[G.R. No. 179640.

March 18, 2015]

HACIENDA CATAYWA/MANUEL VILLANUEVA,
owner, JOEMARIE VILLANUEVA, manager, MANCY
AND SONS ENTERPRISES,
INC., petitioners, vs. ROSARIO LOREZO, respondent.

DECISION

PERALTA, J : p

Before this Court is a petition for review on certiorari dated

September 28, 2007 of petitioner Hacienda Cataywa, Manuel Villanueva, et
al., (petitioners) seeking to reverse and set aside the Resolutions, dated
October 17, 2006 1 and August 10, 2007, 2 respectively, of the Court of
Appeals (CA) and the Resolution and Order, dated October 12, 2005 and
March 8, 2006, respectively, of the Social Security Commission, ordering
petitioners to pay jointly and severally all delinquent contributions, 3%
penalty per month of delayed payment and damages to respondent Rosario
Lorezo.
The antecedent facts follow:
On October 22, 2002, respondent Rosario Lorezo received, upon
inquiry, a letter from the Social Security System (SSS)Western Visayas
Group informing her that she cannot avail of their retirement benefits since
per their record she has only paid 16 months. Such is 104 months short of the
minimum requirement of 120 months payment to be entitled to the benefit.
She was also informed that their investigation of her alleged employment
under employer Hda. Cataywa could not be confirmed because Manuel
Villanueva was permanently residing in Manila and Joemarie Villanueva
denied having managed the farm. She was also advised of her options:
continue paying contributions as voluntary member; request for refund; leave
her contributions in-trust with the System, or file a petition before the Social
Security Commission (SSC) so that liabilities, if any, of her employer may be
determined. 3
Aggrieved, respondent then filed her Amended Petition dated
September 30, 2003, before the SSC. She alleged that she was employed as
laborer in Hda. Cataywa managed by Jose Marie Villanueva in 1970 but was
reported to the SSS only in 1978. She alleged that SSS contributions were
deducted from her wages from 1970 to 1995, but not all were remitted to the
SSS which, subsequently, caused the rejection of her claim. She also
impleaded Talisay Farms, Inc. by virtue of its Investment Agreement with
Mancy and Sons Enterprises. She also prayed that the veil of corporate
fiction be pierced since she alleged that Mancy and Sons Enterprises and
Manuel and Jose Marie Villanueva are one and the same. 4
Petitioners Manuel and Jose Villanueva refuted in their answer, the
allegation that not all contributions of respondent were remitted. Petitioners
alleged that all farm workers of Hda. Cataywa were reported and their
contributions were duly paid and remitted to SSS. It was the late Domingo
Lizares, Jr. who managed and administered the hacienda. 5 While, Talisay
Farms, Inc. filed a motion to dismiss on the ground of lack of cause of action
in the absence of an allegation that there was an employer-employee
relationship between Talisay Farms and respondent. 6
Consequently, the SSC rendered its Resolution dated October 12,
2005, thus:
WHEREFORE, PREMISES CONSIDERED, this
Commission finds, and so holds, that Rosario M. Lorezo was a
regular employee subject to compulsory coverage of
Hda. Cataywa/Manuel Villanueva/Mancy and Sons Enterprises, Inc.
within the period of 1970 to February 25, 1990. In view thereof, the
aforenamed respondents are hereby ordered to pay jointly and
severally, within thirty (30) days from receipt hereof, all delinquent
contributions within the proven employment period computed in
accordance with the then prevailing minimum wage (at 11 months
per year) in the amount of P8,293.90, the 3% per month penalty on
the delayed payment of contributions in the amount of P59,786.10
(computed as of September 9, 2005), pursuant to Section 22 of the
SS Law and the damages in the amount of P32,356.21 for
misrepresentation of the real date of employment, pursuant to
Section 24 (b) of the said statute.
The SSS, on the other hand, is ordered to pay (subject to
existing rules and regulations) petitioner Rosario M. Lorezo her
retirement benefit, upon the filing of the claim therefor, and to
inform this Commission of its compliance herewith.
SO ORDERED. 7
The SSC denied petitioners' Motion for Reconsideration. The
petitioner, then, elevated the case before the CA where the case was
dismissed outrightly due to technicalities, thus:
The Court Resolved to DISMISS the instant petition on the
basis of the following observations:
 1. Signatory to the Verification failed to attach his
authority to sign for and [in] behalf of the other
Petitioners. (Violation of Section 5, Rule 43 of the
Rules of Court, in relation to Section 7, Rule 45 of the
Rules of Court)
2. Certified true copies of pleadings and documents
relevant and pertinent to the petition are incomplete, to
wit:
— Petitioner failed to attach the following:
— Petition/Amended Petition filed before the
SSS of Makati City
— Respondents' Answer filed before the SSS
of Makati City
— Parties' respective position paper filed
before the SSS of Makati City
— Parties' respective memorandum of appeal
filed before the Commission
(Violation of Section 6, Rule 43 of the Rules of Court,
in relation to Section 7, Rule 43 of the Rules of
Court) 8
Following the denial of petitioners' Motion for Reconsideration of the
CA, petitioner filed with this Court the present petition stating the following
grounds:
1) THE HONORABLE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR IN STRICTLY AND RIGIDLY
APPLYING THE TECHNICAL RULES OF PROCEDURE AND
DISMISSING THE CASE ON TECHNICALITY WITHOUT
EVALUATING THE MERITS OF THE CASE;
2) THE [SSC] COMMITTED REVERSIBLE ERROR IN
MAKING CONCLUSIONS FOUNDED ON SPECULATIONS
AND SURMISES NOT CONFORMING TO EVIDENCE ON
RECORD, MAKING MANIFESTLY MISTAKEN INFERENCES,
AND RENDERING JUDGMENT BASED ON
MISAPPREHENSION OF FACTS AND MISAPPLICATION OF
THE LAW, RULING AND RENDERING JUDGMENT THAT:
a) RESPONDENT WORKED FROM 1970 TO
FEBRUARY 25, 1990
 b) PETITIONERS ARE LIABLE FOR
DELINQUENT CONTRIBUTIONS
c) PETITIONERS ARE LIABLE FOR 3% PER
MONTH PENALTY
d) PETITIONERS ARE LIABLE FOR DAMAGES
DUE TO MISREPRESENTATION
e) MANCY & SONS ENTERPRISES, INC. AND
MANUEL VILLANUEVA ARE ONE AND THE
SAME. 9
The petition is partially meritorious.
Petitioners argues that the CA has been too rigid in the application of
the rules of procedure in dismissing the appeal without evaluation of the
merits.
This Court has emphasized that procedural rules should be treated
with utmost respect and due regard, since they are designed to facilitate the
adjudication of cases to remedy the worsening problem of delay in the
resolution of rival claims and in the administration of justice. However, this
Court has recognized exceptions to the Rules, but only for the most
compelling reasons where stubborn obedience to the Rules would defeat
rather than serve the ends of justice. 10
As in the case of Obut v. Court of Appeals, 11 this Court held that
"judicial orders are issued to be obeyed, nonetheless a non-compliance is to
be dealt with as the circumstances attending the case may warrant. What
should guide judicial action is the principle that a party-litigant is to be given
the fullest opportunity to establish the merits of his complaint of defense
rather than for him to lose life, liberty, honor or property on technicalities." 12
When the CA dismisses a petition outright and the petitioner files a
motion for the reconsideration of such dismissal, appending thereto the
requisite pleadings, documents or order/resolution, this would constitute
substantial compliance with the Revised Rules of Court. 13 Thus, in the
present case, there was substantial compliance when in their Motion for
Reconsideration, they attached a secretary certificate giving Joemarie's
authority to sign on behalf of the corporation. Petitioners also included the
necessary attachment. 14
At the outset, it is settled that this Court is not a trier of facts and will
not weigh evidence all over again. 15 However, considering the issues raised
which can be resolved on the basis of the pleadings and documents filed, and
the fact that respondent herself has asked this Court for early resolution, this
Court deems it more practical and in the greater interest of justice not to
remand the case to the CA but, instead, to resolve the controversy once and
for all.
Petitioners are of the opinion that the SSC committed reversible error
in making conclusions founded on speculations and surmises that respondent
worked from 1970 to February 25, 1990. Petitioners argue that the SSC did
not give credence nor weight at all to the existing SSS Form R-1A and farm
bookkeeper Wilfredo Ibalobor. Petitioners insist that after thirty long years,
all the records of the farm were already destroyed by termites and elements,
thus, they relied on the SSS Form R-1A as the only remaining source of
information available. Petitioners also alleged that respondent was a very
casual worker.
This Court disagrees.
It was settled that there is no particular form of evidence required to
prove the existence of the employer-employee relationship. Any competent
and relevant evidence to prove such relationship may be admitted. This may
entirely be testimonial. 16 If only documentary evidence would be required to
demonstrate the relationship, no scheming employer would be brought
before the bar of justice. 17 Petitioners erred in insisting that, due to passage
of time, SSS Form R-1A is the only remaining source of information
available to prove when respondent started working for them. However, such
form merely reflected the time in which the petitioners reported the
respondent for coverage of the SSS benefit. They failed to substantiate their
claim that it was only in 1978 that respondent reported for work.
The records are bereft of any showing that Demetria Denaga and
Susano Jugue harbored any ill will against the petitioners prompting them to
execute false affidavit. There lies no reason for this Court not to afford full
faith and credit to their testimonies. Denaga, in her Joint Affidavit with Jugue,
stated that she and respondent started working in Hda. Cataywa in 1970 and
like her, she was reported to the SSS on December 19, 1978. 18 It was also
revealed in the records that the SSC found that Denaga was employed by
Manuel Villanueva at Hda. Cataywa from 1970 to December 1987. 19
Jurisprudence has identified the three types of employees mentioned
in the provision 20 of the Labor Code: (1) regular employees or those who
have been engaged to perform activities that are usually necessary or
desirable in the usual business or trade of the employer; (2) project
employees or those whose employment has been fixed for a specific project
or undertaking, the completion or termination of which has been determined
at the time of their engagement, or those whose work or service is seasonal in
nature and is performed for the duration of the season; and (3) casual
employees or those who are neither regular nor project employees. 21
Farm workers generally fall under the definition of seasonal
employees. 22 It was also consistently held that seasonal employees may be
considered as regular employees when they are called to work from time to
time. 23 They are in regular employment because of the nature of the job, and
not because of the length of time they have worked. However, seasonal
workers who have worked for one season only may not be considered regular
employees. 24
The nature of the services performed and not the duration thereof, is
determinative of coverage under the law. 25 To be exempted on the basis of
casual employment, the services must not merely be irregular, temporary or
intermittent, but the same must not also be in connection with the business or
occupation of the employer. 26 Thus, it is erroneous for the petitioners to
conclude that the respondent was a very casual worker simply because the
SSS form revealed that she had 16 months of contributions. It does not, in
any way, prove that the respondent performed a job which is not in
connection with the business or occupation of the employer to be considered
as casual employee.
The test for regular employees to be considered as such has been
thoroughly explained in De Leon v. NLRC, 27 viz.:
The primary standard, therefore, of determining a regular
employment is the reasonable connection between the particular
activity performed by the employee in relation to the usual business
or trade of the employer. The test is whether the former is usually
necessary or desirable in the usual business or trade of the employer.
The connection can be determined by considering the nature of the
work performed and its relation to the scheme of the particular
business or trade in its entirety. Also, if the employee has been
performing the job for at least one year, even if the performance is
not continuous or merely intermittent, the law deems the repeated
and continuing need for its performance as sufficient evidence of the
necessity if not indispensability of that activity to the business.
Hence, the employment is also considered regular, but only with
respect to such activity and while such activity exists. 28
A reading of the records would reveal that petitioners failed to dispute
the allegation that the respondent performed hacienda work, such as planting
sugarcane point, fertilizing, weeding, replanting dead sugarcane fields and
routine miscellaneous hacienda work. 29 They merely alleged that respondent
was a very casual worker because she only rendered work for 16
months. 30 Thus, respondent is considered a regular seasonal worker and not
a casual worker as the petitioners alleged.
Petitioners also assert that the sugarcane cultivation covers only a
period of six months, thus, disproving the allegation of the respondent that
she worked for 11 months a year for 25 years. This Court has classified farm
workers as regular seasonal employees who are called to work from time to
time and the nature of their relationship with the employer is such that during
the off season, they are temporarily laid off; but reemployed during the
summer season or when their services may be needed. 31 Respondent,
therefore, as a farm worker is only a seasonal employee. Since petitioners
provided that the cultivation of sugarcane is only for six months, respondent
cannot be considered as regular employee during the months when there is no
cultivation.
Based on the foregoing facts and evidence on record, petitioners are
liable for delinquent contributions. It being proven by sufficient evidence
that respondent started working for the hacienda in 1970, it follows that
petitioners are liable for deficiency in the SSS contributions.
The imposition upon and payment by the delinquent employer of the
three percent (3%) penalty for the late remittance of premium contributions is
mandatory and cannot be waived by the System. The law merely gives to the
Commission the power to prescribe the manner of paying the premiums.
Thus, the power to remit or condone the penalty for late remittance of
premium contributions is not embraced therein. 32 Petitioners erred in
alleging that the imposition of penalty is not proper.
Petitioners also insist that the award of damages for misrepresentation
is without basis. This Court disagrees.
The law provides that should the employer misrepresent the true date
of the employment of the employee member, such employer shall pay to the
SSS damages equivalent to the difference between the amount of benefit to
which the employee member or his beneficiary is entitled had the proper
contributions been remitted to the SSS and the amount payable on the basis
of the contributions actually remitted. However, should the employee
member or his beneficiary is entitled to pension benefits, the damages shall
be equivalent to the accumulated pension due as of the date of settlement of
the claim or to the five years' pension, whichever is higher, including the
dependent's pension. 33
Lastly, petitioners aver that there is no legal basis to pierce the veil of
corporation entity.
 It was held in Rivera v. United Laboratories, Inc. 34 that:
While a corporation may exist for any lawful purpose, the
law will regard it as an association of persons or, in case of two
corporations, merge them into one, when its corporate legal entity is
used as a cloak for fraud or illegality. This is the doctrine of piercing
the veil of corporate fiction. The doctrine applies only when such
corporate fiction is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or when it is made as a shield to
confuse the legitimate issues, or where a corporation is the mere
alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of
another corporation. To disregard the separate juridical personality
of a corporation, the wrongdoing must be established clearly and
convincingly. It cannot be presumed. 35
This Court has cautioned against the inordinate application of this
doctrine, reiterating the basic rule that "the corporate veil may be pierced
only if it becomes a shield for fraud, illegality or inequity committed against
a third person. 36
The Court has expressed the language of piercing doctrine when
applied to alter ego cases, as follows: Where the stock of a corporation is
owned by one person whereby the corporation functions only for the benefit
of such individual owner, the corporation and the individual should be
deemed the same. 37
This Court agrees with the petitioners that there is no need to pierce
the corporate veil. Respondent failed to substantiate her claim that Mancy
and Sons Enterprises, Inc. and Manuel and Jose Marie Villanueva are one
and the same. She based her claim on the SSS form wherein Manuel
Villanueva appeared as employer. However, this does not prove, in any way,
that the corporation is used to defeat public convenience, justify wrong,
protect fraud, or defend crime, or when it is made as a shield to confuse the
legitimate issues, warranting that its separate and distinct personality be set
aside. Also, it was not alleged nor proven that Mancy and Sons Enterprises,
Inc. functions only for the benefit of Manuel Villanueva, thus, one cannot be
an alter ego of the other.
WHEREFORE, the petition for review on certiorari dated
September 28, 2007 of petitioners Hda. Cataywa, Manuel Villanueva, et al. is
hereby DENIED. Consequently, the resolution by the Social Security
Commission is hereby AFFIRMED with MODIFICATIONS that the
 delinquent contributions should be computed as six months per year of
service, and the case against Manuel and Jose Marie Villanueva
be DISMISSED.
SO ORDERED.
||| (Villanueva v. Lorezo, G.R. No. 179640, [March 18, 2015])

[G.R. No. 200857. October 22, 2014.]

FVR SKILLS AND SERVICES EXPONENTS, INC.
(SKILLEX), FULGENCIO V. RANA and MONINA R.
BURGOS,petitioners, vs. JOVERT SEVA, JOSUEL V.
VALENCERINA, JANET ALCAZAR, ANGELITO
AMPARO, BENJAMIN ANAEN JR., JOHN HILBERT
BARBA, BONIFACIO BATANG, JR., VALERIANO
BINGCO, JR., RONALD CASTRO, MARLON
CONSORTE, ROLANDO CORNELIO, EDITO
CULDORA, RUEL DUNCIL, MERVIN FLORES, LORD
GALISIM, SOTERO GARCIA, JR., REY GONZALES,
DANTE ISIP, RYAN ISMEN, JOEL JUNIO, CARLITO
LATOJA, ZALDY MARRA, MICHAEL PANTANO,
GLENN PILOTON, NORELDO QUIRANTE, ROEL
RANCE, RENANTE ROSARIO and LEONARDA
TANAEL,respondents.

DECISION

BRION, J : p

We resolve in this petition for review on certiorari 1 the challenge to the

December 22, 2011 decision 2 and the March 2, 2012 resolution 3 (assailed
CA rulings) of the Court of Appeals (CA) in CA-G.R. SP No. 120991. These
assailed CA rulings affirmed the April 28, 2011 decision 4 and the June 16, 2011
resolution 5 (NLRC rulings) of the National Labor Relations
Commission (NLRC) in NLRC LAC No. 08-001687-10 (NLRC NCR Case Nos.
08-11557-09 and 08-11399-09). The NLRC rulings in turn reversed and set
aside the June 4, 2010 decision 6 of the labor arbiter (LA).
Factual Antecedents
The twenty-eight (28) respondents in this case were employees of
petitioner FVR Skills and Services Exponents, Inc. (petitioner), an independent
contractor engaged in the business of providing janitorial and other manpower
services to its clients. As early as 1998, some of the respondents had already
been under the petitioner's employ.
(FVR Skills and Services Exponents, Inc. v. Seva, G.R. No. 200857, [October
|||

22, 2014])
On April 21, 2008, the petitioner entered into a Contract of Janitorial
Service 8 (service contract) with Robinsons Land Corporation (Robinsons).
Both agreed that the petitioner shall supply janitorial, manpower and sanitation
services to Robinsons Place Ermita Mall for a period of one year — from
January 1, 2008 to December 31, 2008. 9 Pursuant to this, the respondents were
deployed to Robinsons.
Halfway through the service contract, the petitioner asked the respondents to
execute individual contracts which stipulated that their respective employments
shall end on December 31, 2008, unless earlier terminated. 10
The petitioner and Robinsons no longer extended their contract of janitorial
services. Consequently, the petitioner dismissed the respondents as they were
project employees whose duration of employment was dependent on the
petitioner's service contract with Robinsons. SCcHIE

The respondents responded to the termination of their employment by filing a

complaint for illegal dismissal with the NLRC. They argued that they were not
project employees; they were regular employees who may only be dismissed for
just or authorized causes. 11 The respondents also asked for payment of their
unpaid wage differential, 13th month pay differential, service incentive leave
pay, holiday pay and separation pay. 12
The Labor Arbitration Rulings
The LA ruled in the petitioner's favor. He held that the respondents were not
regular employees. They were project employees whose employment was
dependent on the petitioner's service contract with Robinsons. Since this contract
was not renewed, the respondents' employment contracts must also be
terminated. 13
Also, in light of the petitioner's admission during the clarificatory hearing that
the respondents were entitled to their wage differential pay, 13th month
differential pay and holiday pay, the LA granted the respondents' money claims
in the amount of P103,501.01. 14
The respondents disagreed with the LA and appealed to the NLRC, which
reversed the LA's ruling, and held that they were regular employees. The NLRC
considered that the respondents had been under the petitioner's employ for more
than a year already, some of them as early as 1998.
Thus, as regular employees, the respondents may only be dismissed for just or
authorized causes, which the petitioner failed to show. The NLRC also awarded
the respondents their separation pay of one (1) month for every year of service as
well as their full backwages from February 1, 2009 — the date of their illegal
dismissal, until the finality of the decision. 15
The CA's Ruling
The CA dismissed the petitioner's certiorari petition and affirmed the NLRC's
decision.
The CA noted that the petitioner individually hired the respondents on various
dates from 1998 to 2007, to work as janitors, service crews and sanitation aides.
These jobs were necessary or desirable to the petitioner's business of providing
janitorial, manpower and sanitation services to its clients. The continuing need
for the respondents' services, which lasted for more than a year, validated that the
respondents were regular and not project employees. 16
The CA also ruled that the fixed term employment contracts signed by the
respondents had no binding effect. The petitioner only used these contracts to
justify the respondents' illegal dismissal; the petitioner never asked the
respondents to execute any contract since their initial hiring. Only after it
became apparent that the petitioner's service contract with Robinsons would not
be renewed (after its expiration on December 31, 2008), did the petitioner ask the
respondents to sign their employment contracts. 17 This circumstance, coupled
with the threat that the respondents would not be given their salaries if they
would not sign the contracts, showed the petitioner's intent to use the contracts to
prevent the respondents from attaining regular status.
Lastly, the CA held that petitioners Fulgencio V. Rana (Rana) and Monina R.
Burgos (Burgos), the president and general manager of FVR Skills and Services
Exponents, Inc., respectively, are solidarily liable with the corporation for the
payment of the respondents' monetary awards. As corporate officers, they acted
in bad faith when they intimidated the respondents in the course of asking them
to sign their individual employment contracts. 18
The Petition
The petitioner now submits that the CA erred in ruling that the respondents were
regular employees and that they had been illegally dismissed. The respondents'
contracts of employments did not only provide for a fixed term, but were also
dependent on the continued existence of the Robinsons' service
contract. 19 Since this main contract had not been renewed, the respondents'
respective employment contracts were properly terminated. Based on this
reasoning, no illegal dismissal took place, only the expiration of the respondents'
fixed term contracts.
In the absence of any illegal dismissal, the CA also erred in affirming the
NLRC's award of separation pay to the respondents.
Lastly, the petitioner asserts that Rana and Burgos should not be held solidarily
liable with the corporation for respondents' monetary claims; they have
personalities separate and distinct from the corporation.
The Case for the Respondents
The respondents reiterate that even before the execution of the petitioner's
service contract with Robinsons, they had already been working for the
petitioner between the years 1998 to 2007. Since their hiring, they had been
performing janitorial and other manpower activities that were necessary or
desirable to the petitioner's business. 20
They further argue that the employment contracts they executed were void since
these were signed under duress; the petitioner threatened not to release their
salaries if they would refuse to sign. 21
Lastly, the respondents assert that the CA did not err in holding Rana and Burgos
solidarily liable with the corporation. These officers acted in bad faith when they
obliged the respondents to execute the employment contracts under threat. 22
The Court's Ruling
We resolve to DENY the petition.
The respondents are regular
employees, not project employees.
Article 280 (now Article 294) 23 of the Labor Code governs the determination of
whether an employee is a regular or a project employee. 24
Under this provision, there are two kinds of regular employees, namely: (1)
those who were engaged to perform activities which are usually necessary or
desirable in the usual business or trade of the employer; and (2) those casual
employees who became regular after one year of service, whether continuous or
broken, but only with respect to the activity for which they have been hired.
We distinguish these two types of regular employees from a project employee, or
one whose employment was fixed for a specific project or undertaking, whose
completion or termination had been determined at the time of engagement.
A careful look at the factual circumstances of this case leads us to the legal
conclusion that the respondents are regular and not project employees.
The primary standard in determining regular employment is the reasonable
connection between the particular activity performed by the employee and the
employer's business or trade. This connection can be ascertained by considering
the nature of the work performed and its relation to the scheme of the particular
business, or the trade in its entirety. 25
Guided by this test, we conclude that the respondents' work as janitors,
service crews and sanitation aides, are necessary or desirable to the
petitioner's business of providing janitorial and manpower services to its
clients as an independent contractor. HASTCa

Also, the respondents had already been working for the petitioner as early as
1998. Even before the service contract with Robinsons, the respondents
were already under the petitioner's employ. 26 They had been doing the
same type of work and occupying the same positions from the time they
were hired and until they were dismissed in January 2009. The petitioner did
not present any evidence to refute the respondents' claim that from the time of
their hiring until the time of their dismissal, there was no gap in between the
projects where they were assigned to. The petitioner continuously availed of
their services by constantly deploying them to its clients.
Lastly, under Department Order (DO) 18-02, 27 the applicable labor issuance to
the petitioner's case, the contractor or subcontractor is considered as the
employer of the contractual employee for purposes of enforcing the provisions
of the Labor Code and other social legislation. 28
DO 18-02 grants contractual employees all the rights and privileges due
a regular employee, including the following: (a) safe and healthful working
conditions; (b) labor standards such as service incentive leave, rest days,
overtime pay, holiday pay, 13th month pay and separation pay; (c) social
security and welfare benefits; (d) self-organization, collective bargaining and
peaceful concerted action; and (e) security of tenure. 29
In this light, we thus conclude that although the respondents were assigned as
contractual employees to the petitioner's various clients, under the law, they
remain to be the petitioner's regular employees, who are entitled to all the rights
and benefits of regular employment.
The respondents' employment
contracts, which were belatedly
signed, are voidable.
The records show that at the time of the respondents' dismissal, they had already
been continuously working for the petitioner for more than a year. Despite this,
they never signed any employment contracts with the petitioner, except the
contracts they belatedly signed when the petitioner's own contract of janitorial
services with Robinsons neared expiration.
As already discussed, for an employee to be validly categorized as a project
employee, it is necessary that the specific project or undertaking had been
identified and its period and completion date determined and made known
to the employee at the time of his engagement. This provision ensures that the
employee is completely apprised of the terms of his hiring and the corresponding
rights and obligations arising from his undertaking. Notably, the petitioner's
service contract with Robinsons was from January 1 to December 31, 2008. The
respondents were only asked to sign their employment contracts for their
deployment with Robinsons halfway through 2008, when the petitioner's service
contract was about to expire.
We find the timing of the execution of the respondents' respective employment
contracts to be indicative of the petitioner's calculated plan to evade the
respondents' right to security of tenure, to ensure their easy dismissal as soon as
the Robinsons' contract expired. The attendant circumstances cannot but raise
doubts as to the petitioner's good faith.
If the petitioner really intended the respondents to be project employees,
then the contracts should have been executed right from the time of hiring,
or when the respondents were first assigned to Robinsons, not when the
petitioner's service contract was winding up. The terms and conditions of the
respondents' engagement should have been disclosed and explained to them
from the commencement of their employment. The petitioner's failure to do so
supports the conclusion that it had been in bad faith in evading the respondents'
right to security of tenure.
In Glory Philippines, Inc. v. Vergara, 30 the Court rejected the validity of a fixed
term contract belatedly executed, and ruled that its belated signing was a
deliberate employer ploy to evade the employees' right to security of tenure. As
the Court explained:
To us, the private respondent's illegal intention became clearer from
such acts. Its making the petitioners sign written employment
contracts a few days before the purported end of their employment
periods (as stated in such contracts) was a diaphanous ploy to set
periods with a view for their possible severance from employment
should the private respondent so willed it. If the term of the
employment was truly determined at the beginning of the
 employment, why was there delay in the signing of the ready-made
contracts that were entirely prepared by the employer? Also, the
changes in the positions supposedly held by the petitioners in the
company belied the private respondent's adamant contention that the
petitioners were hired solely for the purpose of manning PIS during its
alleged dry run period that ended on October 20, 1998. We view such
situation as a very obvious ploy of the private respondent to evade the
petitioner's eventual regularization. 31 [Emphasis ours]

Moreover, under Article 1390 of the Civil Code,contracts where the consent of a
party was vitiated by mistake, violence, intimidation, undue influence or
fraud, are voidable or annullable. The petitioner's threat of non-payment of the
respondents' salaries clearly amounted to intimidation. Under this situation, and
the suspect timing when these contracts were executed, we rule that these
employment contracts were voidable and were effectively questioned when the
respondents filed their illegal dismissal complaint. TaEIcS

The respondents were illegally

dismissed.
To be valid, an employee's dismissal must comply with the substantive and
procedural requirements of due process. Substantively, a dismissal should be
supported by a just or authorized cause. 32 Procedurally, the employer must
observe the twin notice and hearing requirements in carrying out an employee's
dismissal. 33
The petitioner argues that these substantive and procedural requisites do not
apply to the respondents' case since they were employed under fixed term
contracts. According to the petitioner, the respondents' employment contracts
lapsed by operation of law as the necessary consequence of the termination and
non-renewal of its service contract with Robinsons. Because of this, there was no
illegal dismissal to speak of, only contract expiration.
We do not agree with the petitioner.
Having already determined that the respondents are regular employees and not
project employees, and that the respondents' belated employment contracts could
not be given any binding effect for being signed under duress, we hold that
illegal dismissal took place when the petitioner failed to comply with the
substantive and procedural due process requirements of the law.
The petitioner also asserts that the respondents' subsequent absorption
by Robinsons' new contractors — Fieldmen Janitorial Service Corporation
and Altaserv — negates their illegal dismissal. This reasoning is patently
erroneous. The charge of illegal dismissal was made only against the
 petitioner which is a separate juridical entity from Robinsons' new
contractors; it cannot escape liability by riding on the goodwill of others.
By law, the petitioner must bear the legal consequences of its violation of the
respondents' right to security of tenure. The facts of this case show that since the
respondents' hiring, they had been under the petitioner's employ as janitors,
service crews and sanitation aides. Their services had been continuously
provided to the petitioner without any gap. Notably, the petitioner never
refuted this allegation of the respondents. Further, there was no allegation
that the petitioner went out of business after the non-renewal of the
Robinsons' service contract. Thus, had it not been for the respondents'
dismissal, they would have been deployed to the petitioner's other existing
clients.
In D.M. Consunji, Inc. v. Jamin, 34 an employee was dismissed after the
expiration of the project he was last engaged in. After ruling that the
respondent-employee was a regular and not a project employee, this Court
affirmed the grant of backwages, computed from the time of the employee's
illegal dismissal until his actual reinstatement. In these lights, we rule that the
respondents are entitled to their full backwages, inclusive of their allowances
and other benefits from the time of their dismissal up to their actual
reinstatement. 35
With regard to the award of separation pay, we agree with the CA's finding that
this litigation resulted to strained relations between the petitioner and the
respondents. Thus, we also affirm the CA's ruling that instead of reinstatement,
the respondents should be paid their respective separation pays equivalent to one
(1) month pay for every year of service. 36
We cannot give credence to the petitioner's assertion that under Section 10 of DO
18-02, 37 the respondents are not entitled to separation pay because their
employment was terminated due to the completion of the project where they had
been engaged. This provision must be construed with the rest of DO 18-02's
other provisions.
As earlier pointed out, Section 7 of DO 18-02 treats contractual employees as the
independent contractor's regular employees for purposes of enforcing the Labor
Code and other social legislation laws. Consequently, a finding of regular
employment entitles them to the rights granted to regular employees, particularly
the right to security of tenure and to separation pay.
Thus, a holistic reading of DO 18-02, 38 guides us to the conclusion that Section
10 only pertains to contractual employees who are really project employees.
They are not entitled to separation pay since the end of the project for which they
had been hired necessarily results to the termination of their employment. On the
other hand, we already found that the respondents are the petitioner's regular
employees. Thus, their illegal dismissal entitles them to backwages and
reinstatement or separation pay, in case reinstatement is no longer feasible.
Solidary liability of the petitioner's
officers
Finally, we modify the CA's ruling that Rana and Burgos, as the petitioner's
president and general manager, should be held solidarily liable with the
corporation for its monetary liabilities with the respondents.
A corporation is a juridical entity with legal personality separate and distinct
from those acting for and in its behalf and, in general, from the people
comprising it. The general rule is that, obligations incurred by the corporation,
acting through its directors, officers and employees, are its sole
liabilities. 39
ECaTDc

A director or officer shall only be personally liable for the obligations of the
corporation, if the following conditions concur: (1) the complainant alleged in
the complaint that the director or officer assented to patently unlawful acts of the
corporation, or that the officer was guilty of gross negligence or bad faith; and (2)
the complainant clearly and convincingly proved such unlawful acts, negligence
or bad faith. 40
In the present case, the respondents failed to show the existence of the first
requisite. They did not specifically allege in their complaint that Rana and
Burgos willfully and knowingly assented to the petitioner's patently unlawful act
of forcing the respondents to sign the dubious employment contracts in exchange
for their salaries. The respondents also failed to prove that Rana and Burgos had
been guilty of gross negligence or bad faith in directing the affairs of the
corporation.
To hold an officer personally liable for the debts of the corporation, and thus
pierce the veil of corporate fiction, it is necessary to clearly and convincingly
establish the bad faith or wrongdoing of such officer, since bad faith is never
presumed. 41 Because the respondents were not able to clearly show the definite
participation of Burgos and Rana in their illegal dismissal, we uphold the general
rule that corporate officers are not personally liable for the money claims of the
discharged employees, unless they acted with evident malice and bad faith in
terminating their employment. 42
WHEREFORE, in light of these considerations, we hereby DENY the petition.
We AFFIRM with MODIFICATION the Court of Appeals' decision dated
December 22, 2011 and resolution dated March 2, 2012 in CA-G.R. SP No.
120991, which also AFFIRMEDthe National Labor Relation Commission's
decision dated April 28, 2011 and resolution dated June 16, 2011. Petitioners
Fulgencio V. Rana and Monina R. Burgos are hereby absolved from paying the
respondents' monetary awards in their personal capacity. No costs.
SO ORDERED.
(FVR Skills and Services Exponents, Inc. v. Seva, G.R. No. 200857, [October
|||

22, 2014])

[G.R. No. 174938. October 1, 2014.]

