects of such an act are chiefly (1) prevention of excesses and fraudulent transactions, merely by requirement of that details be
revealed; (2) placing the market during the early stages of the offering of a security a body of information, which operating indirectly through investment services and
expert investors, will tend to produce a more accurate appraisal of a security. x x x. Thus, the Commission may refuse to permit a registration statement to become
effective if it appears on its face to be incomplete or inaccurate in any material respect, and empower the Commission to issue a stop order suspending the
effectiveness of any registration statement which is found to include any untrue statement of a material fact or to omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. (Idem).

Also, as the primary market for securities, the PSE has established its name and goodwill, and it has the right to protect such goodwill by maintaining a
reasonable standard of propriety in the entities who choose to transact through its facilities. It was reasonable for PSE, therefore, to exercise its judgment in the
manner it deems appropriate for its business identity, as long as no rights are trampled upon, and public welfare is safeguarded.

In this connection, it is proper to observe that the concept of government absolutism in a thing of the past, and should remain so.

The observation that the title of PALI over its properties is absolute and can no longer be assailed is of no moment. At this juncture, there is the claim that the
properties were owned by the TDC and MSDC and were transferred in violation of sequestration orders, to Rebecco Panlilio and later on to PALI, besides the claim of
the Marcoses that such properties belong to Marcos estate, and were held only in trust by Rebecco Panlilio. It is also alleged by the petitioner that these properties
50
belong to naval and forest reserves, and therefore beyond private dominion. If any of these claims is established to be true, the certificates of title over the subject
properties now held by PALI may be disregarded, as it is an established rule that a registration of a certificate of title does not confer ownership over the properties
described therein to the person named as owner. The inscription in the registry, to be effective, must be made in good faith. The defense of indefeasibility of a
Torrens Title does not extend to a transferee who takes the certificate of title with notice of a flaw.

In any case, for the purpose of determining whether PSE acted correctly in refusing the application of PALI, the true ownership of the properties of PALI need
not be determined as an absolute fact. What is material is that the uncertainty of the properties ownership and alienability exists, and this puts to question the
qualification of PALIs public offering. In sum, the Court finds that the SEC had acted arbitrarily in arrogating unto itself the discretion of approving the application for
listing in the PSE of the private respondent PALI, since this is a matter addressed to the sound discretion of the PSE, a corporate entity, whose business judgments are
respected in the absence of bad faith.

The question as to what policy is, or should be relied upon in approving the registration and sale of securities in the SEC is not for the Court to determine, but is
left to the sound discretion of the Securities and Exchange Commission. In mandating the SEC to administer the Revised Securities Act, and in performing its other
functions under pertinent laws, the Revised Securities Act, under Section 3 thereof, gives the SEC the power to promulgate such rules and regulations as it may
consider appropriate in the public interest for the enforcement of the said laws. The second paragraph of Section 4 of the said law, on the other hand, provides that
no security, unless exempt by law, shall be issued, endorsed, sold, transferred or in any other manner conveyed to the public, unless registered in accordance with
the rules and regulations that shall be promulgated in the public interest and for the protection of investors by the Commission. Presidential Decree No. 902-A, on the
other hand, provides that the SEC, as regulatory agency, has supervision and control over all corporations and over the securities market as a whole, and as such, is
given ample authority in determining appropriate policies. Pursuant to this regulatory authority, the SEC has manifested that it has adopted the policy of full material
disclosure where all companies, listed or applying for listing, are required to divulge truthfully and accurately, all material information about themselves and the
securities they sell, for the protection of the investing public, and under pain of administrative, criminal and civil sanctions. In connection with this, a fact is deemed
material if it tends to induce or otherwise effect the sale or purchase of its securities.[15] While the employment of this policy is recognized and sanctioned by laws,
nonetheless, the Revised Securities Act sets substantial and procedural standards which a proposed issuer of securities must satisfy.[16] Pertinently, Section 9 of the
Revised Securities Act sets forth the possible Grounds for the Rejection of the registration of a security:

- - The Commission may reject a registration statement and refuse to issue a permit to sell the securities included in such registration statement if it finds that - -

(1) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue statement of a material fact or omits to state a
material facts required to be stated therein or necessary to make the statements therein not misleading; or
(2) The issuer or registrant - -
(i) is not solvent or not is sound financial condition;
(ii) has violated or has not complied with the provisions of this Act, or the rules promulgated pursuant thereto, or any order of the Commission;
(iii) has failed to comply with any of the applicable requirements and conditions that the Commission may, in the public interest and for the protection of investors,
impose before the security can be registered;
(iv) had been engaged or is engaged or is about to engaged in fraudulent transactions;
(v) is in any was dishonest of is not of good repute; or
(vi) does not conduct its business in accordance with law or is engaged in a business that is illegal or contrary or government rules and regulations.
(3) The enterprise or the business of the issuer is not shown to be sound or to be based on sound business principles;
(4) An officer, member of the board of directors, or principal stockholder of the issuer is disqualified to such officer, director or principal stockholder; or

(5) The issuer or registrant has not shown to the satisfaction of the Commission that the sale of its security would not work to the prejudice to the public interest or
as a fraud upon the purchaser or investors. (Emphasis Ours)

A reading of the foregoing grounds reveals the intention of the lawmakers to make the registration and issuance of securities dependent, to a certain extent,
on the merits of the securities themselves, and of the issuer, to be determined by the Securities and Exchange Commission. This measure was meant to protect the
interest of the investing public against fraudulent and worthless securities, and the SEC is mandated by law to safeguard these interests, following the policies and
rules therefore provided. The absolute reliance on the full disclosure method in the registration of securities is, therefore, untenable. At it is, the Court finds that the
private respondent PALI, on at least two points (nos. 1 and 5) has failed to support the propriety of the issue of its shares with unfailing clarity, thereby lending
support to the conclusion that the PSE acted correctly in refusing the listing of PALI in its stock exchange. This does not discount the effectivity of whatever method
the SEC, in the exercise of its vested authority, chooses in setting the standard for public offerings of corporations wishing to do so. However, the SEC must recognize
and implement the mandate of the law, particularly the Revised Securities Act, the provisions of which cannot be amended or supplanted my mere administrative
issuance.

In resum, the Court finds that the PSE has acted with justified circumspection, discounting, therefore, any imputation of arbitrariness and whimsical animation
on its part. Its action in refusing to allow the listing of PALI in the stock exchange is justified by the law and by the circumstances attendant to this case.

ACCORDINGLY, in view of the foregoing considerations, the Court hereby GRANTS the Petition for Review on Certiorari. The decisions of the Court of Appeals
and the Securities and Exchage Commission dated July 27, 1996 and April 24, 1996, respectively, are hereby REVERSED and SET ASIDE, and a new Judgment is hereby
ENTERED, affirming the decision of the Philippine Stock Exchange to deny the application for listing of the private respondent Puerto Azul Land, Inc.

SO ORDERED.

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