GERARDO LANUZA, JR. AND ANTONIO O.
OLBES, petitioners, vs. BF CORPORATION, SHANGRI-LA
PROPERTIES, INC., ALFREDO C. RAMOS, RUFO B.
COLAYCO, MAXIMO G. LICAUCO III, AND BENJAMIN C.
RAMOS, respondents.

DECISION

LEONEN, J : p

Corporate representatives may be compelled to submit to arbitration proceedings

pursuant to a contract entered into by the corporation they represent if there are
allegations of bad faith or malice in their acts representing the corporation.
This is a Rule 45 petition, assailing the Court of Appeals' May 11, 2006 decision
and October 5, 2006 resolution. The Court of Appeals affirmed the trial court's
decision holding that petitioners, as directors, should submit themselves as
parties to the arbitration proceedings between BF Corporation and Shangri-La
Properties, Inc. (Shangri-La).
In 1993, BF Corporation filed a collection complaint with the Regional Trial
Court against Shangri-La and the members of its board of directors: Alfredo C.
Ramos, Rufo B. Colayco, Antonio O. Olbes, Gerardo Lanuza, Jr., Maximo G.
Licauco III, and Benjamin C. Ramos. 1
BF Corporation alleged in its complaint that on December 11, 1989 and May 30,
1991, it entered into agreements with Shangri-La wherein it undertook to
construct for Shangri-La a mall and a multilevel parking structure along
EDSA. 2
Shangri-La had been consistent in paying BF Corporation in accordance with its
progress billing statements. 3 However, by October 1991, Shangri-La started
defaulting in payment. 4
BF Corporation alleged that Shangri-La induced BF Corporation to continue
with the construction of the buildings using its own funds and credit despite
Shangri-La's default. 5 According to BF Corporation, Shangri-La
misrepresented that it had funds to pay for its obligations with BF Corporation,
and the delay in payment was simply a matter of delayed processing
of BF Corporation's progress billing statements. 6
BF Corporation eventually completed the construction of the
buildings. 7 Shangri-La allegedly took possession of the buildings while still
owing BF Corporation an outstanding balance. 8
BF Corporation alleged that despite repeated demands, Shangri-La refused to
pay the balance owed to it. 9 It also alleged that the Shangri-La's directors were
in bad faith in directing Shangri-La's affairs. Therefore, they should be held
jointly and severally liable with Shangri-La for its obligations as well as for the
damages that BF Corporation incurred as a result of Shangri-La's default. 10
On August 3, 1993, Shangri-La, Alfredo C. Ramos, Rufo B. Colayco, Maximo G.
Licauco III, and Benjamin C. Ramos filed a motion to suspend the proceedings
in view of BF Corporation's failure to submit its dispute to arbitration, in
accordance with the arbitration clause provided in its contract, quoted in the
motion as follows: 11
35. Arbitration

(1) Provided always that in case any dispute or

difference shall arise between the Owner or the Project
Manager on his behalf and the Contractor, either
during the progress or after the completion or
abandonment of the Works as to the construction of
this Contract or as to any matter or thing of whatsoever
nature arising thereunder or in connection
therewith (including any matter or thing left by this
Contract to the discretion of the Project Manager or the
withholding by the Project Manager of any certificate
to which the Contractor may claim to be entitled or the
measurement and valuation mentioned in clause
30(5)(a) of these Conditions or the rights and liabilities
of the parties under clauses 25, 26, 32 or 33 of these
Conditions), the owner and the Contractor hereby
 agree to exert all efforts to settle their differences or
dispute amicably. Failing these efforts then such
dispute or difference shall be referred to arbitration in
accordance with the rules and procedures of the
Philippine Arbitration Law.

xxx xxx xxx

(6) The award of such Arbitrators shall be final and
binding on the parties. The decision of the Arbitrators
shall be a condition precedent to any right of legal
action that either party may have against the
other. . . . 12(Underscoring in the original)

On August 19, 1993, BF Corporation opposed the motion to suspend

proceedings. 13
In the November 18, 1993 order, the Regional Trial Court denied the motion to
suspend proceedings. 14
On December 8, 1993, petitioners filed an answer to BF Corporation's complaint,
with compulsory counterclaim against BFCorporation and cross-claim against
Shangri-La. 15 They alleged that they had resigned as members of Shangri-La's
board of directors as of July 15, 1991. 16
After the Regional Trial Court denied on February 11, 1994 the motion for
reconsideration of its November 18, 1993 order, Shangri-La, Alfredo C. Ramos,
Rufo B. Colayco, Maximo G. Licauco III, and Benjamin Ramos filed a petition
for certiorari with the Court of Appeals. 17
On April 28, 1995, the Court of Appeals granted the petition for certiorari and
ordered the submission of the dispute to arbitration. 18
Aggrieved by the Court of Appeals' decision, BF Corporation filed a petition for
review on certiorari with this court. 19 On March 27, 1998, this court affirmed
the Court of Appeals' decision, directing that the dispute be submitted for
arbitration. 20
Another issue arose after BF Corporation had initiated arbitration
proceedings. BF Corporation and Shangri-La failed to agree as to the law that
should govern the arbitration proceedings. 21 On October 27, 1998, the trial
court issued the order directing the parties to conduct the proceedings in
accordance with Republic Act No. 876. 22
Shangri-La filed an omnibus motion and BF Corporation an urgent motion for
clarification, both seeking to clarify the term, "parties," and whether
Shangri-La's directors should be included in the arbitration proceedings and
served with separate demands for arbitration. 23
Petitioners filed their comment on Shangri-La's and BF Corporation's motions,
praying that they be excluded from the arbitration proceedings for being
non-parties to Shangri-La's and BF Corporation's agreement. 24
On July 28, 2003, the trial court issued the order directing service of demands for
arbitration upon all defendants in BFCorporation's complaint. 25 According to
the trial court, Shangri-La's directors were interested parties who "must also be
served with a demand for arbitration to give them the opportunity to ventilate
their side of the controversy, safeguard their interest and fend off their respective
positions." 26 Petitioners' motion for reconsideration of this order was denied by
the trial court on January 19, 2005. 27 SIcEHD

Petitioners filed a petition for certiorari with the Court of Appeals, alleging
grave abuse of discretion in the issuance of orders compelling them to submit to
arbitration proceedings despite being third parties to the contract between
Shangri-La and BFCorporation. 28
In its May 11, 2006 decision, 29 the Court of Appeals dismissed petitioners'
petition for certiorari. The Court of Appeals ruled that Shangri-La's directors
were necessary parties in the arbitration proceedings. 30 According to the Court
of Appeals:
[They were] deemed not third-parties to the contract as they [were]
sued for their acts in representation of the party to the contract
pursuant to Art. 31 of the Corporation Code, and that as directors of
the defendant corporation, [they], in accordance with Art. 1217 of
the Civil Code,stand to be benefited or injured by the result of the
arbitration proceedings, hence, being necessary parties, they must be
joined in order to have complete adjudication of the controversy.
Consequently, if [they were] excluded as parties in the arbitration
proceedings and an arbitral award is rendered, holding [Shangri-La]
and its board of directors jointly and solidarily liable to private
respondent BF Corporation, a problem will arise, i.e., whether
petitioners will be bound by such arbitral award, and this will prevent
complete determination of the issues and resolution of the
controversy. 31

The Court of Appeals further ruled that "excluding petitioners in the arbitration
proceedings . . . would be contrary to the policy against multiplicity of suits." 32
The dispositive portion of the Court of Appeals' decision reads:
 WHEREFORE, the petition is DISMISSED. The assailed orders
dated July 28, 2003 and January 19, 2005 of public respondent RTC,
Branch 157, Pasig City, in Civil Case No. 63400, are AFFIRMED. 33

The Court of Appeals denied petitioners' motion for reconsideration in the

October 5, 2006 resolution. 34
On November 24, 2006, petitioners filed a petition for review of the May 11,
2006 Court of Appeals decision and the October 5, 2006 Court of Appeals
resolution. 35
The issue in this case is whether petitioners should be made parties to the
arbitration proceedings, pursuant to the arbitration clause provided in the
contract between BF Corporation and Shangri-La.
Petitioners argue that they cannot be held personally liable for corporate acts or
obligations. 36 The corporation is a separate being, and nothing
justifies BF Corporation's allegation that they are solidarily liable with
Shangri-La. 37 Neither did they bind themselves personally nor did they
undertake to shoulder Shangri-La's obligations should it fail in its
obligations. 38 BFCorporation also failed to establish fraud or bad faith on their
part. 39
Petitioners also argue that they are third parties to the contract
between BF Corporation and Shangri-La. 40 Provisions including arbitration
stipulations should bind only the parties. 41 Based on our arbitration laws, parties
who are strangers to an agreement cannot be compelled to arbitrate. 42
Petitioners point out that our arbitration laws were enacted to promote the
autonomy of parties in resolving their disputes. 43Compelling them to submit to
arbitration is against this purpose and may be tantamount to stipulating for the
parties. 44
Separate comments on the petition were filed by BF Corporation, and Maximo
G. Licauco III, Alfredo C. Ramos and Benjamin C. Ramos. 45
Maximo G. Licauco III, Alfredo C. Ramos, and Benjamin C. Ramos agreed with
petitioners that Shangri-La's directors, being non-parties to the contract, should
not be made personally liable for Shangri-La's acts. 46 Since the contract was
executed only by BFCorporation and Shangri-La, only they should be affected
by the contract's stipulation. 47 BF Corporation also failed to specifically allege
the unlawful acts of the directors that should make them solidarily liable with
Shangri-La for its obligations. 48
Meanwhile, in its comment, BF Corporation argued that the courts' ruling that
the parties should undergo arbitration "clearly contemplated the inclusion of the
directors of the corporation[.]" 49
BF Corporation also argued that while petitioners were not parties to the
agreement, they were still impleaded under Section 31 of the Corporation
Code. 50 Section 31 makes directors solidarily liable for fraud, gross negligence,
and bad faith. 51 Petitioners are not really third parties to the agreement because
they are being sued as Shangri-La's representatives, under Section 31 of the
Corporation Code. 52
BF Corporation further argued that because petitioners were impleaded for their
solidary liability, they are necessary parties to the arbitration
proceedings. 53 The full resolution of all disputes in the arbitration proceedings
should also be done in the interest of justice. 54
In the manifestation dated September 6, 2007, petitioners informed the court that
the Arbitral Tribunal had already promulgated its decision on July 31,
2007. 55 The Arbitral Tribunal denied BF Corporation's claims against
them. 56 Petitioners stated that "[they] were included by the Arbitral Tribunal in
the proceedings conducted . . . notwithstanding [their] continuing objection
thereto. . ." 57 They also stated that "[their] unwilling participation in the
arbitration case was done ex abundante ad cautela, as manifested therein on
several occasions." 58 Petitioners informed the court that they already
manifested with the trial court that "any action taken on [the Arbitral Tribunal's
decision] should be without prejudice to the resolution of [this] case." 59
Upon the court's order, petitioners and Shangri-La filed their respective
memoranda. Petitioners and Maximo G. Licauco III, Alfredo C. Ramos, and
Benjamin C. Ramos reiterated their arguments that they should not be held liable
for Shangri-La's default and made parties to the arbitration proceedings because
only BF Corporation and Shangri-La were parties to the contract.
In its memorandum, Shangri-La argued that petitioners were impleaded for their
solidary liability under Section 31 of the Corporation Code. Shangri-La added
that their exclusion from the arbitration proceedings will result in multiplicity of
suits, which "is not favored in this jurisdiction." 60 It pointed out that the case
had already been mooted by the termination of the arbitration proceedings,
which petitioners actively participated in. 61 Moreover, BF Corporation assailed
only the correctness of the Arbitral Tribunal's award and not the part absolving
Shangri-La's directors from liability. 62
BF Corporation filed a counter-manifestation with motion to dismiss 63 in lieu of
the required memorandum.
In its counter-manifestation, BF Corporation pointed out that since "petitioners'
counterclaims were already dismissed with finality, and the claims against them
were likewise dismissed with finality, they no longer have any interest or
personality in the arbitration case. Thus, there is no longer any need to resolve
the present Petition, which mainly questions the inclusion of petitioners in the
arbitration proceedings." 64 The court's decision in this case will no longer have
any effect on the issue of petitioners' inclusion in the arbitration proceedings. 65
The petition must fail.
The Arbitral Tribunal's decision, absolving petitioners from liability, and its
binding effect on BF Corporation, have rendered this case moot and academic.
The mootness of the case, however, had not precluded us from resolving issues
so that principles may be established for the guidance of the bench, bar, and the
public. In De la Camara v. Hon. Enage, 66 this court disregarded the fact that
petitioner in that case already escaped from prison and ruled on the issue of
excessive bails: DAcaIE

While under the circumstances a ruling on the merits of the petition

for certiorari is not warranted, still, as set forth at the opening of this
opinion, the fact that this case is moot and academic should not
preclude this Tribunal from setting forth in language clear and
unmistakable, the obligation of fidelity on the part of lower court
judges to the unequivocal command of the Constitution that excessive
bail shall not be required. 67

This principle was repeated in subsequent cases when this court deemed it
proper to clarify important matters for guidance. 68
Thus, we rule that petitioners may be compelled to submit to the arbitration
proceedings in accordance with Shangri-La and BFCorporation's agreement, in
order to determine if the distinction between Shangri-La's personality and their
personalities should be disregarded.
This jurisdiction adopts a policy in favor of arbitration. Arbitration allows the
parties to avoid litigation and settle disputes amicably and more expeditiously by
themselves and through their choice of arbitrators.
The policy in favor of arbitration has been affirmed in our Civil Code,69 which
was approved as early as 1949. It was later institutionalized by the approval
of Republic Act No. 876, 70 which expressly authorized, made valid,
enforceable, and irrevocable parties' decision to submit their controversies,
including incidental issues, to arbitration. This court recognized this policy
in Eastboard Navigation, Ltd. v. Ysmael and Company, Inc.: 71
 As a corollary to the question regarding the existence of an arbitration
agreement, defendant raises the issue that, even if it be granted that it
agreed to submit its dispute with plaintiff to arbitration, said
agreement is void and without effect for it amounts to removing said
dispute from the jurisdiction of the courts in which the parties are
domiciled or where the dispute occurred. It is true that there are
authorities which hold that "a clause in a contract providing that all
matters in dispute between the parties shall be referred to arbitrators
and to them alone, is contrary to public policy and cannot oust the
courts of jurisdiction" (Manila Electric Co. vs. Pasay Transportation
Co., 57 Phil., 600, 603), however, there are authorities which favor
"the more intelligent view that arbitration, as an inexpensive,
speedy and amicable method of settling disputes, and as a means
of avoiding litigation, should receive every encouragement from
the courts which may be extended without contravening sound
public policy or settled law" (3 Am. Jur., p. 835). Congress has
officially adopted the modern view when it reproduced in the new
Civil Code the provisions of the old Code on Arbitration. And
only recently it approved Republic Act No. 876 expressly
authorizing arbitration of future disputes. 72 (Emphasis supplied)

In view of our policy to adopt arbitration as a manner of settling disputes,

arbitration clauses are liberally construed to favor arbitration. Thus, in LM
Power Engineering Corporation v. Capitol Industrial Construction Groups,
Inc., 73 this court said:
Being an inexpensive, speedy and amicable method of settling
disputes, arbitration — along with mediation, conciliation and
negotiation — is encouraged by the Supreme Court. Aside from
unclogging judicial dockets, arbitration also hastens the resolution of
disputes, especially of the commercial kind. It is thus regarded as the
"wave of the future" in international civil and commercial disputes.
Brushing aside a contractual agreement calling for arbitration between
the parties would be a step backward.

Consistent with the above-mentioned policy of encouraging

alternative dispute resolution methods, courts should liberally
construe arbitration clauses. Provided such clause is susceptible
of an interpretation that covers the asserted dispute, an order to
arbitrate should be granted. Any doubt should be resolved in
favor of arbitration. 74(Emphasis supplied)
A more clear-cut statement of the state policy to encourage arbitration and to
favor interpretations that would render effective an arbitration clause was later
expressed in Republic Act No. 9285: 75
SEC. 2. Declaration of Policy. — It is hereby declared the policy of
the State to actively promote party autonomy in the resolution of
disputes or the freedom of the party to make their own arrangements to
resolve their disputes. Towards this end, the State shall encourage
and actively promote the use of Alternative Dispute Resolution
(ADR) as an important means to achieve speedy and impartial
justice and declog court dockets. As such, the State shall provide
means for the use of ADR as an efficient tool and an alternative
procedure for the resolution of appropriate cases. Likewise, the State
shall enlist active private sector participation in the settlement of
disputes through ADR. This Act shall be without prejudice to the
adoption by the Supreme Court of any ADR system, such as mediation,
conciliation, arbitration, or any combination thereof as a means of
achieving speedy and efficient means of resolving cases pending
before all courts in the Philippines which shall be governed by such
rules as the Supreme Court may approve from time to time.

xxx xxx xxx

SEC. 25. Interpretation of the Act. — In interpreting the Act, the

court shall have due regard to the policy of the law in favor of
arbitration. Where action is commenced by or against multiple
parties, one or more of whom are parties who are bound by the
arbitration agreement although the civil action may continue as to
those who are not bound by such arbitration agreement. (Emphasis
supplied)

Thus, if there is an interpretation that would render effective an arbitration clause

for purposes of avoiding litigation and expediting resolution of the dispute, that
interpretation shall be adopted.
Petitioners' main argument arises from the separate personality given to juridical
persons vis-à-vis their directors, officers, stockholders, and agents. Since they
did not sign the arbitration agreement in any capacity, they cannot be forced to
submit to the jurisdiction of the Arbitration Tribunal in accordance with the
arbitration agreement. Moreover, they had already resigned as directors of
Shangri-La at the time of the alleged default.
Indeed, as petitioners point out, their personalities as directors of Shangri-La are
separate and distinct from Shangri-La.
A corporation is an artificial entity created by fiction of law. 76 This means that
while it is not a person, naturally, the law gives it a distinct personality and treats
it as such. A corporation, in the legal sense, is an individual with a personality
that is distinct and separate from other persons including its stockholders,
officers, directors, representatives, 77 and other juridical entities.
The law vests in corporations rights, powers, and attributes as if they were
natural persons with physical existence and capabilities to act on their
own. 78 For instance, they have the power to sue and enter into transactions or
contracts. Section 36 of the Corporation Code enumerates some of a
corporation's powers, thus: ScaHDT

Section 36. Corporate powers and capacity. — Every corporation

incorporated under this Code has the power and capacity:

1. To sue and be sued in its corporate name;

2. Of succession by its corporate name for the period of time stated in

the articles of incorporation and the certificate of incorporation;

3. To adopt and use a corporate seal;

4. To amend its articles of incorporation in accordance with the

provisions of this Code;

5. To adopt by-laws, not contrary to law, morals, or public policy, and

to amend or repeal the same in accordance with this Code;

6. In case of stock corporations, to issue or sell stocks to subscribers

and to sell treasury stocks in accordance with the provisions of this
Code; and to admit members to the corporation if it be a non-stock
corporation;

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge,

mortgage and otherwise deal with such real and personal property,
including securities and bonds of other corporations, as the transaction
of the lawful business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed by law and
the Constitution;

8. To enter into merger or consolidation with other corporations as

provided in this Code;

9. To make reasonable donations, including those for the public

welfare or for hospital, charitable, cultural, scientific, civic, or similar
purposes: Provided, That no corporation, domestic or foreign, shall
 give donations in aid of any political party or candidate or for purposes
of partisan political activity;

10. To establish pension, retirement, and other plans for the benefit of
its directors, trustees, officers and employees; and

11. To exercise such other powers as may be essential or necessary to

carry out its purpose or purposes as stated in its articles of
incorporation. (13a)

Because a corporation's existence is only by fiction of law, it can only exercise

its rights and powers through its directors, officers, or agents, who are all natural
persons. A corporation cannot sue or enter into contracts without them.
A consequence of a corporation's separate personality is that consent by a
corporation through its representatives is not consent of the representative,
personally. Its obligations, incurred through official acts of its representatives,
are its own. A stockholder, director, or representative does not become a party to
a contract just because a corporation executed a contract through that
stockholder, director or representative.
Hence, a corporation's representatives are generally not bound by the terms of
the contract executed by the corporation. They are not personally liable for
obligations and liabilities incurred on or in behalf of the corporation.
Petitioners are also correct that arbitration promotes the parties' autonomy in
resolving their disputes. This court recognized in Heirs of Augusto Salas, Jr. v.
Laperal Realty Corporation 79 that an arbitration clause shall not apply to
persons who were neither parties to the contract nor assignees of previous parties,
thus:
A submission to arbitration is a contract. As such, the Agreement,
containing the stipulation on arbitration, binds the parties thereto, as
well as their assigns and heirs. But only they. 80 (Citations omitted)

Similarly, in Del Monte Corporation-USA v. Court of Appeals, 81 this court

ruled:
The provision to submit to arbitration any dispute arising therefrom
and the relationship of the parties is part of that contract and is itself a
contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns
and heirs. Clearly, only parties to the Agreement . . . are bound by the
Agreement and its arbitration clause as they are the only signatories
thereto. 82 (Citation omitted)
This court incorporated these rulings in Agan, Jr. v. Philippine International Air
Terminals Co., Inc. 83 and Stanfilco Employees v. DOLE Philippines, Inc., et
al. 84
As a general rule, therefore, a corporation's representative who did not
personally bind himself or herself to an arbitration agreement cannot be forced to
participate in arbitration proceedings made pursuant to an agreement entered
into by the corporation. He or she is generally not considered a party to that
agreement.
However, there are instances when the distinction between personalities of
directors, officers, and representatives, and of the corporation, are disregarded.
We call this piercing the veil of corporate fiction.
Piercing the corporate veil is warranted when "[the separate personality of a
corporation] is used as a means to perpetrate fraud or an illegal act, or as a
vehicle for the evasion of an existing obligation, the circumvention of statutes, or
to confuse legitimate issues." 85 It is also warranted in alter ego cases "where a
corporation is merely a farce since it is a mere alter ego or business conduit of a
person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct
of another corporation." 86
When corporate veil is pierced, the corporation and persons who are normally
treated as distinct from the corporation are treated as one person, such that when
the corporation is adjudged liable, these persons, too, become liable as if they
were the corporation.
Among the persons who may be treated as the corporation itself under certain
circumstances are its directors and officers. Section 31 of the Corporation
Code provides the instances when directors, trustees, or officers may become
liable for corporate acts:
Sec. 31. Liability of directors, trustees or officers. — Directors or
trustees who willfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross negligence
or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such
directors or trustees shall be liable jointly and severally for all
damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

When a director, trustee or officer attempts to acquire or acquires, in

violation of his duty, any interest adverse to the corporation in respect
of any matter which has been reposed in him in confidence, as to
 which equity imposes a disability upon him to deal in his own behalf,
he shall be liable as a trustee for the corporation and must account for
the profits which otherwise would have accrued to the corporation. (n)

Based on the above provision, a director, trustee, or officer of a corporation may

be made solidarily liable with it for all damages suffered by the corporation, its
stockholders or members, and other persons in any of the following cases:
a) The director or trustee willfully and knowingly voted
for or assented to a patently unlawful corporate act;
b) The director or trustee was guilty of gross negligence
or bad faith in directing corporate affairs; and
c) The director or trustee acquired personal or pecuniary
interest in conflict with his or her duties as director or
trustee.
Solidary liability with the corporation will also attach in the following instances:
a) "When a director or officer has consented to the
issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary
his written objection thereto"; 87
b) "When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation"; 88 and
c) "When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate
action." 89
When there are allegations of bad faith or malice against corporate directors or
representatives, it becomes the duty of courts or tribunals to determine if these
persons and the corporation should be treated as one. Without a trial, courts and
tribunals have no basis for determining whether the veil of corporate fiction
should be pierced. Courts or tribunals do not have such prior knowledge. Thus,
the courts or tribunals must first determine whether circumstances exist to
warrant the courts or tribunals to disregard the distinction between the
corporation and the persons representing it. The determination of these
circumstances must be made by one tribunal or court in a proceeding
participated in by all parties involved, including current representatives of the
corporation, and those persons whose personalities are impliedly the same as the
corporation. This is because when the court or tribunal finds that circumstances
exist warranting the piercing of the corporate veil, the corporate representatives
are treated as the corporation itself and should be held liable for corporate acts.
The corporation's distinct personality is disregarded, and the corporation is seen
as a mere aggregation of persons undertaking a business under the collective
name of the corporation.
Hence, when the directors, as in this case, are impleaded in a case against a
corporation, alleging malice or bad faith on their part in directing the affairs of
the corporation, complainants are effectively alleging that the directors and the
corporation are not acting as separate entities. They are alleging that the acts or
omissions by the corporation that violated their rights are also the directors' acts
or omissions. 90 They are alleging that contracts executed by the corporation are
contracts executed by the directors. Complainants effectively pray that the
corporate veil be pierced because the cause of action between the corporation
and the directors is the same. EADSIa

In that case, complainants have no choice but to institute only one proceeding
against the parties. Under the Rules of Court,filing of multiple suits for a single
cause of action is prohibited. Institution of more than one suit for the same cause
of action constitutes splitting the cause of action, which is a ground for the
dismissal of the others. Thus, in Rule 2:
Section 3. One suit for a single cause of action. — A party may not
institute more than one suit for a single cause of action. (3a)

Section 4. Splitting a single cause of action; effect of. — If two or

more suits are instituted on the basis of the same cause of action, the
filing of one or a judgment upon the merits in any one is available as a
ground for the dismissal of the others. (4a)

It is because the personalities of petitioners and the corporation may later be

found to be indistinct that we rule that petitioners may be compelled to submit to
arbitration.
However, in ruling that petitioners may be compelled to submit to the arbitration
proceedings, we are not overturning Heirs of Augusto Salas wherein this court
affirmed the basic arbitration principle that only parties to an arbitration
agreement may be compelled to submit to arbitration.
In that case, this court recognized that persons other than the main party may be
compelled to submit to arbitration, e.g., assignees and heirs. Assignees and heirs
may be considered parties to an arbitration agreement entered into by their
assignor because the assignor's rights and obligations are transferred to them
upon assignment. In other words, the assignor's rights and obligations become
their own rights and obligations. In the same way, the corporation's obligations
are treated as the representative's obligations when the corporate veil is pierced.
Moreover, in Heirs of Augusto Salas, this court affirmed its policy against
multiplicity of suits and unnecessary delay. This court said that "to split the
proceeding into arbitration for some parties and trial for other parties would
"result in multiplicity of suits, duplicitous procedure and unnecessary
delay." 91 This court also intimated that the interest of justice would be best
observed if it adjudicated rights in a single proceeding. 92 While the facts of that
case prompted this court to direct the trial court to proceed to determine the
issues of that case, it did not prohibit courts from allowing the case to proceed to
arbitration, when circumstances warrant.
Hence, the issue of whether the corporation's acts in violation of complainant's
rights, and the incidental issue of whether piercing of the corporate veil is
warranted, should be determined in a single proceeding. Such finding would
determine if the corporation is merely an aggregation of persons whose liabilities
must be treated as one with the corporation.
However, when the courts disregard the corporation's distinct and separate
personality from its directors or officers, the courts do not say that the
corporation, in all instances and for all purposes, is the same as its directors,
stockholders, officers, and agents. It does not result in an absolute confusion of
personalities of the corporation and the persons composing or representing it.
Courts merely discount the distinction and treat them as one, in relation to a
specific act, in order to extend the terms of the contract and the liabilities for all
damages to erring corporate officials who participated in the corporation's illegal
acts. This is done so that the legal fiction cannot be used to perpetrate illegalities
and injustices.
Thus, in cases alleging solidary liability with the corporation or praying for the
piercing of the corporate veil, parties who are normally treated as distinct
individuals should be made to participate in the arbitration proceedings in order
to determine if such distinction should indeed be disregarded and, if so, to
determine the extent of their liabilities.
In this case, the Arbitral Tribunal rendered a decision, finding
that BF Corporation failed to prove the existence of circumstances that render
petitioners and the other directors solidarily liable. It ruled that petitioners and
Shangri-La's other directors were not liable for the contractual obligations of
Shangri-La to BF Corporation. The Arbitral Tribunal's decision was made with
the participation of petitioners, albeit with their continuing objection. In view of
our discussion above, we rule that petitioners are bound by such decision.
WHEREFORE, the petition is DENIED. The Court of Appeals' decision of
May 11, 2006 and resolution of October 5, 2006 are AFFIRMED.
SO ORDERED.
(Lanuza, Jr. v. BF Corp., G.R. No. 174938, [October 1, 2014], 744 PHIL
|||

612-641)

[G.R. No. 182770. September 17, 2014.]

WPM INTERNATIONAL TRADING, INC. and
WARLITO P. MANLAPAZ, petitioners, vs. FE
CORAZON LABAYEN,respondent.

DECISION

BRION, J : p

We review in this petition for review on certiorari 1 the decision 2 dated

September 28, 2007 and the resolution 3 dated April 28, 2008 of the Court of
Appeals (CA) in CA-G.R. CV No. 68289 that affirmed with modification the
decision 4 of the Regional Trial Court (RTC), Branch 77, Quezon City.
The Factual Background
The respondent, Fe Corazon Labayen, is the owner of H.B.O. Systems
Consultants, a management and consultant firm. The
petitioner, WPM International Trading, Inc. (WPM), is a domestic corporation
engaged in the restaurant business, while Warlito P. Manlapaz (Manlapaz) is its
president.
Sometime in 1990, WPM entered into a management agreement with the
respondent, by virtue of which the respondent was authorized to operate, manage
and rehabilitate Quickbite, a restaurant owned and operated by WPM. As part of
her tasks, the respondent looked for a contractor who would renovate the two
existing Quickbite outlets in Divisoria, Manila and Lepanto St., University Belt,
Manila. Pursuant to the agreement, the respondent engaged the services of CLN
Engineering Services (CLN) to renovate Quickbite-Divisoria at the cost of
P432,876.02.
On June 13, 1990, Quickbite-Divisoria's renovation was finally completed, and
its possession was delivered to the respondent. However, out of the P432,876.02
renovation cost, only the amount of P320,000.00 was paid to CLN, leaving a
balance of P112,876.02. SDAcaT
 Complaint for Sum of Money (Civil Case No. Q-90-7013)
On October 19, 1990, CLN filed a complaint for sum of money and damages
before the RTC against the respondent and Manlapaz, which was docketed as
Civil Case No. Q-90-7013. CLN later amended the complaint to exclude
Manlapaz as defendant. The respondent was declared in default for her failure to
file a responsive pleading.
The RTC, in its January 28, 1991 decision, found the respondent liable to pay
CLN actual damages in the amount of P112,876.02 with 12% interest per annum
from June 18, 1990 (the date of first demand) and 20% of the amount
recoverable as attorney's fees.
Complaint for Damages (Civil Case No. Q-92-13446)
Thereafter, the respondent instituted a complaint for damages against the
petitioners, WPM and Manlapaz. The respondent alleged that in Civil Case No.
Q-90-7013, she was adjudged liable for a contract that she entered into for and in
behalf of the petitioners, to which she should be entitled to reimbursement; that
her participation in the management agreement was limited only to introducing
Manlapaz to Engineer Carmelo Neri (Neri), CLN's general manager; that it was
actually Manlapaz and Neri who agreed on the terms and conditions of the
agreement; that when the complaint for damages was filed against her, she was
abroad; and that she did not know of the case until she returned to the Philippines
and received a copy of the decision of the RTC.
In her prayer, the respondent sought indemnification in the amount of
P112,876.60 plus interest at 12% per annum from June 18, 1990 until fully paid;
and 20% of the award as attorney's fees. She likewise prayed that an award of
P100,000.00 as moral damages and P20,000.00 as attorney's fees be paid to her.
In his defense, Manlapaz claims that it was his fellow incorporator/director
Edgar Alcansaje who was in-charge with the daily operations of the Quickbite
outlets; that when Alcansaje left WPM, the remaining directors were compelled
to hire the respondent as manager; that the respondent had entered into the
renovation agreement with CLN in her own personal capacity; that when he
found the amount quoted by CLN too high, he instructed the respondent to either
renegotiate for a lower price or to look for another contractor; that since the
respondent had exceeded her authority as agent of WPM, the renovation
agreement should only bind her; and that since WPM has a separate and distinct
personality, Manlapaz cannot be made liable for the respondent's claim.
Manlapaz prayed for the dismissal of the complaint for lack of cause of action,
and by way of counterclaim, for the award of P350,000.00 as moral and
exemplary damages and P50,000.00 attorney's fees.
The RTC, through an order dated March 2, 1993 declared WPM in default for its
failure to file a responsive pleading.
The Decision of the RTC
In its decision, the RTC held that the respondent is entitled to indemnity from
Manlapaz. The RTC found that based on the records, there is a clear indication
that WPM is a mere instrumentality or business conduit of Manlapaz and as
such, WPM and Manlapaz are considered one and the same. The RTC also
found that Manlapaz had complete control over WPM considering that he is its
chairman, president and treasurer at the same time. The RTC thus concluded that
Manlapaz is liable in his personal capacity to reimburse the respondent the
amount she paid to CLN in connection with the renovation agreement.
The petitioners appealed the RTC decision with the CA. There, they argued that
in view of the respondent's act of entering into a renovation agreement with CLN
in excess of her authority as WPM's agent, she is not entitled to indemnity for the
amount she paid. Manlapaz also contended that by virtue of WPM's separate and
distinct personality, he cannot be made solidarily liable with WPM. AaCEDS

The Ruling of the Court of Appeals

On September 28, 2007, the CA affirmed, with modification on the award of
attorney's fees, the decision of the RTC. The CA held that the petitioners are
barred from raising as a defense the respondent's alleged lack of authority to
enter into the renovation agreement in view of their tacit ratification of the
contract.
The CA likewise affirmed the RTC ruling that WPM and Manlapaz are one and
the same based on the following: (1) Manlapaz is the principal stockholder
of WPM; (2) Manlapaz had complete control over WPM because he
concurrently held the positions of president, chairman of the board and treasurer,
in violation of the Corporation Code; (3) two of the four other stockholders
of WPM are employed by Manlapaz either directly or indirectly; (4) Manlapaz's
residence is the registered principal office of WPM; and (5) the acronym
"WPM" was derived from Manlapaz's initials. The CA applied the principle of
piercing the veil of corporate fiction and agreed with the RTC that Manlapaz
cannot evade his liability by simply invoking WPM's separate and distinct
personality.
After the CA's denial of their motion for reconsideration, the petitioners filed the
present petition for review on certiorari under Rule 45 of the Rules of Court.
The Petition
The petitioners submit that the CA gravely erred in sustaining the RTC's
application of the principle of piercing the veil of corporate fiction. They argue
that the legal fiction of corporate personality could only be discarded upon clear
and convincing proof that the corporation is being used as a shield to avoid
liability or to commit a fraud. Since the respondent failed to establish that any of
the circumstances that would warrant the piercing is present, Manlapaz claims
that he cannot be made solidarily liable with WPM to answer for damages
allegedly incurred by the respondent.
The petitioners further argue that, assuming they may be held liable to reimburse
to the respondent the amount she paid in Civil Case No. Q-90-7013, such
liability is only limited to the amount of P112,876.02, representing the balance
of the obligation to CLN, and should not include the twelve 12% percent interest,
damages and attorney's fees.
The Issues
The core issues are: (1) whether WPM is a mere instrumentality, alter-ego, and
business conduit of Manlapaz; and (2) whether Manlapaz is jointly and severally
liable with WPM to the respondent for reimbursement, damages and interest.
Our Ruling
We find merit in the petition.
We note, at the outset, that the question of whether a corporation is a mere
instrumentality or alter-ego of another is purely one of fact. 5 This is also true
with respect to the question of whether the totality of the evidence adduced by
the respondent warrants the application of the piercing the veil of corporate
fiction doctrine. 6
Generally, factual findings of the lower courts are accorded the highest degree of
respect, if not finality. When adopted and confirmed by the CA, these findings
are final and conclusive and may not be reviewed on appeal, 7 save in some
recognized exceptions 8 among others, when the judgment is based on
misapprehension of facts.
We have reviewed the records and found that the application of the principle of
piercing the veil of corporate fiction is unwarranted in the present case.
On the Application of the Principle of
Piercing the Veil of Corporate Fiction
The rule is settled that a corporation has a personality separate and distinct from
the persons acting for and in its behalf and, in general, from the people
comprising it. 9 Following this principle, the obligations incurred by the
corporate officers, or other persons acting as corporate agents, are the direct
accountabilities of the corporation they represent, and not theirs. Thus, a director,
officer or employee of a corporation is generally not held personally liable for
obligations incurred by the corporation; 10it is only in exceptional circumstances
that solidary liability will attach to them.
Incidentally, the doctrine of piercing the corporate veil applies only in three (3)
basic instances, namely: a) when the separate and distinct corporate personality
defeats public convenience, as when the corporate fiction is used as a vehicle for
the evasion of an existing obligation; b) in fraud cases, or when the corporate
entity is used to justify a wrong, protect a fraud, or defend a crime; or c) is used
in alter ego cases, i.e., where a corporation is essentially a farce, since it is a
mere alter ego or business conduit of a person, or where the corporation is
so organized and controlled and its affairs so conducted as to make it
merely an instrumentality, agency, conduit or adjunct of another
corporation. 11
Piercing the corporate veil based on the alter ego theory requires the concurrence
of three elements, namely:
(1) Control, not mere majority or complete stock control, but complete
domination, not only of finances but of policy and business practice in respect to
the transaction attacked so that the corporate entity as to this transaction had at
the time no separate mind, will or existence of its own;
(2) Such control must have been used by the defendant to commit fraud or wrong,
to perpetuate the violation of a statutory or other positive legal duty, or dishonest
and unjust act in contravention of plaintiff's legal right; and
(3) The aforesaid control and breach of duty must have proximately caused the
injury or unjust loss complained of. DcITaC

The absence of any of these elements prevents piercing the corporate veil. 12
In the present case, the attendant circumstances do not establish that WPM is a
mere alter ego of Manlapaz.
Aside from the fact that Manlapaz was the principal stockholder of WPM,
records do not show that WPM was organized and controlled, and its affairs
conducted in a manner that made it merely an instrumentality, agency, conduit or
adjunct of Manlapaz. As held in Martinez v. Court of Appeals, 13 the mere
ownership by a single stockholder of even all or nearly all of the capital stocks of
a corporation is not by itself a sufficient ground to disregard the separate
corporate personality. To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly established. 14
Likewise, the records of the case do not support the lower courts' finding that
Manlapaz had control or domination over WPM or its finances. That Manlapaz
concurrently held the positions of president, chairman and treasurer, or that the
Manlapaz's residence is the registered principal office of WPM, are insufficient
considerations to prove that he had exercised absolute control over WPM.
In this connection, we stress that the control necessary to invoke the
instrumentality or alter ego 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. 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.
Here, the respondent failed to prove that Manlapaz, acting as president, had
absolute control over WPM. Even granting that he exercised a certain degree of
control over the finances, policies and practices of WPM, in view of his position
as president, chairman and treasurer of the corporation, such control does not
necessarily warrant piercing the veil of corporate fiction since there was not a
single proof that WPM was formed to defraud CLN or the respondent, or that
Manlapaz was guilty of bad faith or fraud.
On the contrary, the evidence establishes that CLN and the respondent knew and
acted on the knowledge that they were dealing with WPM for the renovation of
the latter's restaurant, and not with Manlapaz. That WPM later reneged on its
monetary obligation to CLN, resulting to the filing of a civil case for sum of
money against the respondent, does not automatically indicate fraud, in the
absence of any proof to support it.
This Court also observed that the CA failed to demonstrate how the separate and
distinct personality of WPM was used by Manlapaz to defeat the respondent's
right for reimbursement. Neither was there any showing that WPM attempted to
avoid liability or had no property against which to proceed.
Since no harm could be said to have been proximately caused by Manlapaz for
which the latter could be held solidarily liable with WPM, and considering that
there was no proof that WPM had insufficient funds, there was no sufficient
justification for the RTC and the CA to have ruled that Manlapaz should be held
jointly and severally liable to the respondent for the amount she paid to CLN.
Hence, only WPM is liable to indemnify the respondent.
Finally, we emphasize that the piercing of the veil of corporate fiction is frowned
upon and thus, must be done with caution. 15 It can only be done if it has been
clearly established that the separate and distinct personality of the corporation is
used to justify a wrong, protect fraud, or perpetrate a deception. The court must
be certain that the corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of its rights; it
cannot be presumed.
On the Award of Moral Damages
On the award of moral damages, we find the same in order in view of WPM's
unjustified refusal to pay a just debt. Under Article 2220 of the New Civil
Code, 16 moral damages may be awarded in cases of a breach of contract where
the defendant acted fraudulently or in bad faith or was guilty of gross negligence
amounting to bad faith.
In the present case, when payment for the balance of the renovation cost was
demanded, WPM, instead of complying with its obligation, denied having
authorized the respondent to contract in its behalf and accordingly refused to pay.
Such cold refusal to pay a just debt amounts to a breach of contract in bad faith,
as contemplated by Article 2220. Hence, the CA's order to pay moral damages
was in order. DSTCIa

WHEREFORE, in light of the foregoing, the decision dated September 28,

2007 of the Court of Appeals in CA-G.R. CV No. 68289 is MODIFIED and that
petitioner Warlito P. Manlapaz is ABSOLVED from any liability under the
renovation agreement.
SO ORDERED.
(WPM International Trading, Inc. v. Labayen, G.R. No. 182770, [September 17,
|||

2014])

[G.R. No. 171626. August 6, 2014.]

OLONGAPO CITY, petitioner, vs. SUBIC WATER AND
SEWERAGE CO., INC., respondent.

DECISION

BRION, J : p
We resolve in this petition for certiorari 1 under Rule 65 the challenge to the
July 6, 2005 decision 2 and the January 3, 2006 resolution 3 (assailed CA rulings)
of the Court of Appeals (CA) in CA-G.R. SP No. 80947.
These assailed CA rulings annulled and set aside: a) the July 29, 2003 order 4 of
the Regional Trial Court of Olongapo, Br. 75 (RTC Olongapo), which directed
the issuance of a writ of execution in Civil Case No. 582-0-90, against
respondent Subic Water and Sewerage Co., Inc. (Subic Water); b) the July 31,
2003 writ of execution 5 subsequently issued by the same court; and c) the
October 7, 2003 order 6 of RTC Olongapo, denying Subic Water's special
appearance with motion to reconsider order dated July 29, 2003 and to quash
writ of execution dated July 31, 2003. 7
Factual Antecedents
On May 25, 1973, Presidential Decree No. 198 8 (PD 198) took effect. This law
authorized the creation of local water districts which may acquire, install,
maintain and operate water supply and distribution systems for domestic,
industrial, municipal and agricultural uses. 9
Pursuant to PD 198, petitioner Olongapo City (petitioner) passed Resolution No.
161, which transferred all its existing waterfacilities and assets under
the Olongapo City Public Utilities Department Waterworks Division, to the
jurisdiction and ownership of the Olongapo City Water District (OCWD). 10
PD 198, as amended, 11 allows local water districts (LWDs) which have
acquired an existing water system of a local government unit (LGU) to enter into
a contract to pay the concerned LGU. In lieu of the LGU's share in the
acquired water utility plant, it shall be paid by the LWD an amount not
exceeding three percent (3%) of the LWD's gross receipts from water sales in
any year. 12
On October 24, 1990, petitioner filed a complaint for sum of money and
damages against OCWD. Among others, petitioner alleged that OCWD failed to
pay its electricity bills to petitioner and remit its payment under the contract to
pay, pursuant to OCWD's acquisition of petitioner's water system. In its
complaint, petitioner prayed for the following reliefs:
"WHEREOF, it is respectfully prayed of this Honorable Court that
after due hearing and notice, judgment be rendered in favor of plaintiff
ordering the defendant to:

(a) pay the amount of P26,798,223.70 plus legal interests from

the filing of the Complaint to actual full payment;
 (b) pay the amount of its in lieu share representing three
percent of the defendant's gross receipts from water sales
starting 1981 up to present;

(c) pay the amount of 81,000,000 as moral damages; and

(d) pay the cost of suit and other litigation expenses." 13

In its answer, 14 OCWD posed a counterclaim against petitioner for

unpaid water bills amounting to P3,080,357.00. 15
In the interim, OCWD entered into a Joint Venture Agreement 16 (JVA)
with Subic Bay Metropolitan Authority (SBMA), Biwater International Limited
(Biwater), and D.M. Consunji, Inc. (DMCI) on November 24, 1996. Pursuant to
this agreement, Subic Water— a new corporate entity — was incorporated,
with the following equity participation from its shareholders:
SBMA 19.99% or 20%

OCWD 9.99% or 10%

Biwater 29.99% or 30%

DMCI 39.99% or 40% 17

On November 24, 1996, Subic Water was granted the franchise to operate and to
carry on the business of providing water and sewerage services in the Subic Bay
Free Port Zone, as well as in Olongapo City. 18 Hence, Subic Water took over
OCWD's wateroperations in Olongapo City. 19 IDCScA

To finally settle their money claims against each other, petitioner and OCWD
entered into a compromise agreement 20 on June 4, 1997. In this agreement,
petitioner and OCWD offset their respective claims and counterclaims. OCWD
also undertook to pay to petitioner its net obligation amounting to
P135,909,467.09, to be amortized for a period of not exceeding twenty-five (25)
years at twenty-four percent (24%) per annum. 21
The compromise agreement also contained a provision regarding the
parties' request that Subic Water, Philippines, which took over the operations of
the defendant Olongapo City Water District be made the co-maker for OCWD's
obligations. Mr. Noli Aldip, then chairman of Subic Water, acted as its
representative and signed the agreement on behalf of Subic Water.
Subsequently, the parties submitted the compromise agreement to
RTC Olongapo for approval. In its decision dated June 13, 1997, 22 the trial
court approved the compromise agreement and adopted it as its judgment in
Civil Case No. 580-0-90.
Pursuant to the compromise agreement and in payment of OCWD's obligations
to petitioner, petitioner and OCWD executed a Deed of Assignment on
November 24, 1997. 23 OCWD assigned all of its rights in the JVA in favor of
the petitioner, including but not limited to the assignment of its shares, lease
payments, regulatory assistance fees and other receivables arising out of or
related to the Joint Venture Agreement and the Lease Agreement. 24 On
December 15, 1998, OCWD was judicially dissolved. 25
On May 7, 1999, to enforce the compromise agreement, the petitioner filed a
motion for the issuance of a writ of execution 26with the trial court. In its July 23,
1999 order, 27 the trial court granted the motion, but did not issue the
corresponding writ of execution.
Almost four years later, on May 30, 2003, the petitioner, through its new counsel,
filed a notice of appearance with urgent motion/manifestation 28 and prayed
again for the issuance of a writ of execution against OCWD. A certain Atty.
Segundo Mangohig, claiming to be OCWD's former counsel, filed a
manifestation alleging that OCWD had already been dissolved and
that Subic Water is now the former OCWD. 29
Because of this assertion, Subic Water also filed a manifestation informing the
trial court that as borne out by the articles of incorporation and general
information sheet of Subic Water . . . defendant OCWD is
not Subic Water. 30 The manifestation also indicated that OCWD was only a ten
percent (10%) shareholder of Subic Water; and that its 10% share was already in
the process of being transferred to petitioner pursuant to the Deed of Assignment
dated November 24, 1997. 31
The trial court granted the motion for execution and directed its issuance against
OCWD and/or Subic Water. Because of this unfavorable
order, Subic Water filed a special appearance with motion to: (1) reconsider
order dated July 29, 2003; and (2) quash writ of execution dated July 31, 2003. 32
The trial court denied Subic Water's special appearance, motion for
reconsideration, and its motion to quash. Subic Water then filed a petition
for certiorari 33 with the CA, imputing grave abuse of discretion amounting to
lack or excess of jurisdiction to RTC Olongapo for issuing its July 29, 2003 and
October 7, 2003 orders as well as the writ of execution dated July 31, 2003.
The CA's Ruling
In its decision dated July 6, 2005, 34 the CA granted Subic Water's petition
for certiorari and reversed the trial court's rulings.
The CA found that the writ of execution dated July 31, 2003 35 did not comply
with Section 6, Rule 39 of the Rules of Court,to wit:
Section 6. Execution by motion or by independent action. — A final
and executory judgment or order may be executed on motion
within five (5) years from the date of its entry. After the lapse of
such time, and before it is barred by the statute of limitations, a
judgment may be enforced by action. The revived judgment may
also be enforced by motion within five (5) years from the date of its
entry and thereafter by action before it is barred by the statute of
limitations. (6a) [emphasis ours]

A judgment on a compromise agreement is immediately executory and is

considered to have been entered on the date it was approved by the trial
court. 36 Since the compromise agreement was approved and adopted by the trial
court on June 13, 1997, this should be the reckoning date for the counting of the
period for the filing of a valid motion for issuance of a writ of execution.
Petitioner thus had until June 13, 2002, to file its motion.
The CA further remarked that while it was true that a motion for execution was
filed by petitioner on May 7, 1999, and the same was granted by the trial court in
its July 23, 1999 order, 37 no writ of execution was actually issued.
As the CA looked at the case, petitioner, instead of following up with the trial
court the issuance of the writ of execution, did not do anything to secure its
prompt issuance. It waited another four years to file a second motion for
execution on May 30, 2003. 38By this time, the allowed period for the filing of a
motion for the issuance of the writ had already lapsed. Hence, the trial court's
July 29, 2003 order granting the issuance of the writ was null and void for having
been issued by a court without jurisdiction.
The CA denied petitioner's subsequent motion for reconsideration. Petitioner is
now before us on a petition for certiorari under Rule 65.
The Petition
The petitioner acknowledged the rule that the execution of a judgment could no
longer be made by mere motion after the prescribed five-year period had already
lapsed. However, it argued that the delay for the issuance of the writ of execution
was caused by OCWD and Subic Water. The petitioner submitted that this Court
had allowed execution by mere motion even after the lapse of the five-year
period, when the delay was caused or occasioned by the actions of the judgment
debtor. 39
Also, the petitioner asserted that although Subic Water was not a party in the
case, it could still be subjected to a writ of execution, since it was identified as
OCWD's co-maker and successor-in-interest in the compromise agreement. 40
Lastly, the petitioner contended that the compromise agreement was signed by
Mr. Noli R. Aldip, then Subic Water's chairman, signifying Subic Water's
consent to the agreement.
The Court's Ruling
We DISMISS the petition for being the wrong remedy and, in any case, for lack
of merit; what we have before us is a final judgment that we can no longer touch
unless there is grave abuse of discretion.
A. Procedural Law Aspect
Certiorari is not a substitute for a
lost appeal.
At the outset, we emphasize that the present petition, brought under Rule 65,
merits outright dismissal for having availed an improper remedy.
The instant petition should have been brought under Rule 45 in a petition for
review on certiorari. Section 1 of this Rule mandates:
Section 1. Filing of petition with Supreme Court. — A party
desiring to appeal by certiorari from a judgment or final order
or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law,
may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must
be distinctly set forth. (1a, 2a) [emphasis supplied]

Supplementing Rule 45 are Sections 3 41 and 4 42 of Rule 56 which govern the

applicable procedure in the Supreme Court. cIHCST

Appeals from judgments or final orders or resolutions of the CA should be made

through a verified petition for review on certiorari under Rule 45. 43 In this case,
petitioner questioned the July 6, 2005 decision 44 and the January 3, 2006
resolution 45 of the CA which declared as null and void the writ of execution
issued by the trial court. Since the CA's pronouncement completely disposed of
the case and the issues raised by the parties, it was the proper subject of a Rule
45 petition. It was already a final order that resolved the subject matter in its
entirety, leaving nothing else to be done.
A petition for certiorari under Rule 65 is appropriate only if there is no appeal,
or any plain, speedy, and adequate remedy in the ordinary course of law
available to the aggrieved party. As we have distinctly explained in the case
of Pasiona v. Court of Appeals: 46
The aggrieved party is proscribed from assailing a decision or final
order of the CA via Rule 65 because such recourse is proper only if
the party has no plain, speedy and adequate remedy in the course of
law. In this case, petitioner had an adequate remedy, namely, a
petition for review on certiorari under Rule 45 of the Rules of
Court. A petition for review on certiorari, not a special civil
action for certiorari was, therefore, the correct remedy.

xxx xxx xxx

Settled is the rule that where appeal is available to the aggrieved
party, the special civil action for certiorari will not be
entertained — remedies of appeal and certiorari are mutually
exclusive, not alternative or successive. Hence, certiorari is not
and cannot be a substitute for a lost appeal, especially if one's
own negligence or error in one's choice of remedy occasioned such
loss or lapse. 47 [emphasis ours]

The petitioner received the CA's assailed resolution denying its motion for
reconsideration on January 9, 2006. Following Rule 45, Section 2 of the Rules of
Court,48 the petitioner had until January 24, 2006 to file its petition for review. It
could have even filed a motion for a 30-day extension of time, a motion that this
Court grants for justifiable reasons. 49 But all of these, it failed to do. Thus, the
assailed CA rulings became final and executory and could no longer be the
subject of an appeal.
Apparently, to revive its lost appeal, petitioner filed the present petition
for certiorari that — under Rule 65 — may be filed within sixty days from the
promulgation of the assailed CA resolution (on January 3, 2006). A Rule 65
petition for certiorari, however, cannot be a substitute for a lost appeal. With the
lapse of the prescribed period for appeal without an action from the petitioner,
the present petition for certiorari — a mere replacement — must be dismissed.
But even without the procedural infirmity, the present recourse to us has no basis
on the merits and must be denied.
Execution by motion is only
available within the five-year
period from entry of judgment.
Under Rule 39, Section 6, 50 a judgment creditor has two modes in enforcing the
court's judgment. Execution may be either through motion or an independent
action.
These two modes of execution are available depending on the timing when the
judgment creditor invoked its right to enforce the court's judgment. Execution
by motion is only available if the enforcement of the judgment was sought
within five (5) years from the date of its entry. On the other hand, execution
by independent action is mandatory if the five-year prescriptive period for
execution by motion had already elapsed. 51 However, for execution by
independent action to prosper — the Rules impose another limitation — the
action must be filed before it is barred by the statute of limitations which, under
the Civil Code,is ten (10) years from the finality of the judgment. 52
On May 7, 1999, within the five-year period from the trial court's judgment,
petitioner filed its motion for the issuance of a writ of execution. However,
despite the grant of the motion, the court did not issue an actual writ. It was only
on May 30, 2003 that petitioner filed a second motion to ask again for the writ's
issuance. By this time, the allowed five-year period for execution by motion had
already lapsed.
As will be discussed below, since the second motion was filed beyond the
five-year prescriptive period set by the Rules, then the writ of execution issued
by the trial court on July 31, 2003 was null and void for having been issued by a
court already ousted of its jurisdiction.
In Arambulo v. Court of First Instance of Laguna, 53 we explained the rule that
the jurisdiction of a court to issue a writ of execution by motion is only effective
within the five-year period from the entry of judgment. Outside this five-year
period, any writ of execution issued pursuant to a motion filed by the judgment
creditor, is null and void. If no writ of execution was issued by the court within
the five-year period, even a motion filed within such prescriptive period would
not suffice. A writ issued by the court after the lapse of the five-year period is
already null and void. 54 The judgment creditor's only recourse then is to file an
independent action, which must also be within the prescriptive period set by law
for the enforcement of judgments.
This Court subsequently reiterated its Arambulo ruling in Ramos v.
Garciano, 55 where we said:
There seems to be no serious dispute that the 4th alias writ of
execution was issued eight (8) days after the lapse of the five (5)
year period from the date of the entry of judgment in Civil Case No.
367. As a general rule, after the lapse of such period a judgment
may be enforced only by ordinary action, not by mere
motion (Section 6, Rule 39, Rules of Court).

xxx xxx xxx

 The limitation that a judgment be enforced by execution within
five years, otherwise it loses efficacy, goes to the very
jurisdiction of the Court. A writ issued after such period is void,
and the failure to object thereto does not validate it, for the reason
that jurisdiction of courts is solely conferred by law and not by
express or implied will of the parties. 56[emphasis supplied]

To clearly restate these rulings, for execution by motion to be valid, the

judgment creditor must ensure the accomplishment of two acts within the
five-year prescriptive period. These are: a) the filing of the motion for the
issuance of the writ of execution; and b) the court's actual issuance of the
writ. In the instances when the Court allowed execution by motion even after the
lapse of five years, we only recognized one exception, i.e., when the delay is
caused or occasioned by actions of the judgment debtor and/or is incurred for
his benefit or advantage. 57 However, petitioner failed to show or cite
circumstances showing how OCWD or Subic Water caused it to belatedly file its
second motion for execution.
Strictly speaking, the issuance of the writ should have been a ministerial duty on
the part of the trial court after it gave its July 23, 1999 order, approving the first
motion and directing the issuance of such writ. The petitioner could have easily
compelled the court to actually issue the writ by filing a manifestation on the
existence of the July 23, 1999 order. However, petitioner idly sat and waited for
the five-year period to lapse before it filed its second motion. Having slept on its
rights, petitioner had no one to blame but itself.
A writ of execution cannot affect a
non-party to a case.
Strangers to a case are not bound by the judgment rendered in it. Thus, a writ of
execution can only be issued against a party and not against one who did not
have his day in court. 58
Subic Water never participated in the proceedings in Civil Case No. 580-0-90,
where OCWD and petitioner were the contending parties. Subic Water only
came into the picture when one Atty. Segundo Mangohig, claiming to be
OCWD's former counsel, manifested before the trial court that OCWD had
already been judicially dissolved and that Subic Water assumed OCWD's
personality. EAIaHD

In the present case, the compromise agreement, although signed by Mr. Noli
Aldip, did not carry the express conformity of SubicWater. Mr. Aldip was never
given any authorization to conform to or bind Subic Water in the compromise
agreement. Also, the agreement merely labeled Subic Water as a co-maker. It
did not contain any provision where Subic Water acknowledged its solidary
liability with OCWD.
Lastly, Subic Water did not voluntarily submit to the court's jurisdiction. In fact,
the motion it filed was only made as a special appearance, precisely to avoid the
court's acquisition of jurisdiction over its person. Without any participation in
the proceedings below, it cannot be made liable on the writ of execution issued
by the court a quo.
B. Substantive Law Aspect
Solidary liability must be expressly stated.
The petitioner also argued that Subic Water could be held solidarily liable under
the writ of execution since it was identified as OCWD's co-maker in the
compromise agreement. The petitioner's basis for this is the following provision
of the agreement:
4. Both parties also request that Subic Water, Philippines which
took over the operations of the
defendant OlongapoCity Water District be made as co-maker for
the obligation herein above-cited. 59 [emphasis supplied]

As the rule stands, Solidary liability is not presumed. This stems from Art. 1207
of the Civil Code,which provides:
Art. 1207. . . There is a solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation
requires solidarity. [emphasis supplied]

In Palmares v. Court of Appeals, 60 the Court did not hesitate to rule that
although a party to a promissory note was only labeled as a co-maker, his
liability was that of a surety, since the instrument expressly provided for his
joint and several liability with the principal.
In the present case, the joint and several liability of Subic Water and OCWD was
nowhere clear in the agreement. The agreement simply and plainly stated that
petitioner and OCWD were only requesting Subic Water to be a co-maker, in
view of its assumption of OCWD's water operations. No evidence was presented
to show that such request was ever approved by SubicWater's board of directors.
Under these circumstances, petitioner cannot proceed after Subic Water for
OCWD's unpaid obligations. The law explicitly states that solidary liability is
not presumed and must be expressly provided for. Not being a
surety, Subic Water is not an insurer of OCWD's obligations under the
compromise agreement. At best, Subic Water was merely a guarantor against
whom petitioner can claim, provided it was first shown that: a) petitioner had
already proceeded after the properties of OCWD, the principal debtor; b) and
despite this, the obligation under the compromise agreement, remains to be not
fully satisfied. 61 But as will be discussed next, Subic Water could not also be
recognized as a guarantor of OCWD's obligations.
An officer's actions can only bind
the corporation if he had been
authorized to do so.
An examination of the compromise agreement reveals that it was not
accompanied by any document showing a grant of authority to Mr. Noli Aldip to
sign on behalf of Subic Water.
Subic Water is a corporation. A corporation, as a juridical entity, primarily acts
through its board of directors, which exercises its corporate powers. In this
capacity, the general rule is that, in the absence of authority from the board of
directors, no person, not even its officers, can validly bind a
corporation. 62 Section 23 of the Corporation Code provides:
Section 23. The board of directors or trustees. — Unless otherwise
provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and
held by the board of directors or trustees to be elected from
among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1)
year until their successors are elected and qualified. (28a) [emphasis
supplied]

In People's Aircargo and Warehousing Co., Inc. v. Court of Appeals, 63 we held

that under Section 23 of the Corporation Code, the power and responsibility to
decide whether a corporation can enter into a binding contract is lodged
with the board of directors, subject to the articles of incorporation, by-laws, or
relevant provisions of law. As we have clearly explained in another case:
A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent that
[the] authority to do so has been conferred upon him, and this
includes powers which have been intentionally conferred, and also
such powers as, in the usual course of the particular business, are
incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining
to the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to
believe that it has conferred. 64 [emphasis ours]
Mr. Noli Aldip signed the compromise agreement purely in his own capacity.
Moreover, the compromise agreement did not expressly provide
that Subic Water consented to become OCWD's co-maker. As worded, the
compromise agreement merely provided that both parties
[also] requestSubic Water, Philippines, which took over the operations
of Olongapo City WaterDistrict be made as co-maker [for the obligations
above-cited]. This request was never forwarded to Subic Water's board of
directors. Even if due notification had been made (which does not appear in the
records), Subic Water's board does not appear to have given any approval to
such request. No document such as the minutes of Subic Water's board of
directors' meeting or a secretary's certificate, purporting to be an authorization to
Mr. Aldip to conform to the compromise agreement, was ever presented. In
effect, Mr. Aldip's act of signing the compromise agreement was outside of his
authority to undertake.
Since Mr. Aldip was never authorized and there was no showing
that Subic Water's articles of incorporation or by-laws granted him such
authority, then the compromise agreement he signed cannot
bind Subic Water. Subic Water cannot likewise be made a surety or even a
guarantor for OCWD's obligations. OCWD's debts under the compromise
agreement are its own corporate obligations to petitioner.
OCWD and Subic Water are two
separate and different entities.
Petitioner practically suggests that since Subic Water took over
OCWD's water operations in Olongapo City, it also acquired OCWD's juridical
personality, making the two entities one and the same.
This is an interpretation that we cannot make or adopt under the facts and the
evidence of this case. Subic Water clearly demonstrated that it was a separate
corporate entity from OCWD.
OCWD is just a ten percent (10%) shareholder of Subic Water. As a mere
shareholder, OCWD's juridical personality cannot be equated nor confused with
that of Subic Water. It is basic in corporation law that a corporation is a juridical
entity vested with a legal personality separate and distinct from those acting for
and in its behalf and, in general, from the people comprising it. 65 SHTcDE

Under this corporate reality, Subic Water cannot be held liable for OCWD's
corporate obligations in the same manner that OCWD cannot be held liable for
the obligations incurred by Subic Water as a separate entity. The corporate veil
should not and cannot be pierced unless it is clearly established that the separate
and distinct personality of the corporation was used to justify a wrong, protect
fraud, or perpetrate a deception. 66
In Concept Builders, Inc. v. NLRC, 67 the Court enumerated the possible
probative factors of identity which could justify the application of the doctrine of
piercing the corporate veil. These are:
(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; and

(4) Methods of conducting the business. 68

The burden of proving the presence of any of these probative factors lies with the
one alleging it. Unfortunately, petitioner simply claimed that Subic Water took
over OCWD's water operations in Olongapo City. Apart from this allegation,
petitioner failed to demonstrate any link to justify the construction
that Subic Water and OCWD are one and the same.
Under this evidentiary situation, our duty is to respect the separate and distinct
personalities of these two juridical entities.
We thus deny the present petition. The writ of execution issued by
RTC Olongapo, Br. 75, in favor of Olongapo City, is hereby confirmed to be
null and void. Accordingly, respondent Subic Water cannot be made liable
under this writ.
WHEREFORE, premises considered, we hereby DISMISS the petition. The
Court of Appeals' decision dated July 6, 2005 and resolution dated January 3,
2006, annulling and setting aside the orders of the Regional Trial Court
of Olongapo, Branch 75 dated July 29, 2003 and October 7, 2003, and the writ of
execution dated July 31, 2003, are hereby AFFIRMED. Costs against the City
of Olongapo.
SO ORDERED.
(Olongapo City v. Subic Water and Sewerage Co., Inc., G.R. No. 171626,
|||

[August 6, 2014])

[G.R. No. 173082. August 6, 2014.]

 PALM AVENUE HOLDING CO., INC.,
and PALM AVENUE REALTY AND DEVELOPMENT
CORPORATION, petitioners,vs. SANDIGANBAYAN 5TH
Division, REPUBLIC OF THE PHILIPPINES, represented
by the PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT (PCGG), respondent.

[G.R. No. 195795. August 6, 2014.]

REPUBLIC OF THE PHILIPPINES, represented by the
PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT,petitioner, vs.
HON. SANDIGANBAYAN, PALM AVENUE REALTY and
DEVELOPMENT CORPORATION
and PALMAVENUE HOLDING COMPANY,
INC., respondents.

DECISION

PERALTA, J : p

For resolution before the Court are the consolidated cases of G.R. No. 173082
and G.R. No. 195795. In G.R. No. 173082, PalmAvenue Holding Co., Inc.
and Palm Avenue Realty and Development Corporation (the Palm Companies),
through a Petition for Certiorari under Rule 65 of the Rules of Court, seek to
annul the Resolutions of the Sandiganbayan (Fifth Division), promulgated on
January 10, 2003 1 and June 14, 2006 2 in Civil Case No. 0035, entitled Republic
of the Philippines v. Benjamin "Kokoy" Romualdez [in which intervention by
Trans Middle East (Phil.) Equities, Inc. was allowed]. On the other hand, the
Republic of the Philippines (the Republic), in G.R. No. 195795, via a Petition
for Certiorari and Prohibition, with application for temporary restraining order
and/or writ of preliminary-injunction, prays for the nullification of
the Sandiganbayan Resolutions dated October 21, 2010 3 and January 11,
2011 4 rendered in the same case.
The factual and procedural antecedents are as follows:
Through a writ of sequestration dated October 27, 1986, the Presidential
Commission on Good Government (PCGG) sequestered all the assets, properties,
records, and documents of the Palm Companies. Said sequestered assets
included 16,237,339 Benguet Corporation shares of stock, registered in the name
of the Palm Companies. The PCGG had relied on a letter from
the PalmCompanies' Attorney-in-Fact, Jose S. Sandejas, specifically identifying
Benjamin "Kokoy" Romualdez, a known crony of former President Ferdinand E.
Marcos, as the beneficial owner of the Benguet Corporation shares in
the Palm Companies' name.
The Republic, represented by the PCGG, filed a complaint with
the Sandiganbayan docketed as Civil Case No. 0035 but did not initially implead
the Palm Companies as defendants. However, the Sandiganbayan issued a
Resolution dated June 16, 1989 where it ordered said companies to be impleaded.
The Court subsequently affirmed this order to implead in G.R. No. 90667 5 on
November 5, 1991. Pursuant to said order, the Republic filed an amended
complaint dated January 17, 1997 and named therein the Palm Companies as
defendants. The graft court admitted the amended complaint on October 15,
2001.
In the meantime, on February 11, 1997, the Palm Companies filed an Urgent
Motion to Lift the Writ of Sequestration, but was denied on January 10, 2003.
The dispositive portion of the Sandiganbayan Resolution reads:
WHEREFORE, in view of the foregoing:

1) The "URGENT MOTION TO NULLIFY WRIT OF

SEQUESTRATION" dated January 28, 1997 filed by movant Trans
Middle East (Phils.) Equities, Inc., is hereby GRANTED. Accordingly,
Sequestration Order No. 86-0056 dated April 15, 1986 is hereby
declared null and void for having been issued by one PCGG
Commissioner only in direct contravention of Section 3 of the PCGG's
own Rules and Regulations. Conformably, however, with the
manifestation of the movant Trans Middle East (Phils.) Equities, Inc.
itself, the Court will not order the return of its shares of stocks
sequestered per Sequestration Order No. 86-0056 dated April 15, 1986,
but orders that the same, including the interests earned thereon, to be
deposited with the Land Bank of the Philippines in escrow for the
persons, natural or juridical, who shall eventually be adjudged
lawfully entitled thereto.

2) The "URGENT MOTION TO LIFT THE WRIT OF

SEQUESTRATION" dated February 11, 1997
of Palm Avenue Realty and Development Corporation
and Palm Avenue Holdings, Co., Inc. is hereby DENIED for lack of
merit.

SO ORDERED. 6
They filed a Motion for Reconsideration, but the same was likewise denied on
June 14, 2006. Hence, the Palm Companies filed the petition in G.R. No.
173082.
On September 22, 2006, the Palm Companies filed a Motion to Release
Sequestered Funds with the Sandiganbayan. In a Resolution dated January 18,
2007, the Sandiganbayan granted said motion and ordered the release of the
sequestered funds for the purchase of additional shares in Benguet Corporation,
and appointed a comptroller for this purpose. On May 29, 2007, the companies
filed a Motion for Bill of Particulars to direct the Republic to submit a bill of
particulars regarding matters in the amended complaint which were not alleged
with certainty or particularity. On December 21, 2007, the Republic submitted
its bill of particulars. Thereafter, the Palm Companies filed a motion to dismiss
the Republic's complaint. They argued that the bill of particulars did not
satisfactorily comply with the requested details. EHcaDT

On August 5, 2008, the Palm Companies filed a Motion to Order Payment of

Interest on Balance of the Sequestered Funds. Later, on September 29, 2008,
the Sandiganbayan granted the Palm Companies' motion to dismiss and
dismissed the Republic's complaint as to them. This was affirmed by the Court in
a Resolution 7 dated January 20, 2010 in G.R. No. 189771.
The Sandiganbayan also granted the Palm Companies' Motion to Order
Payment of Interest on Balance of the Sequestered Funds on October 28, 2009.
Thereafter, the Palm Companies filed another motion dated May 14, 2010, this
time, to order the PCGG to release all the companies' shares of stock and funds in
its custody. The Sandiganbayan then issued its October 21, 2010 Resolution,
granting the companies' foregoing motion. The graft court disposed of the case
as follows:
WHEREFORE, in view of the foregoing, Palm Avenue Holding
Company, Inc. and Palm Avenue Realty and Development
Corporation's Motion to Order the PCGG to Release to
the Palm Companies all the shares of stocks and funds in their custody
that pertain to the Palm Companies is hereby GRANTED.

SO ORDERED. 8

Upon denial of the Republic's motion for reconsideration, it filed the petition in
G.R. No. 195795.
In G.R. No. 173082, the Palm Companies present this lone issue to be resolved
by the Court:
 [WHETHER OR NOT] RESPONDENT COURT ACTED WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION IN DENYING PETITIONERS' MOTION TO
LIFT THE WRIT OF SEQUESTRATION NOTWITHSTANDING
THE FACT [THAT] SAID WRIT SHOULD BE DEEMED
AUTOMATICALLY LIFTED PURSUANT TO SECTION 26,
ARTICLE XVIII OF THE 1987 CONSTITUTION FOR FAILURE
TO IMPLEAD PETITIONERS WITHIN THE PERIOD OF SIX (6)
MONTHS PRESCRIBED IN THE SAID CONSTITUTION. 9

The Palm Companies pray for the lifting of the Writ of Sequestration against
their assets, since they were not impleaded as parties-defendants in Civil Case
No. 0035 within the period prescribed by the Constitution.
On the other hand, the Republic, through the PCGG, contends in G.R. No.
195795 that:
THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO EXCESS OF JURISDICTION
IN GRANTING THE PALM COMPANIES' MOTION TO
RELEASE ALL SHARES OF STOCK AND FUNDS IN THE
CUSTODY OF THE PCGG. 10

The Republic argues that the dismissal of the complaint as to

the Palm Companies is not tantamount to a declaration that their sequestered
assets are no longer ill-gotten.
The issues presented being essentially interrelated, the Court shall make a
simultaneous discussion.
Section 26, Article XVIII of the 1987 Constitution provides:
xxx xxx xxx

A sequestration or freeze order shall be issued only upon showing of

a prima facie case. The order and the list of the sequestered or frozen
properties shall forthwith be registered with the proper court. For
orders issued before the ratification of this Constitution,the
corresponding judicial action or proceeding shall be filed within
six months from its ratification. For those issued after such
ratification, the judicial action or proceeding shall be commenced
within six months from the issuance thereof.

The sequestration or freeze order is deemed automatically lifted if

no judicial action or proceeding is commenced as herein
provided. 11
The aforesaid provision mandates the Republic to file the corresponding judicial
action or proceedings within a six-month period (from its ratification on
February 2, 1987) in order to maintain sequestration, non-compliance with
which would result in the automatic lifting of the sequestration order. The
Court's ruling in Presidential Commission on Good Government v.
Sandiganbayan, 12 which remains good law, reiterates the necessity of the
Republic to actually implead corporations as defendants in the complaint, out of
recognition for their distinct and separate personalities, failure to do so would
necessarily be denying such entities their right to due process. 13 Here, the writ
of sequestration issued against the assets of the PalmCompanies is not valid
because the suit in Civil Case No. 0035 against Benjamin Romualdez as
shareholder in the PalmCompanies is not a suit against the latter. The Court has
held, contrary to the assailed Sandiganbayan Resolution in G.R. No. 173082,
that failure to implead these corporations as defendants and merely annexing a
list of such corporations to the complaints is a violation of their right to due
process for it would be, in effect, disregarding their distinct and separate
personality without a hearing. 14 Here, the Palm Companies were merely
mentioned as Item Nos. 47 and 48, Annex A of the Complaint, as among the
corporations where defendant Romualdez owns shares of stocks. Furthermore,
while the writ of sequestration was issued on October 27, 1986,
the Palm Companies were impleaded in the case only in 1997, or already a
decade from the ratification of the Constitution in 1987, way beyond the
prescribed period.
The argument that the beneficial owner of these corporations was, anyway,
impleaded as party-defendant can only be interpreted as a tacit admission of the
failure to file the corresponding judicial action against said corporations
pursuant to the constitutional mandate. Whether or not the impleaded defendant
in Civil Case No. 0035 is indeed the beneficial owner of the Palm Companies is
a matter which the PCGG merely assumes and still has to prove in said case. 15
The sequestration order issued against the Palm Companies is therefore deemed
automatically lifted due to the failure of the Republic to commence the proper
judicial action or to implead them therein within the period under the
Constitution. However, the lifting of the writ of sequestration will not
necessarily be fatal to the main case since the same does not ipso facto mean that
the sequestered properties are, in fact, not ill-gotten. The effect of the lifting of
the sequestration will merely be the termination of the government's role as
conservator. In other words, the PCGG may no longer exercise administrative or
housekeeping powers, and its nominees may no longer vote the sequestered
shares to enable them to sit in the corporate board of the subject company. 16
The Republic, through the PCGG, may argue that it has substantially complied
with the Constitutional requirements to support its sequestration order when it
filed an amended complaint which impleaded the Palm Companies, and which
was subsequently admitted by the Sandiganbayan. Even so, a careful perusal of
the records reveals the existence of legal and factual grounds to warrant the
lifting of the writ of sequestration against the assets of the Palm Companies.
Since the Republic did not originally include the Palm Companies in Civil Case
No. 0035, the Sandiganbayan issued a Resolution ordering said companies to be
impleaded, which was affirmed by the Court in G.R. No. 90667 on November 5,
1991. The Court declared in said case that the Palm Companies are real
parties-in-interest in Civil Case No. 0035, because they still appear to be the
registered owners of the remaining disputed shares. That Romualdez is
considered as their true or real owner is just a claim that still needs to be proved
in court. 17IHCDAS

Section 2, Rule 3 of the Rules of Court states:

Sec. 2. Parties in interest. — A real party-in-interest is the party who
stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended in the
name of the real party-in-interest.

This provision has two requirements: 1) to institute an action, the

plaintiff must be the real party-in-interest; and 2) the action must be
prosecuted in the name of the real party-in-interest. Interest within the
meaning of the Rules of Courtmeans material interest or an interest in
issue to be affected by the decree or judgment of the case, as
distinguished from mere curiosity about the question involved. One
having no material interest to protect cannot invoke the jurisdiction of
the court as the plaintiff in an action. When the plaintiff is not the real
party-in-interest, the case is dismissible on the ground of lack of cause
of action.

Pursuant to said order, the Republic filed an amended complaint which named
the Palm Companies as defendants. Thereafter, the companies filed a Motion for
Bill of Particulars for the Republic to clarify certain matters in its amended
complaint. Upon submission of the bill of particulars, the Palm Companies filed
a motion to dismiss the Republic's complaint. Later, the Sandiganbayan,
sustained by the Court in G.R. No. 189771, granted said motion to dismiss.
The Sandiganbayan thus pronounced:
xxx xxx xxx
 Clearly, as in the previously discussed paragraphs, the above answers
set forth by the plaintiff in its Bill of Particulars are indefinite and
deficient inasmuch as the question of what are the alleged illegally
acquired funds or properties of the PalmAvenue Companies which
they are liable to return, remains unanswered, a product of uncertainty.

In sum, the allegations contained in plaintiff Republic's Bill of

Particulars are incomplete and indefinite as they merely express
conclusions of law and presumptions unsupported by factual
premises.

Furthermore, the details desired by

defendants Palm Avenue Companies in their motion for bill of
particulars, such as the acts constituting their involvement in the
Marcoses' alleged scheme to pillage the nation's wealth, the alleged
properties which they supposedly acquired illegally and therefore
should return to the government, and other relevant facts, are not
evidentiary in nature. On the contrary, those particulars are material
facts that should be clearly and definitely averred in the complaint in
order that the defendants may, in fairness, be informed of the claims
against them to the end that they may be prepared to meet the issues at
trial.

xxx xxx xxx

In view, therefore, of plaintiff Republic's failure to file the proper

bill of particulars which would completely amplify the charges
against defendant Palm Avenue Companies, and applying the
above-quoted ruling of the High Court in the Virata case, this Court
deems it just and proper to order the dismissal of the Third
Amended Complaint in so far as the charges against
the Palm Avenue Companies are concerned.

Finally, we sustain defendant-movants' argument that the failure of

the plaintiff to sufficiently provide the ultimate and material facts
they required in their motion for bill of particulars, makes the
third amended complaint dismissible for failure to state a cause of
action. 18

Simple justice demands that the Palm Companies must know what the complaint
against them is all about. The law requires no less. In the similar case of Virata v.
Sandiganbayan, 19 petitioner Virata filed a motion for a bill of particulars,
asserting that the allegations against him are vague and are not averred with
sufficient definiteness as to enable him to effectively prepare his responsive
pleading. The Court held therein that a complaint must contain the ultimate facts
constituting plaintiff s cause of action. A cause of action has the following
elements: (1) a right in favor of the plaintiff; (2) an obligation on the part of the
named defendant to respect such right; and (3) an act or omission on the part of
such defendant violative of the right of the plaintiff or constituting a breach of
the obligation of the defendant to the plaintiff. As long as the complaint contains
these three elements, a cause of action exists. Although the allegations therein
may be vague, dismissal of the action is not the proper remedy because the
defendant may ask for more particulars. As such, a party may move for a more
definite statement or for a bill of particulars of any matter which is not averred
with sufficient definiteness or particularity. This is to enable him to properly
prepare his responsive pleading or to prepare for trial. 20 The Court in said case
found that there were certain matters in the allegations which lacked in
substantial particularity. They were broad and definitely vague which required
specifications in order that Virata could properly define the issues and formulate
his defenses. The two bills of particulars filed by the Republic were ruled to have
failed in properly amplifying the charges leveled against Virata because, not
only are they mere reiteration or repetition of the allegations set forth in the
expanded Second Amended Complaint, but, to the large extent, they contain
vague, immaterial and generalized assertions which are inadmissible under our
procedural rules. As such, for failure of the Republic to obey the Court's
directive and the Sandiganbayan's order to file the proper bill of particulars
which would completely amplify the charges against Virata, the Court deemed it
just and proper to order the dismissal of the expanded Second Amended
Complaint, insofar as the charges against Virata are concerned. The Court relied
on Section 3, Rule 17 of the Rules of Court,which provides that:
Sec. 3. Failure to prosecute. — If plaintiff fails to appear at the time
of the trial, or to prosecute his action for an unreasonable length of
time, or to comply with these rules or any order of the court, the
action may be dismissed upon motion of the defendant or upon
the court's own motion. This dismissal shall have the effect of an
adjudication upon the merits, unless otherwise provided by court. 21

Similarly, the Republic in the case at bar failed to file a proper bill of particulars
which would completely clarify and amplify the charges against
the Palm Companies. For said failure to comply with the graft court's order to
file the required bill of particulars that would completely and fully inform
the Palm Companies of the charges against them, the amended complaint
impleading said companies necessarily failed to state a cause of action,
warranting the dismissal of the case as to them. By the dismissal of the case as
against the Palm Companies, there is ipso facto no more writ of sequestration to
speak of.
The Republic cannot simply rely on the presumption that the PCGG has acted
pursuant to law and based on prima facie evidence, for the same will undermine
the basic constitutional principle that public officers and employees must at all
times be accountable to the people. Indeed, sequestration is an extraordinary and
harsh remedy. As such, it should be confined to its lawful parameters and
exercised with due regard to the requirements of fairness, due process, and
justice. 22 While the Court acknowledges the Government's admirable efforts to
recover ill-gotten wealth allegedly taken by the corporations, it cannot, however,
choose to turn a blind eye to the demands of the law, justice, and fairness. 23
WHEREFORE, in view of the foregoing, the petition in G.R. No. 173082
is GRANTED. The Resolutions of the Sandiganbayan (Fifth Division)
promulgated on January 10, 2003 and June 14, 2006 in Civil Case No. 0035
are REVERSED AND SET ASIDE, and the writ of sequestration against the
assets and properties of Palm Avenue Holding Co., Inc.
and Palm Avenue Realty and Development Corporation is
consequently LIFTED. The petition in G.R. No. 195795 is DISMISSED for
lack of merit. The SandiganbayanResolutions dated October 21, 2010 and
January 11, 2011 are hereby AFFIRMED. aTIAES

SO ORDERED.
(Palm Avenue Holding Co., Inc. v. Sandiganbayan, G.R. Nos. 173082, 195795,
|||

[August 6, 2014])

G.R. No. 185100 July 9, 2014

GIRLY G. ICO, Petitioner,

vs.
SYSTEMS TECHNOLOGY INSTITUTE, INC., MONICO V. JACOB and PETER K.
FERNANDEZ, Respondents.

DECISION

DEL CASTILLO, J.:

When another employee is soon after appointed to a position which the employer claims
has been abolished, while the employee who had to vacate the same is transferred
against her will to a position which does not e:x.ist in the corporate structure, there is
evidently a case of illegal constructive dismissal.

Before us is a Petition for Review on Certiorari questioning the October 27, 2008
1

Decision of the Court of Appeals (CA) which dismissed the petition in CA-G.R. SP No.
2

104437, entitled "Girly G. Jco, Petitioner, versus National Labor Relations Commission
(First Division), Systems Technology Institute, Inc., Monico V. Jacob and Peter K
Femandez, Respondents."

Factual Antecedents

Respondent Systems Technology Institute, Inc. (STI) is an educational institution duly

incorporated, organized, and existing under Philippine laws. Respondents Monico V.
Jacob (Jacob) and Peter K. Fernandez (Fernandez) are STI officers, the former being the
President and Chief Executive Officer (CEO) and the latter Senior Vice-President.

STI offers pre-school, elementary, secondary and tertiary education, as well as

post-graduate courses either through franchisees or STI wholly-owned schools. 3

Petitioner Girly G. Ico,a masteral degree holder with doctorate units earned, was hired as
4

Faculty Member bySTI College Makati (Inc.), which operates STI College-Makati
(STI-Makati). STI College Makati (Inc.) is a wholly-owned subsidiary of STI.
5

At STI, petitioner servedunder contract from June1997 to March 1998. In April 1998, she
was recalled to STI’s Makati Central Office orHeadquarters (STIHQ) and promoted to the
position of Dean of STI College-Parañaque (STIParañaque). In November1999, she was
again recalled to STI-HQ and STI appointed her as Full-Time Assistant Professor I
reporting directly to STI’s Academic Services Division (ASD).

In June 2000, petitioner was promoted to the position of Dean under ASD, and assigned
to STI College-Guadalupe (STI-Guadalupe), where she served as Dean from June 5,
2000 up to October 28, 2002. 6

Meanwhile, petitioner’s position as Deanwas reclassified from "Job Grade 4" to "Job
Grade Manager B"with a monthly salary of ₱37,483.58 effective April 1, 2002, up from the
7

₱27,000.00salary petitioner was then receiving.

After petitioner’s stint as Dean of STI-Guadalupe, she was promoted to the position of
Chief Operating Officer (COO) of STI-Makati, under the same position classification and
salary level of "Job Grade Manager B". She concurrently served as STI-Makati School
Administrator.8
Sometime in July 2003,or during petitioner’s stint as COO and School Administrator of
STI-Makati, a Plan of Merger was executed between STI and STI College Makati (Inc.),
9

whereby the latter would be absorbed by STI. The merger was approved by the Securities
and Exchange Commission on November 12, 2003. STI College Makati (Inc.) thus ceased
to exist, and STI-Makati was placed under STI’s Education Management Division (EMD). 10

In a March 12, 2004 Memorandum, STI – "[i]n line with the recently approved
11

organizational structure effective August 1, 2003" – updated petitioner’s appointment as

12

COO, "Job Grade Manager B" witha gross monthly salary of ₱37,483.58. She was
re-appointed as COO of STI-Makati, under the supervision of the AcademicServices
Group of the EMD and reporting directly to the Head thereof, herein respondent
Fernandez. However,petitioner was not given the salary commensurate to her position as
COO, which by this time appeared to be pegged at ₱120,000.00. It likewise appears that
13

she was not given benefits and privileges which holdersof equivalent positions were
entitled to, such as a car plan. 14

Two months after confirming petitioner’s appointment as STI-Makati COO, another

Memorandum dated May 18, 2004 was issued by STI Human Resources Division Head,
15

Yolanda Briones (Briones), signed and approved by STI Senior Vice-President for
Corporate Services Division Jeanette B. Fabul (Fabul), and noted by respondent Jacob –

a) Cancelling, effective May 20, 2004, petitioner’s COO assignment at STI-Makati, citing
management’s decision to undertake an "organizational restructuring" in line with the
merger of STI and STI-Makati;

b) Ordering petitioner to report to STI-HQ on May 20, 2004 and to turn over her work to
one Victoria Luz (Luz), who shall function as STI-Makati’s School Administrator; and

c) Appointing petitioner, effective May 20, 2004, as STI’s Compliance Manager with the
same "Job Grade Manager B" rank and salarylevel, reporting directly to
SchoolCompliance Group Head Armand Paraiso (Paraiso).

According to STI, the "organizational re-structuring" was undertaken "in order to

streamline operations. In the process, the positions of Chief Executive Officer and Chief
Operating Officer of STI Makati were abolished." 16

On May 18, 2004, Fernandez summoned petitioner to his office, where the following
conversation – which appears to have been recorded by petitioner with the knowledge
and consent of Fernandez – took place:

F: (Fernandez) I’m sure you know already why you are here.

P: (Petitioner) No, sir. Nanalo ba tayo sa Winners’ Circle…

F: Girly, let’s stop this. You will be pulled out [from] STI CollegeMakati[.] x x x [T]urn over
toVicky Luz everything tomorrow.

P: Sir? What have I done? May I know what is the reason of (sic) an immediate transfer
and a short period of turn-over?

F: I don’t trust you anymore. I’ve beenhearing too many things from [sic] you and as your
CEO, you don’t submit to me FSP monthly. Me high school student ka na inenroll para
lang makasali sa basketball.

P: Sir, that’s not true.

F: Would you like me to call Liezel? ([H]e stood up and called Ms. Liezel Diego)

P: Yes, sir.

F: Liezel, how many times did STI College-Makati submitted [sic] to you the FSP?

L: (Liezel Diego) Sir, sa akin po 2 beses peromeron pa po ke Ervie.

Tanong ko lang po ke Ervie kung ilan sa kanya.

P: Sir, can I have one minute to call STI College-Makati to fax the data of the receiving
copies of the FSP?

F: Irrelevant! I don’t have time.

P: Sir, you will please put that in writing[. It] is a very strong accusation you are making
and I think I should defend myself.

F: No way! You cannot get anything from me. Why? Sothat when I will provide such then
you will go toLabor? (in a shouting manner)

P: Sir, what is this all about? Please tell me the real score. I am honest to you and I
believe I am performing well. Is this what I deserve?

F: Don’t talk to me about honesty (again said in a shouting manner and fuming mad). Girly,
don’t push me to the limit! Don’t let me do things that you will regret later. Don’t be like
Chito (Salazar, the former STI President) who have [sic] left STI without proving to
everybody whether [sic] he have [sic] done wrong or not. I don’t want that to happen to
you!

P: Sir, can I have one minute to go outside. I can no longer bear this?
(begging with both hands [together] as a sign of surrender)

F: No! (still shouting) I don’t have time. Here’s the letter from HR[.] I want you to sign this.

P: Sir, I’m sorry but I will not sign. I think it should be HR who will give this to me.

F: You want me to call HR? You wantme to call Atty. Pascua? You want me to call people
outside [to] witness that you refused to sign? (still shouting) I don’t care if you have a tape
recorder there with you. After all, that will not be a [sic] valid evidence in court.

xxxx

F: Ok. Don’t make me loose [sic] my temper again (with a soft voice already). You just
sign this (giving to me the [May 18, 2004 Memorandum]). Don’t go to Bohol anymore. If
ever you will win in the Winners’ Circle, you can get the tripjust like what happened to
Redger (Agudo, the former COO of STI College-Makati).

P: Sir, what will be the consequence if I will not sign this?

F: I will file a case against you. What do you call this? (pausing for a little while then
uttered the word) Disobedience!

P: Ok, sir, but please I want to know what exactly my violation is (while signing the paper).
Now that we will be parting ways, I am still hoping that you can tell [sic] the violationsthat I
made, if there is any.

F: You can have it after 2-3 weeks time. Besides, we are not parting ways (with a sarcastic
smile). I am still your boss in Audit. Audit and Compliance is still under my supervision.

P: Thank you, sir. (I went out in [sic] his room still trembling) 17

Incidentally, by this time, petitioner had garnered the following awards and distinctions:

1) Silver Awardee, 2004 STI Winners’ Circle Awards, 17thSTI Leaders’ Convention;

2) STI Academic Winners’ Circle Award as Dean of STI-Guadalupe given at the 2002 STI
Leaders’ Convention;

3) Academic Head of the Year for 2002, as Dean of STI-Guadalupe; and

4) 2001 STI Winners’ Circle, as Academic Head, STI-Guadalupe. 18

On May 20, 2004, petitioner reported toher new office at STI’s School Compliance Group,
only to find out that all members ofthe department had gone to Baguio City for a planning
session. Petitioner, who was not apprised of the official trip, was thus left behind. That
same day, an official communication was disseminated throughout STI, announcing
19

Jacob’s appointment as the new STI President and CEO, Fernandez as the new COO of
STI-Makati,and Luz as the new STI-Makati School Administrator; however, petitioner’s
appointment as Compliance Manager was left out.

In a May 24, 2004 letter to Jacob, petitioner took exception to the incidents of May 18
20

and 20, 2004, claiming that she became the victim of a series of discriminatory acts and
objecting to the manner by which she was transferred, asserting that she was illegally
demoted and that her name was tarnished as a result of the demotion and transfer. Jacob
replied through a June 7, 2004 letter advising petitioner that her letter was forwarded to
21

Fernandez for comment.

Prior to that, on May 25, 2004, during the 17th STI Leaders Convention held in Panglao,
Bohol, petitioner’s achievement as a Silver Awardee for the 2004 STI Winners’ Circle
Awards was announced, but she did notattend, claiming that she was too embarrassed to
attend owing to the events leading to her transfer, which to her was a demotion. STI 22

withheld petitioner’s prize – a South Korea trip termed "Travel Incentive Award" for the
Winners’ Circle for STI fiscal year 2003-2004 – "pending the final result of the
investigations being conducted" by STI relative to irregularities and violations of company
policies allegedly committed by petitioner. 23

It appears that from May 28, 2004 up to June 10, 2004, STI’s Corporate Auditor/Audit
Advisory Group conducted anaudit of STI-Makati covering the whole period of petitioner’s
stint as COO/School Administrator therein. In a report (Audit Report) later submitted to
Fernandez, the auditors claim to have discovered irregularities, specifically –

1. Appointment papers of STI-Makati employees did not have the written approval of
Fernandez inhis capacity as CEO;

2. There were instances where employees became regular after only an abbreviated
probationary period, and in some cases,the employees did not undergo probation;

3. Petitioner failed to fully liquidate cash advances amounting to ₱60,000.00, relative tothe
purchase of books;

4. There was a lack of internal controlsin regard to cost of planning sessions, liquidation
reports, journal entries, use of petty cash fund, and inventory; and

5. Petitioner and other employees falsified school records in order to enable high school
players to play for STI-Makati’s volleyball team. 24
In a June 17, 2004 Memorandum to Jacob, Fernandez cited the above Audit Report and
25

recommended that an investigation committee be formed to investigate petitioner for

grave abuse of authority, falsification, gross dishonesty, maligning and causing intrigues,
commission of acts tending tocast negativity upon his person (Fernandez), and other
charges. Fernandez recommended that petitioner be placed under preventive suspension
pending investigation. Meanwhile, with respect to petitioner’s May 24, 2004 letter, it
appears that Fernandez did not submit a comment or answer thereto.

Jacob approved Fernandez’s recommendations, and on June 21, 2004, a

Memorandum was issued placing petitioner under preventive suspension and banning
26

her entry to any of STI’s premiseseffective June 22, 2004 up to July 16, 2004, citing "(an)
Audit investigation being conducted relative to the offenses" for which petitioner was
charged, namely:

I. FACULTY MANUAL

a) Making malicious, obscene or libelous statements about the person of any member of
the academic community.

b) Threatening, intimidating, coercingor harassing another person within the school

premises.

c) Commission of acts inimicalto student’s [sic] interest.

II. STI-HO POLICY MANUAL

A. Class 3 –

1. Making false or malicious statements against another employee.

2. Causing intrigues tending to cast insult, dishonor and discredit to another employee.

3. Reading or gaining access to files,records, memos, correspondence and other

classified documents of the company.

[B] Class 4 –

1. Concealing errors of omission or commission, thus negatively prejudice [sic] the

interest of the company.

[C] Class 5 –
1. Falsifying timekeeping reports and records, drawing salary/allowance, in any form, or
money by virtue of falsified timekeeping report of records, vouchers, receipts and the like.

2. Giving false and untruthful statements of [sic] concealing material facts in an

investigation conducted byan authorized representative of the company.

3. Misappropriating or withholding company funds.

4. All acts of dishonesty, which cause [sic] tend to cause prejudice to the company. 27

On June 24, 2004, petitioner received another Memorandum from Briones dated June 23,
28

2004, this time stating that charges havealready been filed against her allegedly "based
on the Audit Findings", yet makingreference to the June 21, 2004 Memorandum and
without informing petitioner of the particulars of the charges or the results of the audit. Nor
was a copy of the said audit findings attached to the memorandum.

In a June 28, 2004 demand letter addressed to Jacob,petitioner protested anew her
29

alleged maltreatment, claiming illegal constructive dismissal and demanding immediate

reinstatement to her COO position and the payment of actual and other damages, under
pain of suit.

In a June 30, 2004 letter, petitioner was notified of a hearing scheduled for July 2, 2004
and required to submit her written explanation to the charges. It appears, however, that
petitioner did not receive the said letter. On even date, petitioner filed with the National
30

Labor Relations Commission (NLRC) a labor case against herein respondents, Fabul and
Briones. Docketed as NLRC NCR Case No. 00-06-07767-04, the Complaint alleged 31

illegal constructive dismissal and illegal suspension, withclaims for regularization as well
as for underpayment of salaries, holiday pay, service incentive leave, 13th -month pay,
moral and exemplary damages, and attorney’s fees.

In a July 12, 2004 Memorandum to petitioner, STI lifted petitioner’s suspension and
32

ordered her to return towork on July 13, 2004, with full salary from the time of her
suspension.

In a July 13, 2004 electronic mail message sent by STI’s Reuel Virtucio (Virtucio) to
33

petitioner, the latter was invited to a July 19, 2004 "meeting with the committee formed to
act on the complaint filed against (petitioner) by (Fernandez)." The committee was
34

composed ofSTI’s officers, namely Amiel Sangalang (Sangalang); Flerdeliza Catalina

Domingo (Domingo); and Virtucio.

On July 19, 2004, during the supposed scheduled meeting with the committee, petitioner
was furnished with several documents; however, no copy of the formal complaint or
written chargewas given to her.The meeting was adjourned without the committee setting
another meeting for the submission of petitioner’s answer; nor was a hearing set for the
presentation of the parties’ evidence. 35

Thereafter, petitioner wenton sanctioned leave of absence. After the lapse of her
approved leave, she reported for workseveral times. After August 9, 2004, however, she
no longer reported for work.

On August 17, 2004, STI issued another Memorandum to petitioner, informing her that
36

her South Korea travelincentive award was being withheld, as the investigation covering
her alleged involvement in irregularities and violations of company policies was still
pending.

In a January 13, 2005 letter cumnotice of termination signed by Jacob, petitioner was
dismissed from STI effective January 11, 2005. 37

The Labor Arbiter Decision

In her Position Paper, petitioner claimed that during her stint as COO of STI-Makati and
38

up to her transfer and appointment as Compliance Manager, she was discriminated

against and unfairly treated by respondents; that she was denied a) the salary
corresponding to the COO position in the amount of ₱100,000.00 – ₱120,000.00, b) her
prizes as Winners’ Circle awardee, aswell as c) her benefits such as a car plan and
honorarium of ₱8,500.00 monthly.She likewise contended that her removal as STI-Makati
COO and transfer to the School Compliance Group as Compliance Manager was illegal
and constituted a demotion amounting to constructive dismissal, as she was not given
prior notice of the transfer; forced to give her written conformity thereto; placed in an
embarrassing situation thereafter; and never given any task or work while she held such
position. She added that the alleged reorganization which caused her removal as
STI-Makati COO was a sham, calculated to ease her out inthe guise of a restructuring;
that she was illegally placed under suspension for alleged offenses which respondents
could not substantiate and which she was not informedabout; that she was not accorded
due process during the conduct of the purported investigation; and that as a consequence
of the discrimination and unfair treatment she received from respondents, she suffered
untold injury. Petitioner thus pleaded:

WHEREFORE, complainant respectfully prays that, after due proceedings, judgment be

rendered ordering respondents, jointly and severally, as follows:

1. To reinstate complainant to her former position as COO without loss to [sic] her
seniority rights with backwages and other benefits, such the [sic] monthly ₱8,500.00
honorarium, among others, to be paid until fully reinstated with the necessary adjustments
to equal the salary and benefits now being received by her replacement, respondent Peter
K. Fernandez.

2. To pay complainant the unpaid salaryand benefits differential due her as COO
computed from November 5, 2002 to equal the salary and benefits of respondent Peter K.
Fernandez, plus the legal rate of interest thereon from the same date until fully paid.

3. To pay the money equivalent, plus the legal rate [sic] interest thereon until fully paid, of
complainant’s awards as a Silver Awardee in its STI 17th Winners’ Circle, consisting of
the tripto Panglao, Bohol from May 25 to 27, 2004 and Korea from September 21 to 24,
2004.

4. To pay complainant the unpaid Holiday Pay duly adjusted as above [sic] and with legal
interest thereon until fully paid.

5. To pay complainant the proportionate 13th [-]month pay for the current year with legal
interestthereon until fully paid.

6. To pay complainant moral damages in [sic] sum of ₱3 Million and exemplary damages
in the amount of ₱2 Million, including attorney’s fees, and expenses of litigation.

Complainant prays for such other reliefs just and equitable in the premises. 39

In their Position Paper, the respondents in NLRC NCR Case No. 00-06-07767-04
40

claimed that petitioner was removed as STI-Makati COO pursuant to a reorganization

aimed atstreamlining STI’s operations after the merger; as a result, the positions of
STI-Makati CEO and COO were abolished. They argued that petitioner was merely
"laterally transferred" to the School Compliance Group as Compliance Manager, and was
not demoted in rank; nor did she suffer a diminution in her salary and benefits, as the
positions of STI-Makati COO and Compliance Manager are equivalent in rank under the
STI structure, that is, they both fall under "Job Grade Manager B". They added that
petitioner committed anomalies and irregularities, as stated above, which became the
subject of an Audit Report. They asserted that the abolition of a position in STI is a
41

recognized prerogative of management which may not be interfered with absent malice or
bad faith, and more so when done pursuant to a valid corporate restructuring; the abolition
of the CEO, COO, Treasurer, Corporate Secretary, and Director positions in STI-Makati
was pursued as a matterof course because with the merger, STI-Makati ceased to exist
as it was absorbed by STI, and consequently these positions became unnecessary.
Petitioner’s transfer was justified as an exercise of STI’s prerogative and right to transfer
its employees when called for, and was done reasonably, without malice or bad faith, and
without unnecessarily inconveniencing petitioner.
Respondents added that petitioner’s suspension was vital for the protection of sensitive
data and to ensure the smooth conduct of the investigation, and in order that she may not
gain access to sensitive information which, if divulged to government agenciessuch as the
Commission on Higher Education (CHED), would result in the denial/withholding of
permits to STI. On petitioner’s claim for regularization, respondents claimed that this was
42

unnecessary since petitioner was already a regular employee of STI. Regarding

petitioner’s money claims, respondents argued that petitioner could not be entitled to them,
as she received all her salaries, benefits and entitlementsduring her stint with STI. Finally,
respondents contended that petitioner was not entitled to damages and attorney’s fees,
since she was not illegally dismissed and, in carrying out her transfer, they did not act with
malice, bad faith, orin a wanton and oppressive manner.

In her Reply to respondents’ Position Paper, petitioner noted that while STI and STI
43

College Makati (Inc.) merged, there was in fact no restructuring that took place which
required her transfer and demotion; onthe contrary, the merger created 29 additional
vacant positions in STI. Petitioner added that no prior announcement of the restructuring
of STI-Makati was made, which thus renders such reorganization of questionable integrity;
instead, the merger was utilized as a tool to ease her out, through the bogus
reorganization. She contended that Fernandez had prejudged her case even before an
investigation into the alleged anomalies could be conducted. Petitioner likewise notedthat
even her appointment as Compliance Manager was a sham, because no such vacant
position existed within the School Compliance Group, as the only two Compliance
Manager positions were then occupied by Eddie Musico (Musico) and Reynaldo Gozum
(Gozum); the only other vacant positions in that department were those for lower level
44

Compliance Officers. In effect, petitioner was in fact made a mere ComplianceOfficer,

which meant that she was effectively demoted. Petitioner claimed as well that her
demotion was highlighted by the fact that while she had a masteral degreeand doctorate
units, all the others within the School Compliance Group – including her superior, Paraiso
– were mere bachelor’s degree holders.

Finally, petitioner maintained that the multiple charges lodged against her were without
basis, and respondents failed to prove them byadequate evidence.

On the other hand, respondents maintained in their Reply (to Complainant’s Position
Paper) that as to salary and benefits, petitioner was not discriminated against, and was
45

merely given a compensation package commensurate to her rank as "Job Grade Manager
B", taking into consideration her length of service at STI.Her salary was thus at par with
those of other STI employees of equivalent rank and similar durations ofemployment.
They added that honoraria are not given to its employees,as well as to those who are
deployed to company-owned schools such as STI-Makati. Respondents asserted further
that the reorganization was not a ruse to ease petitioner out; it was necessary as a means
toward streamlining STI’s operations. Fernandez characterized petitioner’s account of
their conversation as inaccurate. Respondents likewise debunked petitioner’s claims that
46

she was discriminated against while she held the position of Compliance Manager, saying
that this claim was specious and exaggerated. They added that even though Fernandez
was later appointed COO of STI-Makati after petitioner was appointed Compliance
Manager, his work assuch STI-Makati COO was limited to performance of oversight
functions, which functions he already performs as SeniorVice-President of the Education
Management Division of STI. With regard to the July 19, 2004 meeting, respondents
argued that nothing was achieved during said meeting owing to petitioner’s and her
counsel’s "quarrelsome attitude" and insistence thatshe be furnished the written charges
against her as well as the supporting evidenceor documents, which would have been
unnecessary if she only cooperated during said meeting and answered the charges
against her. They underscored the fact that during said meeting, petitioner was furnished
with a copy of the charges against her, including all other documents, particularlythe Audit
Findings.

On March 31, 2006, LaborArbiter Renaldo O. Hernandez issued a Decision in NLRC 47

Case No. 00-06-07767-04, decreeing as follows:

WHEREFORE, premises considered, judgment is hereby finding [sic] complainant to have

been illegally constructively and in bad faith dismissed by respondents in her legally
acquired status as regular employee thus, ORDERING respondents SYSTEMS
TECHNOLOGY INSTITUTE, INC. and/or MONICO V. JACOB, PETER K. FERNANDEZ
in solido:

1) To reinstate her to her former position, without loss of seniority rights and benefits,
allowances, which reinstatement aspect, actual or in the payroll, is immediately executory,
even pending appeal.

2) To pay complainant’s full back wages, which should legally start from date of her illegal
constructive dismissal/illegal demotion on 05/18/2004, but reckoned from date of the
illegal suspension when she was physically prevented/ barred from working on
06/22/2004, based on her gross monthly salary ₱37,483.58, 15 days Vacation
Leave/yearand 15 days Sick Leave/year, 13th [-] month pay, and other benefits accruingto
her in her regular position as COO until actually reinstated, which as of date amounts to:

Basic ₱37,483.58 x 21 months = ₱787,155.18

13th[-]month pay 1/12 thereof = 65,596.26

VL 15 days/yr ₱1,249.45 x 15 x 1.75

= 32,798.13
years
 SL 15 days/yr ₱1,249.45 x 15 x 1.75
= 32,798.13
years

Total F/B as of date = ₱918,347.70

3) To pay her moral and exemplary damages in the combined amount of ₱1,000,000.00.

4) To pay her the monetary equivalentof the awards due her as her being proclaimed as a
Silver Awardee of US$630.00 for the Korean travel from 09/21-24/2004, and the round trip
ticket US$350.00, hotel accommodation and expenses to be paid, viz. 1. PhilippineTravel
Tax ₱1,620.00, NAIA Terminal Fee ₱550.00, Visa Processing Fee ₱500.00, War Risk Tax
US$12.00, Seoul Tax US$15.00, Ticket Insurance US$3.00, Travel Insurance ₱420.00,
Tour Guide and Driver’s Tip US$4.00/day.

5) To pay her 10% of the entire computable award herein as attorney’s fees.

SO ORDERED. 48

The Labor Arbiter found that petitioner was illegally dismissed, and respondents were
guilty of malice and bad faith in the handling of her case. He held that petitioner’s transfer
– which STI claimed was the result of STI’s restructuring – was irregular, because at the
time of such transfer, the reorganization and restructuring of STI-Makati had already been
effected; STI’s March 12, 2004 Memorandum topetitioner – which confirmed and renewed
her appointment as STI-Makati COO – was precisely issued as a consequence of the
merger and reorganization,which took place as early as November 2003. STI’s claim that
petitioner’s lateral transferwas necessary is thus contrived.

In addition, the Labor Arbiter declared that even as petitioner was appointed to the
position of Compliance Manager, such position did not actually exist in STI’s new
corporate structure; under the Compliance Group, which was headed by Paraiso, there
were only two Compliance Manager positions which were at the time occupied by Musico
and Gozum, and the only other vacant positions in the Compliance Group were for
Compliance Officers. In effect, petitioner was appointed to the position of a mere
Compliance Officer, which was lower in rank.

The Labor Arbiter held further that during the process of her illegal transfer, petitioner was
harassed, humiliated, and oppressed, thus:

1. On May 18, 2004, she was subjected to threats and intimidation by Fernandez, the
latter bullying and forcing her toreceive the May 18, 2004 Memorandum while petitioner
was inside his office;
2. On the day she reported to her new position as Compliance Manager, the whole
ComplianceGroup team left for a three-day out-of-town planning session, without
respondents informing her or including her in the official event as she should be;

3. On May 20, 2004, an official written announcement was made regarding Jacob’s
appointment as new STI President and CEO, Fernandez as new STI-Makati COO, and
Luz as new STI-Makati School Administrator. Adding insult to injury, petitioner’s
appointment as Compliance Manager was intentionally left out;

4. Petitioner, given her illustrious career in STI – having risen from the ranks as a faculty
member, to full-time professor, to Dean, and finally to the position of STI-Makati COO, and
having achieved multiple awards and distinctions – was thereafter treated "as a
non-entity" by respondents.

The Labor Arbiter added that the purported audit and investigation of petitioner’s alleged
irregularities was a sham, as the same was conducted without official sanction from STI
and without petitioner’s knowledge; it was founded on hearsay evidence and based on
charges known only to Fernandez; it was conducted merely to conceal respondents’
shabby treatment of petitioner, and without apprising petitioner of the writtenformal
charges against her.

Finally, respondents wereadjudged guilty of malice, bad faith, acts oppressive to labor and
contrary to morals, good customs and public policy, which caused upon petitioner
suffering and humiliation which entitles her to an award of moral and exemplary damages,
as well as attorney’s fees.

Ruling of the National LaborRelations Commission

Respondents interposed an appeal with the NLRC, docketed as NLRC NCR Case No.
050756-06.In an October 31, 2007 Decision, the NLRC decreed, thus:
49

WHEREFORE, the [D]ecision appealed from is VACATED and SET ASIDE and a new
one entered dismissingthe complaint for lack of merit.

SO ORDERED. 50

In reversing the Labor Arbiter’s Decision and finding that there was no illegal constructive
dismissal,the NLRC held that any action taken by STI after the merger can be reasonably
concluded as one of the valid consequences thereof; the regulation of manpower is a
management prerogative enjoyed by STI, and it was free to regulate according to its own
discretion and judgment all aspects of petitioner’s employment. Inthis light, and since no
concrete evidence was presented by petitioner to show that respondents acted with
maliceor bad faith, the NLRC held that it may not be said that the abolition of the position
of STI-Makati COO was done to unduly ease her out of STI.

The NLRC added that while it may be conceded that a heated argument between
petitioner and Fernandez took place during their May 18, 2004 meeting, the charged
emotional outbreaks were nonetheless occasioned by extraneous matters injected during
such meeting, and consequently, Fernandez may not be faulted for insisting that petitioner
receive the May 18, 2004 Memorandum ordering petitioner’s transfer.

Moreover, the NLRC declared that petitioner’s preventive suspension was not done
irregularly, as it was based on charges leveled against her and made pursuant to an
administrativeinvestigation then being conducted; likewise, it held that the pending
investigation justified the withholding ofpetitioner’s Korea travel incentive award.

Finally, the NLRC noted that petitioner’s failure to report for work after August 9, 2004
should betaken against her, and on this note it would be unfair to hold respondents liable
for illegal constructive dismissal.

Petitioner moved for reconsideration,but in a March 28, 2008 Resolution, the NLRC51

denied the same.

Ruling of the Court of Appeals

Petitioner went up to the CA via certiorari. On October 27, 2008, the CA issued the
assailedDecision, decreeing as follows:

WHEREFORE, premises considered, the Petition is DENIED for lack of merit. Costs
against petitioner.

SO ORDERED. 52

According to the CA, the NLRC was correct in finding that as a result of the November
2003 merger of STI and STI-Makati, petitioner’s transfer to her new position as
Compliance Manager became necessary, as the position of STIMakati COO – which
petitioner then held– was abolished as a result of a reorganization that was implemented
pursuant to the merger. It noted further that the March 12, 2004 confirmation of 53

petitioner’s appointment as STI-Makati COO was done pursuant to an August 2003

reorganization – or one that was implemented priorto the November 2003merger; thus,
petitioner’s transfer and appointment as Compliance Manager days later,per the May 18,
2004 Memorandum, may not be said to be irregular, as it was made in accordance with a
newreorganization or restructuring program implemented in accordance with the
November 2003 merger.
The CA held further that petitioner’stransfer was made pursuant to the valid exercise of
STI’s prerogative toabolish certain positions and transfer/ reassign its employees, for valid
reasons and in accordance with the requirements of its business. Since petitioner’s
transferwas not attended by malice or bad faith, as it was shown to be necessary following
the merger and abolition of the position that she held, and was done without diminution in
rank, salary and benefits, there could be no cause of action against respondents for illegal
dismissal.

The appellate court did not give credence to petitioner’s allegations of discrimination and
harassmenteither, as it found them to be self-serving and unsubstantiated. Regarding her
suspension, the CA affirmed the NLRC’s view that the same was not irregularly imposed;
the withholding of her travel award was justified as well.

Issues

Petitioner now submits the following issues for the Court’s resolution:

THE COURT OF APPEALS ERRED IN DEVIATING FROM THE 18 MAY 2004

EMPLOYMENT UPDATE CLEARLY ADMITTING AN INVALID ABOLITION OF
PETITIONER’S POSITION WITH STI’SAPPOINTMENT OF HER REPLACEMENT AND
RENAMING HER OFFICE AS "SCHOOL ADMINISTRATOR".

II

AS THERE WAS NO VALID ABOLITION OF PETITIONER’S POSITION AS COO, THE

COURT OF APPEALS ERRED IN FRAMING A CASE OF VALID LATERAL TRANSFER
INSTEAD OF CONSTRUCTIVE DISMISSAL DONE IN BAD FAITH. 54

Petitioner’s Arguments

In a nutshell, petitioner argues in her Petition and Reply that her appointment as
55

Compliance Manager is illegal, because the abolition of the STIMakati COO position and
the creation of the position of Compliance Manager were contrived and fabricated. She
adds that her appointment to the position of Compliance Manager was in fact a demotion:
she was relegated to a position where she did not have any staff to supervise; her work
became merely mechanical in nature; she became a mere Compliance Officer reporting to
the Compliance Group Head; and her work was severely limited.

Petitioner adds that contrary to the CA’s pronouncement, she was subjected to
harassment and discrimination, humiliated and became the victim of STI’s fraudulent
scheme to illegally oust her from her position as STI-Makati COO. She cites: 1) the May
18, 2004 incident, noting the treatment accorded her by Fernandez and the manner by
which she was allegedly forced to receive the Memorandum of even date; 2)the
investigation into alleged irregularities, which she characterized as sham; 3) her
preventive suspension, which she claims was illegal for being based on non-existent
charges; and 4) the withholding of her travel award.

Petitioner insists that her suspension was illegal, as her new employment as Compliance
Manager did not put her in a position where she would have access to sensitive STI
records;thus, she was never a serious threat to such extent that respondents believed she
was. Besides, the investigation into allegations of irregularities committed by her, which
was the cause for her suspension as well, was a sham for violating her rightsto a hearing
and due process. Respondents’ Arguments

In their Comment, respondents maintain that the merger of STI and STIMakati required
56

the abolition of the Chairman, President/CEO, COO, Treasurer and Corporate Secretary
positions in STI-Makati; likewise, it became necessary to effect a reorganization of STI’s
corporate structure inorder to streamline its operations. Petitioner’s transfer was in line
with such merger and reorganization; no bad faith may thus be inferred from their actions,
which were carried out legally and pursuant to STI’s rights, prerogatives, and needs at the
time.

Respondents argue further that petitioner’s transfer did not amount to a demotion in rank,
as the positions of COO and Compliance Manager are of equal importance; in fact, the
functions of Compliance Manager are much broader in scope as they involve the conduct
of operations and academic audits of allof STI’s schools, and not just STI-Makati. As to
salaryand benefits, petitioner as Compliance Manager is given the same salary and
benefits which she received at the time she was STI-Makati COO.

Respondents add that, ascorrectly held by the NLRC and CA, petitioner was never
subjected to harassment and humiliation, thus:

1. Petitioner was not excluded from the Compliance Group’s planning session held in
Baguio City. At the timeof petitioner’s transfer, Briones was not aware of the scheduled
Baguio trip, and thus petitioner was not duly informed thereof. Thus, her inability to attend
the official event may not be blamed on respondents;

2. Petitioner was assigned ample work at the Compliance Group, contrary to her claims
that she virtually did nothing in her new position;

3. It is not true that petitioner was not given her own room as Compliance Manager in
order to humiliate her. She could not begiven a room simply on account of office space
constraints.
On petitioner’s suspension, respondents reiterate that petitioner’s threats to divulge
sensitive information and jeopardize STI’s then pending permit applications justified the
taking of drastic measures to insure that company records are kept intact and free from
access; the preventive suspension of petitioner thus became necessary. Moreover, an
audit investigation was then being conducted on alleged irregularities committed by
petitioner; preventive suspension as a preliminary step in the investigation is thus
authorized.

Our Ruling

The Petition is granted.

As a rule, this Court is not a trier of facts, and thus the findings of fact of the NLRC and CA
are final and conclusive and will not be reviewed on appeal. However, there are
well-recognized exceptions to the rule, such as when its judgment is based on a
misapprehension of facts or relevant facts not disputed by the parties were overlooked
which, if properly considered, would justify a different conclusion. Petitioner’s case falls
under these exceptions.

Both the NLRC and CA found thatpetitioner was not constructively dismissed, for the
following reasons:

1. Petitioner’s position as STI-Makati COO was abolished as a necessary result of the

merger of STI and STI-Makati,and the restructuring of STI aimed at streamlining its
operations;

2. Petitioner was merely "laterally transferred" to the Compliance Group as Compliance

Manager, with no diminution in rank, salary and benefits; and

3. The reorganization of STI was done in good faith and in the exercise of the
management prerogative. In the same manner, petitioner’s transfer was a) made in the
exercise of the management prerogative to transfer employees when necessary; b) done
in good faith; and c)not unreasonable, inconvenient or prejudicial to her interests.

It appears, however, that the position of STI-Makati COO was actually never abolished.
As a matter of fact, soon after petitioner was removed from the position, Fernandez was
appointed to take her place as STI-Makati COO; his appointment was even publicly
announced via an official communication disseminated company-wide. This thus belies
respondents’ claim thatthe position of STI-Makati COO became unnecessary and was
thus abolished. Respondents may argue, as they did in their Reply to petitioner’s
57

Position Paper, that Fernandez’s appointment as STI-Makati COO replacing petitioner

was merely for oversight purposes. Whatever the reason could be for Fernandez’s
appointment as STI-Makati COO, the fact still remains that such position continued to
exist.

Next, petitioner’s appointment as Compliance Manager appears to be contrived as well.

At the time of petitioner’s appointment, the only two Compliance Manager positions within
STI’s compliance department – the School Compliance Group – were already filled up as
they were then occupiedby Musico and Gozum. None of them has been dismissed or
58

resigned. Nor could petitioner have been appointed head ofthe department, as Paraiso
was very much in charge thereof, as its ComplianceGroup Head. The only positionswithin
the department that were at the time vacant were those of Compliance Officers, which are
of lower rank. In other words,petitioner could not have been validly appointed as
Compliance Manager, a position within STI that was then very much occupied; if ever,
petitioner took the position of a mereCompliance Officer, the only vacant position within
the department.

Thirdly, even though it isclaimed that from May 28, 2004 up to June 10, 2004, STI’s
Corporate Auditor/Audit Advisory Group conducted an audit of STIMakati covering the
whole period of petitioner’s stint as COO/School Administrator, it appears that even prior
to such audit, petitioner’s superior – Fernandez – had already prejudged her case. The
May 18, 2004 conversation between petitioner and Fernandez inside the latter’s office is
quite revealing.

The May 18 conversation between petitioner and Fernandez, taken in conjunction with the
Court’s findings that the position of STI-Makati COO was never abolished and that
petitioner’s appointment as Compliance Manager was contrived, confirms the view that
petitioner was not transferred to the School Compliance Group as a matter of necessity,
but as punishment for her perceived irregularities. In effect, petitioner was demoted and
relegated to a position of insignificance within STI, there to suffer for what her employer
alleged were transgressions committed by her. To all intents and purposes, petitioner was
punished even before she could be tried.

Fernandez’s declarations during the May 18 conversation undoubtedly provide the true
motive behind petitioner’s removal as STI-Makati COO:

a. After "hearing too many things" about petitioner, Fernandez simply lost confidence in
her – meaning that Fernandez had made up his mind about petitioner after hearing
rumors about her; b. Fernandez accused petitioner of specific violations, without the
benefit of accurate information and without giving her the opportunity to refute the
accusations;

c. Fernandez has no time to listen to petitioner’s explanations, despite her pleas to be

heard;
d. Fernandez refused to provide petitioner with the evidence or other basis for his
accusations, in spite of petitioner’s request for him to put the same in writing;

e. Fernandez has prejudged petitioner, and intimated to her that she was dishonest, even
before she could be heard; and

f. Fernandez threatened petitioner, that if she pushed him further, she would suffer the
fate of a former employee who was separated fromSTI without the benefit of clearing his
name. In other words, she could find herself without a job at STI even before her
innocence or guilt could be established.

From the May 18 conversation alone, it can be seen that petitioner’s fate in STI was a
foregone conclusion. She was threatened to accept her fate or else she would find herself
without work, either through dismissal or forced resignation. Evidently, she became the
subject of an illegal constructive dismissal in the guise of a transfer.

The supposed audit conducted from May 28, 2004 up to June 10, 2004 by STI’s
Corporate Auditor/Audit Advisory Group was a mere afterthought, as it was apparent that
as early as May 18, 2004, petitioner has been found guilty of whatever transgressions she
was being charged with, founded or unfounded. The same is true with respect to her
preventive suspension; it was imposed with malice and bad faith, and calculated to harass
her further, if not trick her into believing that respondents were properly addressing her
case. Needless to say, all proceedings and actions taken in regard to petitioner’s
employment and case, beginning on May 18, 2004, were all but a farce, done or carried
out in bad faith, with the objective of harassing and humiliating her, all in the fervent hope
that she would fold up and quit.

Constructive dismissal exists where there is cessation of work because ‘continued

employment is rendered impossible, unreasonable or unlikely, as an offer involving a
demotion in rank or a diminution in pay’ and other benefits. Aptly called a dismissal in
disguise or anact amounting to dismissal but made to appear as if it were not, constructive
dismissal may, likewise, exist if an act of clear discrimination, insensibility, or disdain by
an employer becomes so unbearable on the part of the employee that it could foreclose
any choice by him except to forego his continued employment. In cases of a transfer of an
employee, the rule is settled that the employer is charged with the burden of proving that
its conduct and action are for valid and legitimate grounds such as genuine business
necessity and that the transfer is not unreasonable, inconvenient or prejudicial to the
employee. If the employer cannot overcome this burden of proof, the employee’s transfer
shall be tantamount to unlawful constructive dismissal. 59

There is no doubt that petitioner was subjected to indignities and humiliated by the
respondents. As correctly observed by the Labor Arbiter, she was bullied, threatened,
shouted at, and treated insolently by Fernandez on May 18, 2004 inside the latter’s own
office. She was shamedwhen, on her very first day at the School Compliance Group, all of
the employees of the department have gone on an official out-of-town event without her
and, as a result,she was left alone at the office for several days. Respondents did not
even have the courtesy to offer her the opportunity to catch up with the group sothat she
could makeit to the event, even if belatedly. Then again, on May 20, 2004, STI made an
official companywide announcement of Jacob’s appointment as new STI President and
CEO, Fernandez as new STI-Makati COO, and Luz asnew STI-Makati School
Administrator, but petitioner’s appointment as new Compliance Manager was
inconsiderately excluded. Respondents made her go through the rigors of a contrived
investigation, causing her to incur unnecessary legal expenses as a result of her hiring the
services of counsel. Her well-deserved awards and distinctions were unduly withheld in
the guise of continuing investigation – which obviously was taking too long to conclude;
investigation began formally on May 28, 2004 (start of audit), yet by August 17 (date of
memorandum informing petitioner of the withholding of Korea travel award), the
investigation was still allegedly ongoing. She was deprived of the privilege to attend
company events where she would have received her well-deserved awards with pride and
honor, and her colleagues would have been inspired by her in return. Certainly,
respondents made sure that petitioner suffered a humiliating fate and consigned to
oblivion.

Indeed, petitioner could not be faulted for taking an indefinite leave of absence, and for
altogether failing to report for work after August 9, 2004. Human nature dictates that
petitioner should refuse to subject herself to further embarrassment and indignitiesfrom
the respondents and her colleagues. All told, petitioner was deemed constructively
dismissed as of May 18, 2004. Finally, since the position of STI-Makati COO was never
abolished, it follows that petitioner should bereinstated to the very same position, and
there to receive exactly what Fernandez gets by way of salaries, benefits, privileges and
emoluments, without diminution in amount and extent. Petitioner, multi-awarded,
deserving and loyal, is entitled to what Fernandez receives, and is deemed merely to take
over the office from him; moreover, the position of Chief Operations Officer is not merely
an ordinary managerial position, asit is a senior managerial office. In turn, Fernandez – or
anyone who currently occupies the position of STIMakati COO – must vacatethe office
and hand over the same to petitioner.

It is correct for petitioner to have included among the reliefs prayed for in her Complaint
that she be paid the salary, benefits and privileges being enjoyed by Fernandez currently.
The Court, in granting said relief, deems it only fair that she should be entitled to what
Fernandez is receiving. Not only that the position requires greater expertise in many
areas,or that it involves great responsibility, or that petitioner deserves it from the point of
view of her qualifications and experience; but it would be to prevent another form of
oppressive practice, where an employee is appointed toa senior management position,
there to enjoy only the prestige or title, but not the benefitscommensurate with the work
and responsibility assumed. It would likewise prevent a situation where, as in this case, an
employer – obliged by law or the courts to reinstate an "unwanted" employee holding a
senior management position – is given an opportunity to retaliate by limiting the
employee’s salary, privileges and benefits to a certain level – low or high, so long as it is
within the managerial range– that is however 1) not commensurate with the work and
responsibility assumed by the employee, or 2) discriminatory, or 3) indicative of a
tendency to favor only one or some employees.

Nonetheless, the Court failsto discern any bad faithor negligence on the part of
respondent Jacob. The principal character that figures prominently in this case is
Fernandez; he alone relentlessly caused petitioner’s hardships and suffering. He alone is
guilty of persecuting petitioner. Indeed, some of his actions were without sanction of STI
itself, and were committedoutside of the authority given to him by the school; they
bordered on the personal, rather than official. His superior, Jacob, may have been, for the
most part, clueless of what Fernandez was doing to petitioner. After all, Fernandez was
the Head of the Academic Services Group of the EMD, and petitioner directly reported to
him at the time; his position enabled him to pursue a course of action with petitioner that
Jacob was largely unaware of.

A corporation, as a juridical entity, may act only through its directors, officers and
employees. Obligations incurred as a result of the directors’ and officers’ acts as corporate
agents, are nottheir personal liability but the direct responsibility of the corporation they
represent. As a rule, they are only solidarily liable with the corporation for the illegal
termination of servicesof employees if they acted with malice or bad faith.

To hold a director or officer personally liable for corporate obligations, two requisites must
concur: (1) it must be alleged in the complaint that the director or officer assented to
patently unlawful acts of the corporation or that the officer was guilty of gross negligence
or bad faith; and (2) there must be proof that the officer acted in bad faith. 60

WHEREFORE, the Petition is GRANTED. The October 27, 2008 Decision of the Court of
Appeals in CA-G.R. SP No. 104437 is ANNULLED andSET ASIDE. The March 31, 2006
Decision ofLabor Arbiter Renaldo O. Hernandez in NLRCCase No. 00-06-07767-04 is
hereby REINSTATED, WITH MODIFICATIONS, in that:

1. Respondent Systems Technology Institute, Inc., is ordered to REINSTATEpetitioner

Girly G. Ico to the position of STI-Makati College Chief Operating Officer and pay her the
exact salary, benefits, privileges, and emoluments which respondent Peter K. Fernandez
is receiving, but not less than what petitioner was receiving at the time of her illegal
constructive dismissal on May 18, 2004;
2. Respondent Monico V. Jacob is ABSOLVED of any liability;

3. Respondent Peter K. Fernandez is ordered to VACATEthe said office of STI-Makati

Chief Operating Officer and turn over the same to petitioner;

4. The award of backwages shall earn LEGAL INTERESTat the rate of six per cent(6%)
per annumfrom the date of the petitioner’s illegal dismissal until fully paid; 61

5. Finally, the appropriate Computation Division of the NLRC is hereby ordered to

COMPUTE AND UPDATEthe award as herein established WITH DISPATCH.

SO ORDERED.

[G.R. No. 206806. June 25, 2014.]

ARCO PULP AND PAPER CO., INC. and CANDIDA A.
SANTOS, petitioners, vs. DAN T. LIM, doing business under
the name and style of QUALITY PAPERS & PLASTIC
PRODUCTS ENTERPRISES, respondent.

DECISION

LEONEN, J : p

Novation must be stated in clear and unequivocal terms to extinguish an

obligation. It cannot be presumed and may be implied only if the old and new
contracts are incompatible on every point.
Before us is a petition for review on certiorari 1 assailing the Court of Appeals'
decision 2 in CA-G.R. CV No. 95709, which stemmed from a complaint 3 filed
in the Regional Trial Court of Valenzuela City, Branch 171, for collection of
sum of money.
The facts are as follows:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other
raw materials, under the name Quality Paper and Plastic Products, Enterprises, to
factories engaged in the paper mill business. 4 From February 2007 to March
2007, he delivered scrap papers worth PhP7,220,968.31 to Arco Pulp and Paper
Company, Inc. (Arco Pulp and Paper) through its Chief Executive Officer and
President, Candida A. Santos. 5 The parties allegedly agreed that Arco Pulp and
Paper would either pay Dan T. Lim the value of the raw materials or deliver to
him their finished products of equivalent value. 6
Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and
Paper issued a post-dated check dated April 18, 2007 7 in the amount of
PhP1,487,766.68 as partial payment, with the assurance that the check would not
bounce. 8 When he deposited the check on April 18, 2007, it was dishonored for
being drawn against a closed account. 9 aHESCT

On the same day, Arco Pulp and Paper and a certain Eric Sy executed a
memorandum of agreement 10 where Arco Pulp and Paper bound themselves to
deliver their finished products to Megapack Container Corporation, owned by
Eric Sy, for his account. According to the memorandum, the raw materials
would be supplied by Dan T. Lim, through his company, Quality Paper and
Plastic Products. The memorandum of agreement reads as follows:
Per meeting held at ARCO, April 18, 2007, it has been mutually
agreed between Mrs. Candida A. Santos and Mr. Eric Sy that ARCO
will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at
the price of P18.50 per kg. to Megapack Container for Mr. Eric Sy's
account. Schedule of deliveries are as follows: cDCaTH

xxx xxx xxx

It has been agreed further that the Local OCC materials to be used for
the production of the above Test Liners will be supplied by Quality
Paper & Plastic Products Ent., total of 600 Metric Tons at P6.50 per kg.
(price subject to change per advance notice). Quantity of Local OCC
delivery will be based on the quantity of Test Liner delivered to
Megapack Container Corp. based on the above production
schedule. 11

On May 5, 2007, Dan T. Lim sent a letter 12 to Arco Pulp and Paper demanding
payment of the amount of PhP7,220,968.31, but no payment was made to him. 13
Dan T. Lim filed a complaint 14 for collection of sum of money with prayer for
attachment with the Regional Trial Court, Branch 171, Valenzuela City, on May
28, 2007. Arco Pulp and Paper filed its answer 15 but failed to have its
representatives attend the pre-trial hearing. Hence, the trial court allowed Dan T.
Lim to present his evidence ex parte. 16
On September 19, 2008, the trial court rendered a judgment in favor of Arco
Pulp and Paper and dismissed the complaint, holding that when Arco Pulp and
Paper and Eric Sy entered into the memorandum of agreement, novation took
place, which extinguished Arco Pulp and Paper's obligation to Dan T. Lim. 17
Dan T. Lim appealed 18 the judgment with the Court of Appeals. According to
him, novation did not take place since the memorandum of agreement between
Arco Pulp and Paper and Eric Sy was an exclusive and private agreement
between them. He argued that if his name was mentioned in the contract, it was
only for supplying the parties their required scrap papers, where his conformity
through a separate contract was indispensable. 19
On January 11, 2013, the Court of Appeals 20 rendered a decision 21 reversing
and setting aside the judgment dated September 19, 2008 and ordering Arco Pulp
and Paper to jointly and severally pay Dan T. Lim the amount of
PhP7,220,968.31 with interest at 12% per annum from the time of demand;
PhP50,000.00 moral damages; PhP50,000.00 exemplary damages; and
PhP50,000.00 attorney's fees. 22 TIEHSA

The appellate court ruled that the facts and circumstances in this case clearly
showed the existence of an alternative obligation. 23It also ruled that Dan T. Lim
was entitled to damages and attorney's fees due to the bad faith exhibited by
Arco Pulp and Paper in not honoring its undertaking. 24
Its motion for reconsideration 25 having been denied, 26 Arco Pulp and Paper
and its President and Chief Executive Officer, Candida A. Santos, bring this
petition for review on certiorari.
On one hand, petitioners argue that the execution of the memorandum of
agreement constituted a novation of the original obligation since Eric Sy became
the new debtor of respondent. They also argue that there is no legal basis to hold
petitioner Candida A. Santos personally liable for the transaction that petitioner
corporation entered into with respondent. The Court of Appeals, they allege, also
erred in awarding moral and exemplary damages and attorney's fees to
respondent who did not show proof that he was entitled to damages. 27
Respondent, on the other hand, argues that the Court of Appeals was correct in
ruling that there was no proper novation in this case. He argues that the Court of
Appeals was correct in ordering the payment of PhP7,220,968.31 with damages
since the debt of petitioners remains unpaid. 28 He also argues that the Court of
Appeals was correct in holding petitioners solidarily liable since petitioner
Candida A. Santos was "the prime mover for such outstanding corporate
liability." 29
In their reply, petitioners reiterate that novation took place since there was
nothing in the memorandum of agreement showing that the obligation was
alternative. They also argue that when respondent allowed them to deliver the
finished products to Eric Sy, the original obligation was novated. 30
A rejoinder was submitted by respondent, but it was noted without action in view
of A.M. No. 99-2-04-SC dated November 21, 2000. 31 aDTSHc
The issues to be resolved by this court are as follows:
1. Whether the obligation between the parties was
extinguished by novation
2. Whether Candida A. Santos was solidarily liable with
Arco Pulp and Paper Co., Inc.
3. Whether moral damages, exemplary damages, and
attorney's fees can be awarded
The petition is denied.
The obligation between the
parties was an alternative
obligation
The rule on alternative obligations is governed by Article 1199 of the Civil
Code,which states:
Article 1199. A person alternatively bound by different prestations
shall completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the
other undertaking.

"In an alternative obligation, there is more than one object, and the fulfillment of
one is sufficient, determined by the choice of the debtor who generally has the
right of election." 32 The right of election is extinguished when the party who
may exercise that option categorically and unequivocally makes his or her
choice known. 33 The choice of the debtor must also be communicated to the
creditor who must receive notice of it since:
The object of this notice is to give the creditor . . . opportunity to
express his consent, or to impugn the election made by the debtor, and
only after said notice shall the election take legal effect when
consented by the creditor, or if impugned by the latter, when declared
proper by a competent court. 34

According to the factual findings of the trial court and the appellate court, the
original contract between the parties was for respondent to deliver scrap papers
worth PhP7,220,968.31 to petitioner Arco Pulp and Paper. The payment for this
delivery became petitioner Arco Pulp and Paper's obligation. By agreement,
petitioner Arco Pulp and Paper, as the debtor, had the option to either (1) pay the
price or (2) deliver the finished products of equivalent value to respondent. 35
The appellate court, therefore, correctly identified the obligation between the
parties as an alternative obligation, whereby petitioner Arco Pulp and Paper,
after receiving the raw materials from respondent, would either pay him the price
of the raw materials or, in the alternative, deliver to him the finished products of
equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial
payment for the scrap papers, they exercised their option to pay the price.
Respondent's receipt of the check and his subsequent act of depositing it
constituted his notice of petitioner Arco Pulp and Paper's option to pay.
This choice was also shown by the terms of the memorandum of agreement,
which was executed on the same day. The memorandum declared in clear terms
that the delivery of petitioner Arco Pulp and Paper's finished products would be
to a third person, thereby extinguishing the option to deliver the finished
products of equivalent value to respondent.
The memorandum of
agreement did not constitute
a novation of the original
contract
The trial court erroneously ruled that the execution of the memorandum of
agreement constituted a novation of the contract between the parties. When
petitioner Arco Pulp and Paper opted instead to deliver the finished products to a
third person, it did not novate the original obligation between the parties.
The rules on novation are outlined in the Civil Code,thus: STECDc

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor. (1203)

Article 1292. In order that an obligation may be extinguished by

another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new obligations
be on every point incompatible with each other. (1204) CcTIAH

Article 1293. Novation which consists in substituting a new debtor in

the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent
of the creditor. Payment by the new debtor gives him the rights
mentioned in Articles 1236 and 1237. (1205a)

Novation extinguishes an obligation between two parties when there is a

substitution of objects or debtors or when there is subrogation of the creditor. It
occurs only when the new contract declares so "in unequivocal terms" or that
"the old and the new obligations be on every point incompatible with each
other." 36
Novation was extensively discussed by this court in Garcia v. Llamas: 37
Novation is a mode of extinguishing an obligation by changing its
objects or principal obligations, by substituting a new debtor in
place of the old one, or by subrogating a third person to the rights
of the creditor. Article 1293 of the Civil Code defines novation as
follows:

"Art. 1293. Novation which consists in substituting a new debtor in

the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the consent
of the creditor. Payment by the new debtor gives him rights mentioned
in articles 1236 and 1237."

In general, there are two modes of substituting the person of the debtor:
(1) expromision and (2) delegacion. In expromision, the initiative for
the change does not come from — and may even be made without the
knowledge of — the debtor, since it consists of a third person's
assumption of the obligation. As such, it logically requires the consent
of the third person and the creditor. In delegacion, the debtor offers,
and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these
three persons are necessary. Both modes of substitution by the
debtor require the consent of the creditor. IHTASa

Novation may also be extinctive or modificatory. It is extinctive when

an old obligation is terminated by the creation of a new one that takes
the place of the former. It is merely modificatory when the old
obligation subsists to the extent that it remains compatible with the
amendatory agreement. Whether extinctive or modificatory, novation
is made either by changing the object or the principal conditions,
referred to as objective or real novation; or by substituting the person
of the debtor or subrogating a third person to the rights of the creditor,
an act known as subjective or personal novation. For novation to
take place, the following requisites must concur:

1) There must be a previous valid obligation.

2) The parties concerned must agree to a new

contract.
 3) The old contract must be extinguished.

4) There must be a valid new contract. SaCDTA

Novation may also be express or implied. It is express when the new

obligation declares in unequivocal terms that the old obligation is
extinguished. It is implied when the new obligation is incompatible
with the old one on every point. The test of incompatibility is
whether the two obligations can stand together, each one with its
own independent existence. 38 (Emphasis supplied)

Because novation requires that it be clear and unequivocal, it is never presumed,

thus:
In the civil law setting, novatio is literally construed as to make
new. So it is deeply rooted in the Roman Law jurisprudence, the
principle — novatio non praesumitur — that novation is never
presumed. At bottom, for novation to be a jural reality,
its animus must be ever present, debitum pro debito — basically
extinguishing the old obligation for the new one. 39 (Emphasis
supplied) DcaCSE

There is nothing in the memorandum of agreement that states that with its
execution, the obligation of petitioner Arco Pulp and Paper to respondent would
be extinguished. It also does not state that Eric Sy somehow substituted
petitioner Arco Pulp and Paper as respondent's debtor. It merely shows that
petitioner Arco Pulp and Paper opted to deliver the finished products to a third
person instead.
The consent of the creditor must also be secured for the novation to be valid:
Novation must be expressly consented to. Moreover, the conflicting
intention and acts of the parties underscore the absence of any express
disclosure or circumstances with which to deduce a clear and
unequivocal intent by the parties to novate the old
agreement. 40 (Emphasis supplied)

In this case, respondent was not privy to the memorandum of agreement, thus,
his conformity to the contract need not be secured. This is clear from the first line
of the memorandum, which states: HCISED

Per meeting held at ARCO, April 18, 2007, it has been mutually
agreed between Mrs. Candida A. Santos and Mr. Eric Sy. . . . 41

If the memorandum of agreement was intended to novate the original agreement

between the parties, respondent must have first agreed to the substitution of Eric
Sy as his new debtor. The memorandum of agreement must also state in clear
and unequivocal terms that it has replaced the original obligation of petitioner
Arco Pulp and Paper to respondent. Neither of these circumstances is present in
this case.
Petitioner Arco Pulp and Paper's act of tendering partial payment to respondent
also conflicts with their alleged intent to pass on their obligation to Eric Sy.
When respondent sent his letter of demand to petitioner Arco Pulp and Paper,
and not to Eric Sy, it showed that the former neither acknowledged nor
consented to the latter as his new debtor. These acts, when taken together, clearly
show that novation did not take place.
Since there was no novation, petitioner Arco Pulp and Paper's obligation to
respondent remains valid and existing. Petitioner Arco Pulp and Paper, therefore,
must still pay respondent the full amount of PhP7,220,968.31.
Petitioners are liable for
damages
Under Article 2220 of the Civil Code,moral damages may be awarded in case of
breach of contract where the breach is due to fraud or bad faith:
Art. 2220. Willfull injury to property may be a legal ground for
awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies
to breaches of contract where the defendant acted fraudulently or
in bad faith. (Emphasis supplied) SaHTCE

Moral damages are not awarded as a matter of right but only after the party
claiming it proved that the breach was due to fraud or bad faith. As this court
stated:
Moral damages are not recoverable simply because a contract has
been breached. They are recoverable only if the party from whom it is
claimed acted fraudulently or in bad faith or in wanton disregard of his
contractual obligations. The breach must be wanton, reckless,
malicious or in bad faith, and oppressive or abusive. 42

Further, the following requisites must be proven for the recovery of moral
damages:
An award of moral damages would require certain conditions to be
met, to wit: (1) first, there must be an injury, whether physical, mental
or psychological, clearly sustained by the claimant; (2) second, there
must be culpable act or omission factually established; (3) third, the
wrongful act or omission of the defendant is the proximate cause of
the injury sustained by the claimant; and (4) fourth, the award of
 damages is predicated on any of the cases stated in Article 2219 of the
Civil Code.43

Here, the injury suffered by respondent is the loss of PhP7,220,968.31 from his
business. This has remained unpaid since 2007. This injury undoubtedly was
caused by petitioner Arco Pulp and Paper's act of refusing to pay its obligations.
When the obligation became due and demandable, petitioner Arco Pulp and
Paper not only issued an unfunded check but also entered into a contract with a
third person in an effort to evade its liability. This proves the third
requirement. THaAEC

As to the fourth requisite, Article 2219 of the Civil Code provides that moral
damages may be awarded in the following instances:
Article 2219. Moral damages may be recovered in the following and
analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape, or other lascivious acts;

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;

(9) Acts mentioned in Article 309;

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32,
34, and 35.

Breaches of contract done in bad faith, however, are not specified within this
enumeration. When a party breaches a contract, he or she goes against Article 19
of the Civil Code,which states:
Article 19. 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. SHacCD

Persons who have the right to enter into contractual relations must exercise that
right with honesty and good faith. Failure to do so results in an abuse of that right,
which may become the basis of an action for damages. Article 19, however,
cannot be its sole basis:
Article 19 is the general rule which governs the conduct of human
relations. By itself, it is not the basis of an actionable tort. Article 19
describes the degree of care required so that an actionable tort may
arise when it is alleged together with Article 20 or Article 21. 44

Articles 20 and 21 of the Civil Code are as follows:

Article 20. Every person who, contrary to law, wilfully or negligently
causes damage to another, shall indemnify the latter for the same.

Article 21. Any person who wilfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage.

To be actionable, Article 20 requires a violation of law, while Article 21 only

concerns with lawful acts that are contrary to morals, good customs, and public
policy:
Article 20 concerns violations of existing law as basis for an injury. It
allows recovery should the act have been willful or negligent. Willful
may refer to the intention to do the act and the desire to achieve the
outcome which is considered by the plaintiff in tort action as injurious.
Negligence may refer to a situation where the act was consciously
done but without intending the result which the plaintiff considers as
injurious.

Article 21, on the other hand, concerns injuries that may be caused by
acts which are not necessarily proscribed by law. This article requires
that the act be willful, that is, that there was an intention to do the act
and a desire to achieve the outcome. In cases under Article 21, the
legal issues revolve around whether such outcome should be
considered a legal injury on the part of the plaintiff or whether the
commission of the act was done in violation of the standards of care
required in Article 19. 45 CSaITD

When parties act in bad faith and do not faithfully comply with their obligations
under contract, they run the risk of violating Article 1159 of the Civil Code:
Article 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith.

Article 2219, therefore, is not an exhaustive list of the instances where moral
damages may be recovered since it only specifies, among others, Article 21.
When a party reneges on his or her obligations arising from contracts in bad faith,
the act is not only contrary to morals, good customs, and public policy; it is also
a violation of Article 1159. Breaches of contract become the basis of moral
damages, not only under Article 2220, but also under Articles 19 and 20 in
relation to Article 1159.
Moral damages, however, are not recoverable on the mere breach of the contract.
Article 2220 requires that the breach be done fraudulently or in bad faith.
In Adriano v. Lasala: 46
To recover moral damages in an action for breach of contract, the
breach must be palpably wanton, reckless and malicious, in bad faith,
oppressive, or abusive. Hence, the person claiming bad faith must
prove its existence by clear and convincing evidence for the law
always presumes good faith.

Bad faith does not simply connote bad judgment or negligence. It

imports a dishonest purpose or some moral obliquity and
conscious doing of a wrong, a breach of known duty through some
motive or interest or ill will that partakes of the nature of fraud. It
is, therefore, a question of intention, which can be inferred from
one's conduct and/or contemporaneous statements. 47 (Emphasis
supplied) TAIDHa

Since a finding of bad faith is generally premised on the intent of the doer, it
requires an examination of the circumstances in each case.
When petitioner Arco Pulp and Paper issued a check in partial payment of its
obligation to respondent, it was presumably with the knowledge that it was being
drawn against a closed account. Worse, it attempted to shift their obligations to a
third person without the consent of respondent.
Petitioner Arco Pulp and Paper's actions clearly show "a dishonest purpose or
some moral obliquity and conscious doing of a wrong, a breach of known duty
through some motive or interest or ill will that partakes of the nature of
fraud." 48 Moral damages may, therefore, be awarded.
Exemplary damages may also be awarded. Under the Civil Code,exemplary
damages are due in the following circumstances: DSEIcT

Article 2232. In contracts and quasi-contracts, the court may award

exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.

Article 2233. Exemplary damages cannot be recovered as a matter of

right; the court will decide whether or not they should be adjudicated.
 Article 2234. While the amount of the exemplary damages need not be
proven, the plaintiff must show that he is entitled to moral, temperate
or compensatory damages before the court may consider the question
of whether or not exemplary damages should be awarded.

In Tankeh v. Development Bank of the Philippines, 49 we stated that:

The purpose of exemplary damages is to serve as a deterrent to
future and subsequent parties from the commission of a similar
offense. The case of People v. Rante citing People v. Dalisay held
that:

Also known as 'punitive' or 'vindictive' damages,

exemplary or corrective damages are intended to serve as
a deterrent to serious wrong doings, and as a vindication of
undue sufferings and wanton invasion of the rights of an
injured or a punishment for those guilty of outrageous
conduct. These terms are generally, but not always, used
interchangeably. In common law, there is preference in the use
of exemplary damages when the award is to account for injury
to feelings and for the sense of indignity and humiliation
suffered by a person as a result of an injury that has been
maliciously and wantonly inflicted, the theory being that there
should be compensation for the hurt caused by the highly
reprehensible conduct of the defendant — associated with
such circumstances as willfulness, wantonness, malice, gross
negligence or recklessness, oppression, insult or fraud or gross
fraud — that intensifies the injury. The terms punitive or
vindictive damages are often used to refer to those species of
damages that may be awarded against a person to punish him
for his outrageous conduct. In either case, these damages are
intended in good measure to deter the wrongdoer and others
like him from similar conduct in the future. 50(Emphasis
supplied; citations omitted) HaEcAC

The requisites for the award of exemplary damages are as follows:

(1) they may be imposed by way of example in addition to
compensatory damages, and only after the claimant's right to
them has been established;

(2) that they cannot be recovered as a matter of right, their

determination depending upon the amount of compensatory
damages that may be awarded to the claimant; and
 (3) the act must be accompanied by bad faith or done in a
wanton, fraudulent, oppressive or malevolent manner. 51 TcSICH

Business owners must always be forthright in their dealings. They cannot be

allowed to renege on their obligations, considering that these obligations were
freely entered into by them. Exemplary damages may also be awarded in this
case to serve as a deterrent to those who use fraudulent means to evade their
liabilities.
Since the award of exemplary damages is proper, attorney's fees and cost of the
suit may also be recovered. Article 2208 of the Civil Code states:
Article 2208. In the absence of stipulation, attorney's fees and
expenses of litigation, other than judicial costs, cannot be recovered,
except:

(1) When exemplary damages are awarded[.]

Petitioner Candida A. Santos

is solidarily liable with
petitioner corporation
Petitioners argue that the finding of solidary liability was erroneous since no
evidence was adduced to prove that the transaction was also a personal
undertaking of petitioner Santos. We disagree.
In Heirs of Fe Tan Uy v. International Exchange Bank, 52 we stated that:
Basic is the rule in corporation law that a corporation is a juridical
entity which is vested with a legal personality separate and distinct
from those acting for and in its behalf and, in general, from the people
comprising it. Following this principle, obligations incurred by the
corporation, acting through its directors, officers and employees, are
its sole liabilities. A director, officer or employee of a corporation
is generally not held personally liable for obligations incurred by
the corporation. Nevertheless, this legal fiction may be disregarded if
it is used as a means to perpetrate fraud or an illegal act, or as a vehicle
for the evasion of an existing obligation, the circumvention of statutes,
or to confuse legitimate issues.

xxx xxx xxx

Before a director or officer of a corporation can be held

personally liable for corporate obligations, however, the following
requisites must concur: (1) the complainant must allege in the
complaint that the director or officer assented to patently
unlawful acts of the corporation, or that the officer was guilty of
 gross negligence or bad faith; and (2) the complainant must
clearly and convincingly prove such unlawful acts, negligence or
bad faith.

While it is true that the determination of the existence of any of the

circumstances that would warrant the piercing of the veil of corporate
fiction is a question of fact which cannot be the subject of a petition for
review on certiorari under Rule 45, this Court can take cognizance of
factual issues if the findings of the lower court are not supported by
the evidence on record or are based on a misapprehension of
facts. 53 (Emphasis supplied)

As a general rule, directors, officers, or employees of a corporation cannot be

held personally liable for obligations incurred by the corporation. However, this
veil of corporate fiction may be pierced if complainant is able to prove, as in this
case, that (1) the officer is guilty of negligence or bad faith, and (2) such
negligence or bad faith was clearly and convincingly proven.
Here, petitioner Santos entered into a contract with respondent in her capacity as
the President and Chief Executive Officer of Arco Pulp and Paper. She also
issued the check in partial payment of petitioner corporation's obligations to
respondent on behalf of petitioner Arco Pulp and Paper. This is clear on the face
of the check bearing the account name, "Arco Pulp & Paper, Co., Inc." 54Any
obligation arising from these acts would not, ordinarily, be petitioner Santos'
personal undertaking for which she would be solidarily liable with petitioner
Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In Livesey v.
Binswanger Philippines: 55 CTaSEI

Piercing the veil of corporate fiction is an equitable doctrine

developed to address situations where the separate corporate
personality of a corporation is abused or used for wrongful
purposes. Under the doctrine, the corporate existence may be
disregarded where the entity is formed or used for non-legitimate
purposes, such as to evade a just and due obligation, or to justify a
wrong, to shield or perpetrate fraud or to carry out similar or
inequitable considerations, other unjustifiable aims or intentions,
in which case, the fiction will be disregarded and the individuals
composing it and the two corporations will be treated as
identical. 56 (Emphasis supplied)

According to the Court of Appeals, petitioner Santos was solidarily liable with
petitioner Arco Pulp and Paper, stating that: aEIADT
 In the present case, We find bad faith on the part of the
[petitioners] when they unjustifiably refused to honor their
undertaking in favor of the [respondent]. After the check in
the amount of PhP1,487,766.68 issued by [petitioner] Santos
was dishonored for being drawn against a closed account,
[petitioner] corporation denied any privity with [respondent].
These acts prompted the [respondent] to avail of the
remedies provided by law in order to protect his rights. 57

We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide
behind the corporate veil. When petitioner Arco Pulp and Paper's obligation to
respondent became due and demandable, she not only issued an unfunded check
but also contracted with a third party in an effort to shift petitioner Arco Pulp and
Paper's liability. She unjustifiably refused to honor petitioner corporation's
obligations to respondent. These acts clearly amount to bad faith. In this instance,
the corporate veil may be pierced, and petitioner Santos may be held solidarily
liable with petitioner Arco Pulp and Paper.
The rate of interest due on
the obligation must be
reduced in view of Nacar v.
Gallery Frames 58
In view, however, of the promulgation by this court of the decision dated August
13, 2013 in Nacar v. Gallery Frames, 59 the rate of interest due on the obligation
must be modified from 12% per annum to 6% per annum from the time of
demand.
Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of
Appeals, 60 and we have laid down the following guidelines with regard to the
rate of legal interest:
To recapitulate and for future guidance, the guidelines laid down
in the case of Eastern Shipping Lines are accordingly modified to
embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts,

quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.

II. With regard particularly to an award of interest in the concept of

actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
 1. When the obligation is breached, and it consists in the payment
of a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code. AIcECS

2. When an obligation, not constituting a loan or forbearance of

money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand
is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code), but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes

final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed
therein. 61 (Emphasis supplied; citations omitted.)

According to these guidelines, the interest due on the obligation of

P7,220,968.31 should now be at 6% per annum, computed from May 5, 2007,
when respondent sent his letter of demand to petitioners. This interest shall
continue to be due from the finality of this decision until its full satisfaction.
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV
No. 95709 is AFFIRMED. aATHIE
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby
ordered solidarily to pay respondent Dan T. Lim the amount of P7,220,968.31
with interest of 6% per annum at the time of demand until finality of judgment
and its full satisfaction, with moral damages in the amount of P50,000.00,
exemplary damages in the amount of P50,000.00, and attorney's fees in the
amount of P50,000.00.
SO ORDERED.
(Arco Pulp and Paper Co., Inc. v. Lim, G.R. No. 206806, [June 25, 2014], 737
|||

PHIL 133-159)

[G.R. No. 199687. March 24, 2014.]

PACIFIC REHOUSE CORPORATION, petitioner, vs.
COURT OF APPEALS and EXPORT AND INDUSTRY
BANK, INC.,respondents.

[G.R. No. 201537. March 24, 2014.]

PACIFIC REHOUSE CORPORATION, PACIFIC
CONCORDE CORPORATION, MIZPAH HOLDINGS,
INC., FORUM HOLDINGS CORPORATION and EAST
ASIA OIL COMPANY, INC., petitioners, vs. EXPORT AND
INDUSTRY BANK, INC., respondent.

DECISION

REYES, J : p

On the scales of justice precariously lie the right of a prevailing party to his
victor's cup, no more, no less; and the right of a separate entity from being
dragged by the ball and chain of the vanquished party.
The facts of this case as garnered from the Decision 1 dated April 26, 2012 of the
Court of Appeals (CA) in CA-G.R. SP No. 120979 are as follows:
We trace the roots of this case to a complaint instituted with the
Makati City Regional Trial Court (RTC), Branch 66, against EIB
Securities, Inc. (E-Securities) for unauthorized sale of 32,180,000
DMCI shares of private respondents Pacific Rehouse Corporation,
Pacific Concorde Corporation, Mizpah Holdings, Inc., Forum
Holdings Corporation, and East Asia Oil Company, Inc. In its October
18, 2005 Resolution, the RTC rendered judgment on the pleadings.
The fallo reads:

WHEREFORE, premises considered, judgment is hereby

rendered directing the defendant [E-Securities] to return the
plaintiffs' [private respondents herein] 32,180,000 DMCI
shares, as of judicial demand. cTACIa

On the other hand, plaintiffs are directed to reimburse the

defendant the amount of [P]10,942,200.00, representing the
buy back price of the 60,790,000 KPP shares of stocks at
[P]0.18 per share.

SO ORDERED. . . .

The Resolution was ultimately affirmed by the Supreme Court and

attained finality.

When the Writ of Execution was returned unsatisfied, private

respondents moved for the issuance of an alias writ of execution to
hold Export and Industry Bank, Inc. liable for the judgment obligation
as E-Securities is "a wholly-owned controlled and dominated
subsidiary of Export and Industry Bank, Inc., and is[,] thus[,] a mere
alter ego and business conduit of the latter. E-Securities opposed the
motion[,] arguing that it has a corporate personality that is separate
and distinct from petitioner. On July 27, 2011, private respondents
filed their (1) Reply attaching for the first time a sworn statement
executed by Atty. Ramon F. Aviado, Jr., the former corporate
secretary of petitioner and E-Securities, to support their alter ego
theory; and (2) Ex-Parte Manifestation alleging service of copies of
the Writ of Execution and Motion for AliasWrit of Execution on
petitioner.

On July 29, 2011, the RTC concluded that E-Securities is a mere

business conduit or alter ego of petitioner, the dominant parent
corporation, which justifies piercing of the veil of corporate fiction.
The trial court brushed aside E-Securities' claim of denial of due
process on petitioner as ". . . case records show that notices regarding
these proceedings had been tendered to the latter, which refused to
even receive them. Clearly, [petitioner] had been sufficiently put on
notice and afforded the chance to give its side[,] yet[,] it chose not
to." Thus, the RTC disposed as follows:

WHEREFORE, . . .,
 Let an Alias Writ of Execution be issued relative to the
above-entitled case and pursuant to the RESOLUTION dated
October 18, 2005 and to this Order directing defendant EIB
Securities, Inc., and/or Export and Industry Bank, Inc., to
fully comply therewith.

The Branch Sheriff of this Court is directed to cause the

immediate implementation of the given alias writ in
accordance with the Order of Execution to be issued anew by
the Branch Clerk of Court.

SO ORDERED. . . .

With this development, petitioner filed an Omnibus Motion (Ex

Abundanti Cautela) questioning the alias writ because it was not
impleaded as a party to the case. The RTC denied the motion in its
Order dated August 26, 2011 and directed the garnishment of
P1,465,799,000.00, the total amount of the 32,180,000 DMCI shares
at P45.55 per share, against petitioner and/or E-Securities. 2 . . . .
(Citations omitted)
The Regional Trial Court (RTC) ratiocinated that being one and the same entity
in the eyes of the law, the service of summons upon EIB Securities, Inc.
(E-Securities) has bestowed jurisdiction over both the parent and wholly-owned
subsidiary. 3 The RTC cited the cases of Sps. Violago v. BA Finance Corp. et
al. 4 and Arcilla v. Court of Appeals 5 where the doctrine of piercing the veil of
corporate fiction was applied notwithstanding that the affected corporation was
not brought to the court as a party. Thus, the RTC held in its Order 6 dated
August 26, 2011: EHaCTA

WHEREFORE, premises considered, the Motion for Reconsideration

with Motion to Inhibit filed by defendant EIB Securities, Inc. is denied
for lack of merit. The Omnibus Motion Ex Abundanti C[au]tela is
likewise denied for lack of merit.

Pursuant to Rule 39, Section 10 (a) of the Rules of Court, the Branch
Clerk of Court or the Branch Sheriff of this Court is hereby directed to
acquire 32,180,000 DMCI shares of stock from the Philippine Stock
Exchange at the cost of EIB Securities, Inc. and Export and Industry
Bank[,] Inc. and to deliver the same to the plaintiffs pursuant to this
Court's Resolution dated October 18, 2005.

To implement this Order, let GARNISHMENT issue against ALL

THOSE HOLDING MONEYS, PROPERTIES OF ANY AND ALL
KINDS, REAL OR PERSONAL BELONGING TO OR OWNED BY
 DEFENDANT EIB SECURITIES, INC. AND/OR EXPORT AND
INDUSTRY BANK[,] INC., [sic] in such amount as may be
sufficient to acquire 32,180,000 DMCI shares of stock to the
Philippine Stock Exchange, based on the closing price of Php45.55
per share of DMCI shares as of August 1, 2011, the date of the
issuance of the Alias Writ of Execution, or the total amount of
PhP1,465,799,000.00.

SO ORDERED. 7

CA-G.R. SP No. 120979

Export and Industry Bank, Inc. (Export Bank) filed before the CA a petition
for certiorari with prayer for the issuance of a temporary restraining order
(TRO) 8 seeking the nullification of the RTC Order dated August 26, 2011 for
having been made with grave abuse of discretion amounting to lack or excess of
jurisdiction. In its petition, Export Bank made reference to several rulings 9 of
the Court upholding the separate and distinct personality of a corporation.
In a Resolution 10 dated September 2, 2011, the CA issued a 60-day TRO
enjoining the execution of the Orders of the RTC dated July 29, 2011 and August
26, 2011, which granted the issuance of an alias writ of execution and ordered
the garnishment of the properties of E-Securities and/or Export Bank. The CA
also set a hearing to determine the necessity of issuing a writ of injunction, viz.:
Considering the amount ordered to be garnished from petitioner
Export and Industry Bank, Inc. and the fiduciary duty of the banking
institution to the public, there is grave and irreparable injury that may
be caused to [Export Bank] if the assailed Orders are immediately
implemented. We thus resolve to GRANT the Temporary Restraining
Order effective for a period of sixty (60) days from notice,
restraining/enjoining the Sheriff of the Regional Trial Court of Makati
City or his deputies, agents, representatives or any person acting in
their behalf from executing the July 29, 2011 and August 26, 2011
Orders. [Export Bank] is DIRECTED to POST a bond in the sum of
fifty million pesos (P50,000,000.00) within ten (10) days from notice,
to answer for any damage which private respondents may suffer by
reason of this Temporary Restraining Order; otherwise, the same shall
automatically become ineffective.

Let the HEARING be set on September 27, 2011 at 2:00 in the

afternoon at the Paras Hall, Main Building, Court of Appeals, to
determine the necessity of issuing a writ of preliminary injunction.
The Division Clerk of Court is DIRECTED to notify the parties and
their counsel with dispatch.
 xxx xxx xxx

SO ORDERED. 11

Pacific Rehouse Corporation (Pacific Rehouse), Pacific Concorde Corporation,

Mizpah Holdings, Inc., Forum Holdings Corporation and East Asia Oil
Company, Inc. (petitioners) filed their Comment 12 to Export Bank's petition and
proffered that the cases mentioned by Export Bank are inapplicable owing to
their clearly different factual antecedents. The petitioners alleged that unlike the
other cases, there are circumstances peculiar only to E-Securities and Export
Bank such as: 499,995 out of 500,000 outstanding shares of stocks of
E-Securities are owned by Export Bank; 13 Export Bank had actual knowledge
of the subject matter of litigation as the lawyers who represented E-Securities are
also lawyers of Export Bank. 14 As an alter ego, there is no need for a finding of
fraud or illegality before the doctrine of piercing the veil of corporate fiction can
be applied. 15
After oral arguments before the CA, the parties were directed to file their
respective memoranda. 16
On October 25, 2011, the CA issued a Resolution, 17 granting Export Bank's
application for the issuance of a writ of preliminary injunction, viz.: ADcSHC

WHEREFORE, finding [Export Bank's] application for the ancillary

injunctive relief to be meritorious, and it further appearing that there is
urgency and necessity in restraining the same, a Writ of Preliminary
Injunction is hereby GRANTEDand ISSUED against the Sheriff of
the Regional Trial Court of Makati City, Branch 66, or his deputies,
agents, representatives or any person acting in their behalf from
executing the July 29, 2011 and August 26, 2011 Orders. Public
respondents are ordered to CEASE and DESIST from enforcing and
implementing the subject orders until further notice from this Court. 18

The petitioners filed a Manifestation 19 and Supplemental

Manifestation 20 challenging the above-quoted CA resolution for lack of
concurrence of Associate Justice Socorro B. Inting (Justice Inting), who was
then on official leave.
On December 22, 2011, the CA, through a Special Division of Five, issued
another Resolution, 21 which reiterated the Resolution dated October 25, 2011
granting the issuance of a writ of preliminary injunction.
On January 2, 2012, one of the petitioners herein, Pacific Rehouse filed before
the Court a petition for certiorari 22 under Rule 65, docketed as G.R.
No. 199687, demonstrating its objection to the Resolutions dated October
25, 2011 and December 22, 2011 of the CA.
On April 26, 2012, the CA rendered the assailed Decision 23 on the merits of the
case, granting Export Bank's petition. The CA disposed of the case in this wise:
We GRANT the petition. The Orders dated July 29, 2011 and
August 26, 2011 of the Makati City Regional Trial Court, Branch 66,
insofar as [Export Bank] is concerned, are NULLIFIED. The Writ
of Preliminary Injunction (WPI) is rendered PERMANENT.

SO ORDERED. 24

The CA explained that the alter ego theory cannot be sustained because
ownership of a subsidiary by the parent company is not enough justification to
pierce the veil of corporate fiction. There must be proof, apart from mere
ownership, that Export Bank exploited or misused the corporate fiction of
E-Securities. The existence of interlocking incorporators, directors and officers
between the two corporations is not a conclusive indication that they are one and
the same. 25 The records also do not show that Export Bank has complete control
over the business policies, affairs and/or transactions of E-Securities. It was
solely E-Securities that contracted the obligation in furtherance of its legitimate
corporate purpose; thus, any fall out must be confined within its limited
liability. 26
The petitioners, without filing a motion for reconsideration, filed a Petition for
Review 27 under Rule 45 docketed as G.R. No. 201537, impugning the Decision
dated April 26, 2012 of the CA.
Considering that G.R. Nos. 199687 and 201537 originated from the same set of
facts, involved the same parties and raised intertwined issues, the cases were
then consolidated. 28
Issues
In précis, the issues for resolution of this Court are the following:
In G.R. No. 199687,

WHETHER THE CA COMMITTED GRAVE ABUSE OF

DISCRETION IN GRANTING EXPORT BANK'S
APPLICATION FOR THE ISSUANCE OF A WRIT OF
PRELIMINARY INJUNCTION. DASCIc

In G.R. No. 201537,

I.
 WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN
RULING THAT EXPORT BANK MAY NOT BE HELD LIABLE
FOR A FINAL AND EXECUTORY JUDGMENT AGAINST
E-SECURITIES IN AN ALIAS WRIT OF EXECUTION BY
PIERCING ITS VEIL OF CORPORATE FICTION; and

II.

WHETHER THE CA COMMITTED A REVERSIBLE ERROR IN

RULING THAT THE ALTER EGO DOCTRINE IS NOT
APPLICABLE.

Ruling of the Court

G.R. No. 199687
The Resolution dated October 25, 2011 was initially challenged by the
petitioners in its Manifestation 29 and Supplemental Manifestation 30 due to the
lack of concurrence of Justice Inting, which according to the petitioners rendered
the aforesaid resolution null and void.
To the petitioners' mind, Section 5, Rule VI of the Internal Rules of the CA
(IRCA) 31 requires the submission of the resolution granting an application for
TRO or preliminary injunction to the absent Justice/s when they report back to
work for ratification, modification or recall, such that when the absent Justice/s
do not agree with the issuance of the TRO or preliminary injunction, the
resolution is recalled and without force and effect. 32 Since the resolution which
granted the application for preliminary injunction appears short of the required
number of consensus, owing to the absence of Justice Inting's signature, the
petitioners contest the validity of said resolution.
The petitioners also impugn the CA Resolution dated December 22, 2011
rendered by the Special Division of Five. The petitioners maintain that pursuant
to Batas Pambansa Bilang 129 33 and the IRCA, 34 such division is
created only when the three members of a division cannot reach a unanimous
vote in deciding a case on the merits. 35 Furthermore, for petitioner Pacific
Rehouse, this Resolution is likewise infirm because the purpose of the formation
of the Special Division of Five is to decide the case on the merits and not to grant
Export Bank's application for a writ of preliminary injunction. 36
We hold that the opposition to the CA resolutions is already nugatory because
the CA has already rendered its Decision on April 16, 2012, which disposed of
the substantial merits of the case. Consequently, the petitioners' concern that the
Special Division of Five should have been created to resolve cases on the merits
has already been addressed by the rendition of the CA Decision dated April 16,
2012.
"It is well-settled that courts will not determine questions that have become moot
and academic because there is no longer any justiciable controversy to speak of.
The judgment will not serve any useful purpose or have any practical legal effect
because, in the nature of things, it cannot be enforced." 37 In such cases, there is
no actual substantial relief to which the petitioners would be entitled to and
which would be negated by the dismissal of the petition. 38 Thus, it would be
futile and pointless to address the issue in G.R. No. 199687 as this has become
moot and academic.
G.R. No. 201537
The petitioners bewail that the certified true copy of the CA Decision dated April
26, 2012 along with its Certification at the bottom portion were not signed by the
Chairperson 39 of the Special Division of Five; thus, it is not binding upon the
parties. 40The petitioners quoted this Court's pronouncement in Limkaichong v.
Commission on Elections, 41 that a decision must not only be signed by the
Justices who took part in the deliberation, but must also be promulgated to be
considered a Decision. 42 aHIEcS

A cursory glance on a copy of the signature page 43 of the decision attached to

the records would show that, indeed, the same was not signed by CA Associate
Justice Magdangal M. de Leon. However, it must be noted that the CA, on May 7,
2012, issued a Resolution 44 explaining that due to inadvertence, copies of the
decision not bearing the signature of the Chairperson were sent to the parties on
the same day of promulgation. The CA directed the Division Clerk of Court to
furnish the parties with copies of the signature page with the Chairperson's
signature. Consequently, as the mistake was immediately clarified and remedied
by the CA, the lack of the Chairperson's signature on the copies sent to the
parties has already become a non-issue.
It must be emphasized that the instant cases sprang from Pacific Rehouse
Corporation v. EIB Securities, Inc. 45 which was decided by this Court last
October 13, 2010. Significantly, Export Bank was not impleaded in said case but
was unexpectedly included during the execution stage, in addition to
E-Securities, against whom the writ of execution may be enforced in the
Order 46 dated July 29, 2011 of the RTC. In including Export Bank, the RTC
considered E-Securities as a mere business conduit of Export Bank. 47Thus, one
of the arguments interposed by the latter in its Opposition 48 that it was never
impleaded as a defendant was simply set aside.
This action by the RTC begs the question: may the RTC enforce the alias writ of
execution against Export Bank?
The question posed before us is not novel.
The Court already ruled in Kukan International Corporation v. Reyes 49 that
compliance with the recognized modes of acquisition of jurisdiction cannot be
dispensed with even in piercing the veil of corporate fiction, to wit:
The principle of piercing the veil of corporate fiction, and the resulting
treatment of two related corporations as one and the same juridical
person with respect to a given transaction, is basically applied only to
determine established liability; it is not available to confer on the court
a jurisdiction it has not acquired, in the first place, over a party not
impleaded in a case. Elsewise put, a corporation not impleaded in a
suit cannot be subject to the court's process of piercing the veil of
its corporate fiction. In that situation, the court has not acquired
jurisdiction over the corporation and, hence, any proceedings taken
against that corporation and its property would infringe on its right to
due process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much:

"23. Piercing the veil of corporate entity applies to

determination of liability not of jurisdiction. . . .

This is so because the doctrine of piercing the veil of

corporate fiction comes to play only during the trial of the
case after the court has already acquired jurisdiction over
the corporation. Hence, before this doctrine can be applied,
based on the evidence presented, it is imperative that the court
must first have jurisdiction over the
corporation. . . ." 50 (Citations omitted)

From the preceding, it is therefore correct to say that the court must first and
foremost acquire jurisdiction over the parties; and only then would the parties be
allowed to present evidence for and/or against piercing the veil of corporate
fiction. If the court has no jurisdiction over the corporation, it follows that the
court has no business in piercing its veil of corporate fiction because such action
offends the corporation's right to due process.
"Jurisdiction over the defendant is acquired either upon a valid service of
summons or the defendant's voluntary appearance in court. When the defendant
does not voluntarily submit to the court's jurisdiction or when there is no valid
service of summons, 'any judgment of the court which has no jurisdiction over
the person of the defendant is null and void.'" 51 "The defendant must be
properly apprised of a pending action against him and assured of the opportunity
to present his defenses to the suit. Proper service of summons is used to protect
one's right to due process." 52 DCcTHa
As Export Bank was neither served with summons, nor has it voluntarily
appeared before the court, the judgment sought to be enforced against
E-Securities cannot be made against its parent company, Export Bank. Export
Bank has consistently disputed the RTC jurisdiction, commencing from its filing
of an Omnibus Motion 53 by way of special appearance during the execution
stage until the filing of its Comment 54 before the Court wherein it was pleaded
that "RTC [of] Makati[, Branch] 66 never acquired jurisdiction over Export
[B]ank. Export [B]ank was not pleaded as a party in this case. It was never
served with summons by nor did it voluntarily appear before RTC [of] Makati[,
Branch] 66 so as to be subjected to the latter's jurisdiction." 55
In dispensing with the requirement of service of summons or voluntary
appearance of Export Bank, the RTC applied the cases of Violago and Arcilla.
The RTC concluded that in these cases, the Court decided that the doctrine of
piercing the veil of corporate personality can be applied even when one of the
affected parties has not been brought to the Court as a party. 56
A closer perusal on the rulings of this Court in Violago and Arcilla, however,
reveals that the RTC misinterpreted the doctrines on these cases. We agree with
the CA that these cases are not congruent to the case at bar. In Violago, Spouses
Pedro and Florencia Violago (Spouses Violago) filed a third party complaint
against their cousin Avelino Violago (Avelino), who is also the president of
Violago Motor Sales Corporation (VMSC), for selling them a vehicle which was
already sold to someone else. VMSC was not impleaded as a third party
defendant. Avelino contended that he was not a party to the transaction
personally, but VMSC. The Court ruled that "[t]he fact that VMSC was not
included as defendant in [Spouses Violago's] third party complaint does not
preclude recovery by Spouses Violago from Avelino; neither would such
non-inclusion constitute a bar to the application of the
piercing-of-the-corporate-veil doctrine." 57 It should be pointed out that
although VMSC was not made a third party defendant, the person who was
found liable in Violago, Avelino, was properly made a third party defendant in
the first instance. The present case could not be any more poles apart
from Violago, because Export Bank, the parent company which was sought to be
accountable for the judgment against E-Securities, is not a party to the main
case.
In Arcilla, meanwhile, Calvin Arcilla (Arcilla) obtained a loan in the name of
Csar Marine Resources, Inc. (CMRI) from Emilio Rodulfo. A complaint was
then filed against Arcilla for non-payment of the loan. CMRI was not impleaded
as a defendant. The trial court eventually ordered Arcilla to pay the judgment
creditor for such loan. Arcilla argued that he is not personally liable for the
adjudged award because the same constitutes a corporate liability which cannot
even bind the corporation as the latter is not a party to the collection suit. The
Court made the succeeding observations:
[B]y no stretch of even the most fertile imagination may one be able
to conclude that the challenged Amended Decision directed Csar
Marine Resources, Inc. to pay the amounts adjudged. By its clear
and unequivocal language, it is the petitioner who was declared
liable therefor and consequently made to pay. . . ., even if We are to
assume arguendo that the obligation was incurred in the name of the
corporation, the petitioner would still be personally liable therefor
because for all legal intents and purposes, he and the corporation are
one and the same. Csar Marine Resources, Inc. is nothing more than
his business conduit and alter ego. The fiction of a separate juridical
personality conferred upon such corporation by law should be
disregarded. . . . . 58 (Citation omitted)

It is important to bear in mind that although CMRI was not a party to the suit, it
was Arcilla, the defendant himself who was found ultimately liable for the
judgment award. CMRI and its properties were left untouched from the main
case, not only because of the application of the alter ego doctrine, but also
because it was never made a party to that case. AScTaD

The disparity between the instant case and those of Violago and Arcilla is that in
said cases, although the corporations were not impleaded as defendant, the
persons made liable in the end were already parties thereto since the inception of
the main case. Consequently, it cannot be said that the Court had, in the absence
of fraud and/or bad faith, applied the doctrine of piercing the veil of corporate
fiction to make a non-party liable. In short, liabilities attached only to those who
are parties. None of the non-party corporations (VMSC and CMRI) were made
liable for the judgment award against Avelino and Arcilla.
The Alter Ego Doctrine is not
applicable
"The question of whether one corporation is merely an alter ego of another is
purely one of fact. So is the question of whether a corporation is a paper
company, a sham or subterfuge or whether petitioner adduced the requisite
quantum of evidence warranting the piercing of the veil of respondent's
corporate entity." 59
As a rule, the parties may raise only questions of law under Rule 45, because the
Supreme Court is not a trier of facts. Generally, we are not duty-bound to
analyze again and weigh the evidence introduced in and considered by the
tribunals below. 60 However, justice for all is of primordial importance that the
Court will not think twice of reviewing the facts, more so because the RTC and
the CA arrived in contradicting conclusions.
"It is a fundamental principle of corporation law that a corporation is an entity
separate and distinct from its stockholders and from other corporations to which
it may be connected. But, this separate and distinct personality of a corporation is
merely a fiction created by law for convenience and to promote justice. So, when
the notion of separate juridical personality is used to defeat public convenience,
justify wrong, protect fraud or defend crime, or is used as a device to defeat the
labor laws, this separate personality of the corporation may be disregarded or the
veil of corporate fiction pierced. This is true likewise when the corporation is
merely an adjunct, a business conduit or an alter ego of another corporation." 61
"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." 62
The Court has laid down a three-pronged control test to establish when the alter
ego doctrine should be operative:
(1) Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the
corporate entity as to this transaction had at the time no separate
mind, will or existence of its own;

(2) Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiff's legal right; and

(3) The aforesaid control and breach of duty must [have]

proximately caused the injury or unjust loss complained of. 63

The absence of any one of these elements prevents 'piercing the corporate veil' in
applying the 'instrumentality' or 'alter ego' doctrine, the courts are concerned
with reality and not form, with how the corporation operated and the individual
defendant's relationship to that operation. 64 Hence, all three elements should
concur for the alter ego doctrine to be applicable. DCcAIS

In its decision, the RTC maintained that the subsequently enumerated factors
betray the true nature of E-Securities as a mere alter ego of Export Bank:
1. Defendant EIB Securities, a subsidiary corporation 100% totally
owned by Export and Industry Bank, Inc., was only re-activated by the
latter in 2002-2003 and the continuance of its operations was geared
for no other reason tha[n] to serve as the securities brokerage arm
of said parent corporation bank;

2. It was the parent corporation bank that provided and infused the
fresh working cash capital needed by defendant EIB Securities which
prior thereto was non-operating and severely cash-strapped. [This was
so attested by the then Corporate Secretary of both corporations, Atty.
Ramon Aviado, Jr., in his submitted Sworn Statement which is
deemed allowable "evidence on motion", under Sec. 7, Rule 133,
Rules on Evidence; Bravo vs. Borja, 134 SCRA 438];

3. For effective control purposes, defendant EIB Securities and its

operating office and staff are all housed in Exportbank Plaza located at
Chino Roces cor. Sen. Gil Puyat Avenue, Makati City which is the
same building w[h]ere the bank parent corporation has its
headquarters;

4. As shown in the General Information Sheets annually filed with the

S.E.C. from 2002 to 2011, both defendant EIB Securities and the bank
parent corporation share common key Directors and corporate officers.
Three of the 5-man Board of Directors of defendant EIB Securities are
Directors of the bank parent corporation, namely: Jaime C. Gonzales,
Pauline C. Tan and Dionisio E. Carpio, Jr. In addition, Mr. Gonzales is
Chairman of the Board of both corporations, whereas Pauline C. Tan
is concurrently President/General Manager of EIB Securities, and
Dionisio Carpio Jr., is not only director of the bank, but also Director
Treasurer of defendant EIB Securities;

5. As admitted by the bank parent corporation in its consolidated

audited financial statements[,] EIB Securities is a CONTROLLED
SUBSIDIARY, and for which reason its financial condition and
results of operations are included and integrated as part of the group's
consolidated financial statements, examined and audited by the same
auditing firm;
 6. The lawyers handling the suits and legal matters of defendant EIB
Securities are the same lawyers in the Legal Department of the bank
parent corporation. The Court notes that in [the] above-entitled suit,
the lawyers who at the start represented said defendant EIB Securities
and filed all the pleadings and filings in its behalf are also the lawyers
in the Legal Services Division of the bank parent corporation. They
are Attys. Emmanuel A. Silva, Leonardo C. Bool, Riva Khristine E.
Maala and Ma. Esmeralda R. Cunanan, all of whom worked at the
Legal Services Division of Export Industry Bank located at 36/F,
Exportbank Plaza, Don Chino Roces Avenue, cor. Sen. Gil Puyat
Avenue, Makati City.

7. Finally[,] and this is very significant, the control and sway that the
bank parent corporation held over defendant EIB Securities was
prevailing in June 2004 when the very act complained of in plaintiff's
Complaint took place, namely the unauthorized disposal of the
32,180,000 DMCI shares of stock. Being then under the direction and
control of the bank parent corporation, the unauthorized disposal of
those shares by defendant EIB Securities is attributable to, and the
responsibility of the former. 65

All the foregoing circumstances, with the exception of the admitted stock
ownership, were however not properly pleaded and proved in accordance with
the Rules of Court. 66 These were merely raised by the petitioners for the first
time in their Motion for Issuance of an Alias Writ of Execution 67 and
Reply, 68 which the Court cannot consider. "Whether the separate personality of
the corporation should be pierced hinges on obtaining facts appropriately
pleaded or proved." 69 DIETcH

Albeit the RTC bore emphasis on the alleged control exercised by Export Bank
upon its subsidiary E-Securities, "[c]ontrol, by itself, does not mean that the
controlled corporation is a mere instrumentality or a business conduit of the
mother company. Even control over the financial and operational concerns of a
subsidiary company does not by itself call for disregarding its corporate fiction.
There must be a perpetuation of fraud behind the control or at least a fraudulent
or illegal purpose behind the control in order to justify piercing the veil of
corporate fiction. Such fraudulent intent is lacking in this case." 70
Moreover, there was nothing on record demonstrative of Export Bank's wrongful
intent in setting up a subsidiary, E-Securities. If used to perform legitimate
functions, a subsidiary's separate existence shall be respected, and the liability of
the parent corporation as well as the subsidiary will be confined to those arising
in their respective business. 71 To justify treating the sole stockholder or holding
company as responsible, it is not enough that the subsidiary is so organized and
controlled as to make it "merely an instrumentality, conduit or adjunct" of its
stockholders. It must further appear that to recognize their separate entities
would aid in the consummation of a wrong. 72
As established in the main case 73 and reiterated by the CA, the subject
32,180,000 DMCI shares which E-Securities is obliged to return to the
petitioners were originally bought at an average price of P0.38 per share and
were sold for an average price of P0.24 per share. The proceeds were then used
to buy back 61,100,000 KPP shares earlier sold by E-Securities. Quite
unexpectedly however, the total amount of these DMCI shares ballooned to
P1,465,799,000.00. 74 It must be taken into account that this unexpected
turnabout did not inure to the benefit of E-Securities, much less Export Bank.
Furthermore, ownership by Export Bank of a great majority or all of stocks of
E-Securities and the existence of interlocking directorates may serve as badges
of control, but ownership of another corporation, per se, without proof of
actuality of the other conditions are insufficient to establish an alter ego
relationship or connection between the two corporations, which will justify the
setting aside of the cover of corporate fiction. The Court has declared that "mere
ownership by a single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality." The Court has likewise ruled
that the "existence of interlocking directors, corporate officers and shareholders
is not enough justification to pierce the veil of corporate fiction in the absence of
fraud or other public policy considerations." 75
While the courts have been granted the colossal authority to wield the sword
which pierces through the veil of corporate fiction, concomitant to the exercise
of this power, is the responsibility to uphold the doctrine of separate entity, when
rightly so; as it has for so long encouraged businessmen to enter into economic
endeavors fraught with risks and where only a few dared to venture.
Hence, any application of the doctrine of piercing the corporate veil should be
done with caution. A court should be mindful of the milieu where it is to be
applied. It must be certain that the corporate fiction was misused to such an
extent that injustice, fraud, or crime was committed against another, in disregard
of its rights. The wrongdoing must be clearly and convincingly established; it
cannot be presumed. Otherwise, an injustice that was never unintended may
result from an erroneous application. 76
In closing, we understand that the petitioners are disgruntled at the turnout of this
case — that they cannot enforce the award due them on its entirety; however, the
Court cannot supplant a remedy which is not sanctioned by our laws and
prescribed rules.
WHEREFORE, the petition in G.R. No. 199687 is hereby DISMISSED for
having been rendered moot and academic. The petition in G.R. No. 201537,
meanwhile, is hereby DENIED for lack of merit. Consequently, the Decision
dated April 26, 2012 of the Court of Appeals in CA-G.R. SP No. 120979
is AFFIRMED.
SO ORDERED.
(Pacific Rehouse Corp. v. Court of Appeals, G.R. No. 199687, 201537, [March
|||

24, 2014], 730 PHIL 325-353)

[G.R. No. 177493. March 19, 2014.]

ERIC GODFREY STANLEY LIVESEY, petitioner, vs.
BINSWANGER PHILIPPINES, INC. and KEITH
ELLIOT,respondents.

DECISION

BRION, J : p

We resolve this petition for review on certiorari 1 assailing the decision 2 dated
August 18, 2006 and the resolution 3 dated March 29, 2007 of the Court of
Appeals (CA) in CA-G.R. SP No. 94461.
The Antecedents
In December 2001, petitioner Eric Godfrey Stanley Livesey filed a complaint for
illegal dismissal with money claims 4 against CBB Philippines Strategic
Property Services, Inc. (CBB) and Paul Dwyer. CBB was a domestic corporation
engaged in real estate brokerage and Dwyer was its President.
Livesey alleged that on April 12, 2001, CBB hired him as Director and Head of
Business Space Development, with a monthly salary of US$5,000.00;
shareholdings in CBB's offshore parent company; and other benefits. In August
2001, he was appointed as Managing Director and his salary was increased to
US$16,000.00 a month. Allegedly, despite the several deals for CBB he drew up,
CBB failed to pay him a significant portion of his salary. For this reason, he was
compelled to resign on December 18, 2001. He claimed CBB owed him
US$23,000.00 in unpaid salaries. DECSIT

CBB denied liability. It alleged that it engaged Livesey as a corporate officer in

April 2001: he was elected Vice-President (with a salary of P75,000.00/month),
and thereafter, he became President (at P1,200,000.00/year). It claimed that
Livesey was later designated as Managing Director when it became an extension
office of its principal in Hongkong. 5
On December 17, 2001, Livesey demanded that CBB pay him US$25,000.00 in
unpaid salaries and, at the same time, tendered his resignation. CBB posited that
the labor arbiter (LA) had no jurisdiction as the complaint involved an
intra-corporate dispute.
In his decision dated September 20, 2002, 6 LA Jaime M. Reyno found that
Livesey had been illegally dismissed. LA Reyno ordered CBB to reinstate
Livesey to his former position as Managing Director and to pay him
US$23,000.00 in accrued salaries (from July to December 2001), and
US$5,000.00 a month in back salaries from January 2002 until reinstatement;
and 10% of the total award as attorney's fees.
Thereafter, the parties entered into a compromise agreement 7 which LA Reyno
approved in an order dated November 6, 2002. 8Under the agreement, Livesey
was to receive US$31,000.00 in full satisfaction of LA Reyno's decision, broken
down into US$13,000.00 to be paid by CBB to Livesey or his authorized
representative upon the signing of the agreement; US$9,000.00 on or before
June 30, 2003; and US$9,000.00 on or before September 30, 2003. Further, the
agreement provided that unless and until the agreement is fully satisfied, CBB
shall not: (1) sell, alienate, or otherwise dispose of all or substantially all of its
assets or business; (2) suspend, discontinue, or cease its entire, or a substantial
portion of its business operations; (3) substantially change the nature of its
business; and (4) declare bankruptcy or insolvency. acEHSI

CBB paid Livesey the initial amount of US$13,000.00, but not the next two
installments as the company ceased operations. In reaction, Livesey moved for
the issuance of a writ of execution. LA Eduardo G. Magno granted the writ, 9 but
it was not enforced. Livesey then filed a motion for the issuance of an alias writ
of execution, 10 alleging that in the process of serving respondents the writ, he
learned "that respondents, in a clear and willful attempt to avoid their liabilities
to complainant . . . have organized another corporation, [Binswanger]
Philippines, Inc." 11 He claimed that there was evidence showing that CBB and
Binswanger Philippines, Inc. (Binswanger) are one and the same corporation,
pointing out that CBB stands for Chesterton Blumenauer
Binswanger. 12 Invoking the doctrine of piercing the veil of corporate fiction,
Livesey prayed that an alias writ of execution be issued against respondents
Binswanger and Keith Elliot, CBB's former President, and now Binswanger's
President and Chief Executive Officer (CEO).
The Compulsory Arbitration Rulings
In an order 13 dated March 22, 2004, LA Catalino R. Laderas denied Livesey's
motion for an alias writ of execution, holding that the doctrine of piercing the
corporate veil was inapplicable in the case. He explained that the stockholders of
the two corporations were not the same. Further, LA Laderas stressed that LA
Reyno's decision had already become final and could no longer be altered or
modified to include additional respondents. EHCDSI

Livesey filed an appeal which the National Labor Relations

Commission (NLRC) granted in its decision 14 dated September 7, 2005. It
reversed LA Laderas' March 22, 2004 order and declared the respondents jointly
and severally liable with CBB for LA Reyno's decision 15 of September 20, 2002
in favor of Livesey. The respondents moved for reconsideration, filed by an Atty.
Genaro S. Jacosalem, 16 not by their counsel of record at the time, Corporate
Counsels Philippines, Law Offices. The NLRC denied the motion in its
resolution of January 6, 2006. 17 The respondents then sought relief from the CA
through a petition for certiorari under Rule 65 of the Rules of Court.
The respondents charged the NLRC with grave abuse of discretion for holding
them liable to Livesey and in exercising jurisdiction over an intra-corporate
dispute. They maintained that Binswanger is a separate and distinct corporation
from CBB and that Elliot signed the compromise agreement in CBB's behalf, not
in his personal capacity. It was error for the NLRC, they argued, when it applied
the doctrine of piercing the veil of corporate fiction to the case, despite the
absence of clear evidence in that respect.
For his part, Livesey contended that the petition should be dismissed outright for
being filed out of time. He claimed that the respondents' counsel of record
received a copy of the NLRC resolution denying their motion for reconsideration
as early as January 19, 2006, yet the petition was filed only on May 15, 2006. He
insisted that in any event, there was ample evidence supporting the application of
the doctrine of piercing the veil of corporate fiction to the case.
The CA Decision
The CA granted the petition, 18 reversed the NLRC decision 19 of September 7,
2005 and reinstated LA Laderas' order 20 of March 22, 2004. The CA found
untenable Livesey's contention that the petition for certiorari was filed out of
time, stressing that while there was no valid substitution or withdrawal of the
respondents' former counsel, the NLRC impliedly recognized Atty. Jacosalem as
their new counsel when it resolved the motion for reconsideration which he
filed.aDcEIH

On the merits of the case, the CA disagreed with the NLRC finding that the
respondents are jointly and severally liable with CBB in the case. It emphasized
that the mere fact that Binswanger and CBB have the same President is not in
itself sufficient to pierce the veil of corporate fiction of the two entities, and that
although Elliot was formerly CBB's President, this circumstance alone does not
make him answerable for CBB's liabilities, there being no proof that he was
motivated by malice or bad faith when he signed the compromise agreement in
CBB's behalf; neither was there proof that Binswanger was formed, or that it was
operated, for the purpose of shielding fraudulent or illegal activities of its
officers or stockholders or that the corporate veil was used to conceal fraud,
illegality or inequity at the expense of third persons like Livesey.
Livesey moved for reconsideration, but the CA denied the motion in its
resolution dated March 29, 2007. 21 Hence, the present petition.
The Petition
Livesey prays for a reversal of the CA rulings on the basis of the following
arguments:
1. The CA erred in not denying the respondents' petition for certiorari dated
May 12, 2006 for being filed out of time. SEIcAD

Livesey assails the CA's reliance on the Court's pronouncement in Rinconada

Telephone Co., Inc. v. Hon. Buenviaje 22 to justify its ruling that the receipt on
March 17, 2006 by Atty. Jacosalem of the NLRC's denial of the respondents'
motion for reconsideration was the reckoning date for the filing of the petition
for certiorari, not the receipt of a copy of the same resolution on January 19,
2006 by the respondents' counsel of record, the Corporate Counsels Philippines,
Law Offices. The cited Court's pronouncement reads:
In view of respondent judge's recognition of Atty. Santos as new
counsel for petitioner without even a valid substitution or withdrawal
of petitioner's former counsel, said new counsel logically awaited for
service to him of any action taken on his motion for reconsideration.
Respondent judge's sudden change of posture in insisting that Atty.
Maggay is the counsel of record is, therefore, a whimsical and
capricious exercise of discretion that prevented petitioner and Atty.
Santos from taking a timely appeal[.] 23

With the above citation, Livesey points out, the CA opined that a copy of the
NLRC resolution denying the respondents' motion for reconsideration should
have been served on Atty. Jacosalem and no longer on the counsel of record, so
that the sixty (60)-day period for the filing of the petition should be reckoned
from March 17, 2006 when Atty. Jacosalem secured a copy of the resolution
from the NLRC (the petition was filed by a Jeffrey Jacosalem on May 15,
2006). 24 Livesey submits that the CA's reliance on Rinconada was misplaced.
He argues that notwithstanding the signing by Atty. Jacosalem of the motion for
reconsideration, it was only proper that the NLRC served a copy of the
resolution on the Corporate Counsels Philippines, Law Offices as it was still the
respondents' counsel at the time. 25 He adds that Atty. Jacosalem never
participated in the NLRC proceedings because he did not enter his appearance as
the respondents' counsel before the labor agency; further, he did not even
indicate his office address on the motion for reconsideration he signed.
2. The CA erred in not applying the doctrine of piercing the veil of corporate
fiction to the case.
Livesey bewails the CA's refusal to pierce Binswanger's corporate veil in his bid
to make the company and Elliot liable, together with CBB, for the judgment
award to him. He insists that CBB and Binswanger are one and the same
corporation as shown by the "overwhelming evidence" he presented to the LA,
the NLRC and the CA, as follows: ITCcAD

a. CBB stands for "Chesterton Blumenauer Binswanger." 26

b. After executing the compromise agreement with him, through Elliot, CBB
ceased operations following a transaction where a substantial amount of CBB
shares changed hands. Almost simultaneously with CBB's closing (in July 2003),
Binswanger was established with its headquarters set up beside CBB's office at
Unit 501, 5/F Peninsula Court Building in Makati City. 27
c. Key CBB officers and employees moved to Binswanger led by Elliot,
former CBB President who became Binswanger's President and CEO; Ferdie
Catral, former CBB Director and Head of Operations; Evangeline Agcaoili and
Janet Pei.
d. Summons served on Binswanger in an earlier labor case was received by
Binswanger using CBB's receiving stamp. 28
e. A Leslie Young received on August 23, 2003 an online query on whether
CBB was the same as Blumaneuver Binswanger (BB). Signing as Web Editor,
Binswanger/CBB, Young replied via e-mail: 29 ACTISE

We are known as either CBB (Chesterton Blumenauer Binswanger)

or as Chesterton Petty Ltd. in the Philippines. Contact info for our
office in Manila is as follows:
 Manila Philippines
CBB Philippines
Unit 509, 5th Floor
Peninsula Court, Paseo de Roxas corner
Makati Avenue
1226 Makati City
Philippines
Contact: Keith Elliot

f. In a letter dated August 21, 2003, 30 Elliot noted a Binswanger bid

solicitation for a project with the Philippine National Bank (PNB) which was
actually a CBB project as shown by a CBB draft proposal to PNB dated January
24, 2003. 31
g. The affidavit 32 dated October 1, 2003 of Hazel de Guzman, another former
CBB employee who also filed an illegal dismissal case against the company,
attested to the existence of Livesey's documentary evidence in his own case and
who deposed that at one time, Elliot told her of CBB's plan to close the
corporation and to organize another for the purpose of evading CBB's liabilities.
h. The findings 33 of facts of LA Veneranda C. Guerrero who ruled in De
Guzman's favor that bolstered his own evidence in the present case. EAcHCI

3. The CA erred in not holding Elliot liable for the judgment award.
Livesey questions the CA's reliance on Laperal Development Corporation v.
Court of Appeals, 34 Sunio, et al. v. NLRC, et al., 35 andPalay, Inc., et al. v. Clave,
etc., et al., 36 in support of its ruling that Elliot is not liable to him for the LA's
award. He argues that in these cases, the Court upheld the separate personalities
of the corporations and their officers/employees because there was no evidence
that the individuals sought to be held liable were in bad faith or that there were
badges of fraud in their actions against the aggrieved party or parties in said
cases. He reiterates his submission to the CA that the circumstances of the
present case are different from those of the cited cases. He posits that the closure
of CBB and its immediate replacement by Binswanger could not have been
possible without Elliot's guiding hand, such that when CBB ceased operations,
Elliot (CBB's President and CEO) moved to Binswanger in the same position.
More importantly, Livesey points out, as signatory for CBB in the compromise
agreement between him (Livesey) and CBB, Elliot knew that it had not been and
would never be fully satisfied.
Livesey thus laments Elliot's devious scheme of leaving him an unsatisfied
award, stressing that Elliot was the chief orchestrator of CBB and Binswanger's
fraudulent act of evading the full satisfaction of the compromise agreement. In
this light, he submits that the Court's ruling in A.C. Ransom Labor Union-CCLU
v. NLRC, 37 which deals with the issue of who is liable for the worker's
backwages when a corporation ceases operations, should apply to his situation.
The Respondents' Position
Through their comment 38 and memorandum, 39 the respondents pray that the
petition be denied for the following reasons:
1. The NLRC had no jurisdiction over the dispute between Livesey and
CBB/Dwyer as it involved an intra-corporate controversy; under Republic Act
No. 8799, the Regional Trial Court exercises jurisdiction over the case.
As shown by the records, Livesey was appointed as CBB's Managing Director
during the relevant period and was also a shareholder, making him a corporate
officer.
2. There was no employer-employee relationship between Livesey and
Binswanger. Under Article 217 of the Labor Code, the labor arbiters and the
NLRC have jurisdiction only over disputes where there is an
employer-employee relationship between the parties. ICcaST

3. The NLRC erred in applying the doctrine of piercing the veil of corporate
fiction to the case based only on mere assumptions. Point by point, they take
exception to Livesey's submissions as follows:
a. The e-mail statement in reply to an online query of
Young (CBB's Web Editor) that CBB is known as
Chesterton Blumenauer Binswanger or Chesterton Petty.
Ltd. to establish a connection between CBB and
Binswanger is inconclusive as there was no mention in
the statement of Binswanger Philippines, Inc.
b. The affidavit of De Guzman, former CBB Associate
Director, who also resigned from the company like
Livesey, has no probative value as it was self-serving and
contained only misrepresentation of facts, conjectures and
surmises.
c. When Binswanger was organized and incorporated,
CBB had already been abandoned by its Board of
Directors and no longer subsidized by CBB-Hongkong; it
had no business operations to work with.
d. The mere transfer of Elliot and Catral from CBB to
Binswanger is not a ground to pierce the corporate veil in
the present case absent a clear evidence supporting the
 application of the doctrine. The NLRC applied the
doctrine on the basis only of LA Guerrero's decision in
the De Guzman case.
e. The respondents' petition for certiorari was filed on
time. Atty. Jacosalem, who was presumed to have been
engaged as the respondents' counsel, was deemed to have
received a copy of the NLRC resolution (denying the
motion for reconsideration) on March 17, 2006 when he
requested and secured a copy from the NLRC. The
petition was filed on May 15, 2006 or fifty-nine (59) days
from March 17, 2006. Atty. Jacosalem may have failed to
indicate his address on the motion for reconsideration he
filed but that is not a reason for him to be deprived of the
notices and processes of the case.
The Court's Ruling
The procedural question
The respondents' petition for certiorari before the CA was filed out of time. The
sixty (60)-day filing period under Rule 65 of the Rules of Court should have
been counted from January 19, 2006, the date of receipt of a copy of the NLRC
resolution denying the respondents' motion for reconsideration by the Corporate
Counsels Philippines, Law Offices which was the respondents' counsel of record
at the time. The respondents cannot insist that Atty. Jacosalem's receipt of a copy
of the resolution on March 17, 2006 as the reckoning date for the filing of the
petition as we shall discuss below. AScHCD

The CA chided the NLRC for serving a copy of the resolution on the Corporate
Counsels Philippines, Law Offices, instead of on Atty. Jacosalem as it believed
that the labor tribunal impliedly recognized Atty. Jacosalem as the respondents'
counsel when it acted on the motion for reconsideration that he signed. As we see
it, the fault was not on the NLRC but on Atty. Jacosalem himself as he left no
forwarding address with the NLRC, a serious lapse that even he admitted. 40 This
is a matter that cannot just be taken for granted as it betrays a careless legal
representation that can cause adverse consequences to the other party.
To our mind, Atty. Jacosalem's non-observance of a simple, but basic
requirement in the practice of law lends credence to Livesey's claim that the
lawyer did not formally enter his appearance before the NLRC as the
respondents' new counsel; if it had been otherwise, he would have supplied his
office address to the NLRC. Also, had he exercised due diligence in the
performance of his duty as counsel, he could have inquired earlier with the
NLRC and should not have waited as late as March 17, 2006 about the outcome
of the respondents' motion for reconsideration which was filed as early as
October 28, 2005.
To reiterate, the filing of the respondents' petition for certiorari should have
been reckoned from January 19, 2006 when a copy of the subject NLRC
resolution was received by the Corporate Counsels Philippines, Law Offices,
which, as of that date, had not been discharged or had withdrawn and therefore
remained to be the respondents' counsel of record. Clearly, the petition
for certiorariwas filed out of time. Section 6 (a), Rule III of the NLRC Revised
Rules of Procedure provides that "[f]or purposes of appeal, the period shall be
counted from receipt of such decisions, resolutions, or orders by the counsel or
representative of record." cTCaEA

We now come to the issue of whether the NLRC had jurisdiction over the
controversy between Livesey and CBB/Dwyer on the ground that it involved an
intra-corporate dispute.
Based on the facts of the case, we find this issue to have been rendered academic
by the compromise agreement between Livesey and CBB and approved by LA
Reyno. 41 That CBB reneged in the fulfillment of its obligation under the
agreement is no reason to revive the issue and further frustrate the full settlement
of the obligation as agreed upon.
The substantive aspect of the case
Even if we rule that the respondents' appeal before the CA had been filed on time,
we believe and so hold that the appellate court committed a reversible error of
judgment in its challenged decision. DAEICc

The NLRC committed no grave abuse of discretion in reversing LA Laderas'

ruling as there is substantial evidence in the records that Livesey was prevented
from fully receiving his monetary entitlements under the compromise agreement
between him and CBB, with Elliot signing for CBB as its President and
CEO. Substantial evidence is more than a scintilla; it means such relevant
evidence as a reasonable mind might accept as adequate to support a
conclusion. 42
Shortly after Elliot forged the compromise agreement with Livesey, CBB ceased
operations, a corporate event that was not disputed by the respondents. Then
Binswanger suddenly appeared. It was established almost simultaneously with
CBB's closure, with no less than Elliot as its President and CEO. Through the
confluence of events surrounding CBB's closure and Binswanger's sudden
emergence, a reasonable mind would arrive at the conclusion that Binswanger is
CBB's alter ego or that CBB and Binswanger are one and the same corporation.
There are also indications of badges of fraud in Binswanger's incorporation. It
was a business strategy to evade CBB's financial liabilities, including its
outstanding obligation to Livesey.
The respondents impugned the probative value of Livesey's documentary
evidence and insist that the NLRC erred in applying the doctrine of piercing the
veil of corporate fiction in the case to avoid liability. They consider the NLRC
conclusions as mere assumptions.
We disagree.
It has long been settled that the law vests a corporation with a personality distinct
and separate from its stockholders or members. In the same vein, a corporation,
by legal fiction and convenience, is an entity shielded by a protective mantle and
imbued by law with a character alien to the persons comprising it. 43 Nonetheless,
the shield is not at all times impenetrable and cannot be extended to a point
beyond its reason and policy. Circumstances might deny a claim for corporate
personality, under the "doctrine of piercing the veil of corporate fiction." ScAHTI

Piercing the veil of corporate fiction is an equitable doctrine developed to

address situations where the separate corporate personality of a corporation is
abused or used for wrongful purposes. 44 Under the doctrine, the corporate
existence may be disregarded where the entity is formed or used for
non-legitimate purposes, such as to evade a just and due obligation, or to justify a
wrong, to shield or perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, 45 in which case, the
fiction will be disregarded and the individuals composing it and the two
corporations will be treated as identical. 46
In the present case, we see an indubitable link between CBB's closure and
Binswanger's incorporation. CBB ceased to exist only in name; it
re-emerged in the person of Binswanger for an urgent purpose — to avoid
payment by CBB of the last two installments of its monetary obligation to
Livesey, as well as its other financial liabilities. Freed of CBB's liabilities,
especially that owing to Livesey, Binswanger can continue, as it did
continue, CBB's real estate brokerage business.
Livesey's evidence, whose existence the respondents never denied, converged to
show this continuity of business operations from CBB to Binswanger. It was not
just coincidence that Binswanger is engaged in the same line of business CBB
embarked on: (1) it even holds office in the very same building and on the very
same floor where CBB once stood; (2) CBB's key officers, Elliot, no less, and
Catral moved over to Binswanger, performing the tasks they were doing at CBB;
(3) notwithstanding CBB's closure, Binswanger's Web Editor (Young), in an
e-mail correspondence, supplied the information that Binswanger is "now
known" as either CBB (Chesterton Blumenauer Binswanger or as Chesterton
Petty, Ltd., in the Philippines; (4) the use of Binswanger of CBB's paraphernalia
(receiving stamp) in connection with a labor case where Binswanger was
summoned by the authorities, although Elliot claimed that he bought the item
with his own money; and (5) Binswanger's takeover of CBB's project with the
PNB. DEIHSa

While the ostensible reason for Binswanger's establishment is to continue CBB's

business operations in the Philippines, which by itself is not illegal, the close
proximity between CBB's disestablishment and Binswanger's coming into
existence points to an unstated but urgent consideration which, as we earlier
noted, was to evade CBB's unfulfilled financial obligation to Livesey under the
compromise agreement. 47
This underhanded objective, it must be stressed, can only be attributed to Elliot
as it was apparent that Binswanger's stockholders had nothing to do with
Binswanger's operations as noted by the NLRC and which the respondents did
not deny. 48Elliot was well aware of the compromise agreement between
Livesey and CBB, as he "agreed and accepted" the terms of the agreement 49 for
CBB. He was also well aware that the last two installments of CBB's obligation
to Livesey were due on June 30, 2003 and September 30, 2003. These
installments were not met and the reason is that after the alleged sale of the
majority of CBB's shares of stock, it closed down.
With CBB's closure, Livesey asked why people would buy into a corporation
and simply close it down immediately thereafter? 50The answer — to pave the
way for CBB's reappearance as Binswanger. Elliot's "guiding hand," as Livesey
puts it, is very much evident in CBB's demise and Binswanger's creation. Elliot
knew that CBB had not fully complied with its financial obligation under the
compromise agreement. He made sure that it would not be fulfilled when he
allowed CBB's closure, despite the condition in the agreement that "unless and
until the Compromise Amount has been fully settled and paid by the Company in
favor of Mr. Livesey, the Company shall not . . . suspend, discontinue, or cease
its entire or a substantial portion of its business operations[.]" 51
What happened to CBB, we believe, supports Livesey's assertion that De
Guzman, CBB's former Associate Director, informed him that at one time Elliot
told her of CBB's plan to close the corporation and organize another for the
purpose of evading CBB's iiabilities to Livesey and its other financial
liabilities. 52 This wrongful intent we cannot and must not condone, for it will
give a premium to an iniquitous business strategy where a corporation is formed
or used for a non-legitimate purpose, such as to evade a just and due
obligation. 53 We, therefore, find Elliot as liable as Binswanger for CBB's
unfulfilled obligation to Livesey.DaHcAS

WHEREFORE, premises considered, we hereby GRANT the petition. The

decision dated August 18, 2006 and the Resolution dated March 29, 2007 of the
Court of Appeals are SET ASIDE. Binswanger Philippines, Inc. and Keith
Elliot (its President and CEO) are declared jointly and severally liable for the
second and third installments of CBB's liability to Eric Godfrey Stanley Livesey
under the compromise agreement dated October 14, 2002. Let the case record be
remanded to the National Labor Relations Commission for execution of this
Decision.
Costs against the respondents.
SO ORDERED.
(Livesey v. Binswanger Phils., Inc., G.R. No. 177493, [March 19, 2014], 730
|||

PHIL 99-119)

[G.R. No. 186433. November 27, 2013.]

NUCCIO SAVERIO and NS INTERNATIONAL,
INC., petitioners, vs. ALFONSO G. PUYAT, respondent.

DECISION

BRION, J : p

We resolve the petition for review on certiorari, 1 filed by petitioners Nuccio

Saverio and NS International, Inc. (NSI) against respondent Alfonso G. Puyat,
challenging the October 27, 2008 decision 2 and the February 10, 2009
resolution 3 of the Court of Appeals (CA) in CA-G.R. CV. No. 87879. The CA
decision affirmed the December 15, 2004 decision 4 of the Regional Trial
Court (RTC) of Makati City, Branch 136, in Civil Case No. 00-594. The CA
subsequently denied the petitioners' motion for reconsideration.
The Factual Antecedents
On July 22, 1996, the respondent granted a loan to NSI. The loan was made
pursuant to the Memorandum of Agreement and Promissory
Note (MOA) 5 between the respondent and NSI, represented by Nuccio. It was
agreed that the respondent would extend a credit line with a limit of P500,000.00
to NSI, to be paid within thirty (30) days from the time of the signing of the
document. The loan carried an interest rate of 17% per annum, or at an adjusted
rate of 25% per annum if payment is beyond the stipulated period. The
petitioners received a total amount of P300,000.00 and certain machineries
intended for their fertilizer processing plant business (business). The proposed
business, however, failed to materialize. HAcaCS

On several occasions, Nuccio made personal payments amounting to

P600,000.00. However, as of December 16, 1999, the petitioners allegedly had
an outstanding balance of P460,505.86. When the petitioners defaulted in the
payment of the loan, the respondent filed a collection suit with the RTC, alleging
mainly that the petitioners still owe him the value of the machineries as shown
by the Breakdown of Account 6 he presented.
The petitioners refuted the respondent's allegation and insisted that they have
already paid the loan, evidenced by the respondent's receipt for the amount of
P600,000.00. They submitted that their remaining obligation to pay the
machineries' value, if any, had long been extinguished by their business' failure
to materialize. They posited that, even assuming without conceding that they are
liable, the amount being claimed is inaccurate, the penalty and the interest
imposed are unconscionable, and an independent accounting is needed to
determine the exact amount of their liability.
The RTC Ruling
In its decision dated December 15, 2004, the RTC found that aside from the cash
loan, the petitioners' obligation to the respondent also covered the payment of the
machineries' value. The RTC also brushed aside the petitioners' claim of
partnership. The RTC thus ruled that the payment of P600,000.00 did not
completely extinguish the petitioners' obligation.
The RTC also found merit in the respondent's contention that the petitioners are
one and the same. Based on Nuccio's act of entering a loan with the respondent
for purposes of financing NSI's proposed business and his own admission during
cross-examination that the word "NS" in NSI's name stands for "Nuccio
Saverio," the RTC found that the application of the doctrine of piercing the veil
of corporate fiction was proper. AEHCDa

The RTC, moreover, concluded that the interest rates stipulated in the MOA
were not usurious and that the respondent is entitled to attorney's fees on account
of the petitioners' willful breach of the loan obligation. Thus, principally relying
on the submitted Breakdown of Account, the RTC ordered the petitioners,
jointly and severally, to pay the balance of P460,505.86, at 12% interest, and
attorney's fees equivalent to 25% of the total amount due.
 The CA Ruling
The petitioners appealed the RTC ruling to the CA. There, they argued that in
view of the lack of proper accounting and the respondent's failure to substantiate
his claims, the exact amount of their indebtedness had not been proven. Nuccio
also argued that by virtue of NSI's separate and distinct personality, he cannot be
made solidarily liable with NSI.
On October 27, 2008, the CA rendered a decision 7 declaring the petitioners
jointly and severally liable for the amount that the respondent sought. The
appellate court likewise held that since the petitioners neither questioned the
delivery of the machineries nor their valuation, their obligation to pay the
amount of P460,505.86 under the Breakdown of Account remained unrefuted.
The CA also affirmed the RTC ruling that petitioners are one and the same for
the following reasons: (1) Nuccio owned forty percent (40%) of NSI; (2) Nuccio
personally entered into the loan contract with the respondent because there was
no board resolution from NSI; (3) the petitioners were represented by the same
counsel; (4) the failure of NSI to object to Nuccio's acts shows the latter's control
over the corporation; and (5) Nuccio's control over NSI was used to commit a
wrong or fraud. It further adopted the RTC's findings of bad faith and willful
breach of obligation on the petitioners' part, and affirmed its award of attorney's
fees.
The Petition
The petitioners submit that the CA gravely erred in ruling that a proper
accounting was not necessary. They argue that the Breakdown of Account —
which the RTC used as a basis in awarding the claim, as affirmed by the CA — is
hearsay since the person who prepared it, Ramoncito P. Puyat, was not presented
in court to authenticate it. They also point to the absence of the award's
computation in the RTC ruling, arguing that assuming they are still indebted to
the respondent, the specific amount of their indebtedness remains undetermined,
thus the need for an accounting to determine their exact liability.
They further question the CA's findings of solidary liability. They submit that in
the absence of any showing that corporate fiction was used to defeat public
convenience, justify a wrong, protect fraud or defend a crime, or where the
corporation is a mere alter ego or business conduit of a person, Nuccio's mere
ownership of forty percent (40%) does not justify the piercing of the separate and
distinct personality of NSI. CADacT

The Case for the Respondent

The respondent counters that the issues raised by the petitioners in the present
petition — pertaining to the correctness of the calibration of the documentary
and testimonial evidence by the RTC, as affirmed by the CA, in awarding the
money claims — are essentially factual, not legal. These issues, therefore,
cannot, as a general rule, be reviewed by the Supreme Court in an appeal
by certiorari. In other words, the resolution of the assigned errors is beyond the
ambit of a Rule 45 petition.
The Issue
The case presents to us the issue of whether the CA committed a reversible error
in affirming the RTC's decision holding the petitioners jointly and severally
liable for the amount claimed.
Our Ruling
After a review of the parties' contentions, we hold that a remand of the case to the
court of origin for a complete accounting and determination of the actual amount
of the petitioners' indebtedness is called for.
The determination of questions of
fact is improper in a Rule 45
proceeding; Exceptions.
The respondent questions the present petition's propriety, and contends that in a
petition for review on certiorari under Rule 45 of the Rules of Court, only
questions of law may be raised. He argues that the petitioners are raising factual
issues that are not permissible under the present petition and these issues have
already been extensively passed upon by the RTC and the CA.
The petitioners, on the other hand, assert that the exact amount of their
indebtedness has not been determined with certainty. They insist that the amount
of P460,505.86 awarded in favor of the respondent has no basis because the
latter failed to substantiate his claim. They also maintain that the Breakdown of
Account used by the lower courts in arriving at the collectible amount is
unreliable for the respondent's failure to adduce supporting documents for the
alleged additional expenses charged against them. With no independent
determination of the actual amount of their indebtedness, the petitioners submit
that an order for a proper accounting is imperative.
We agree with the petitioners. While we find the fact of indebtedness to be
undisputed, the determination of the extent of the adjudged money award is not,
because of the lack of any supporting documentary and testimonial evidence.
These evidentiary issues, of course, are necessarily factual, but as we held in The
Insular Life Assurance Company, Ltd. v. Court of Appeals, 8 this Court may take
cognizance even of factual issues under exceptional circumstances. In this cited
case, we held: ISTDAH
 It is a settled rule that in the exercise of the Supreme Court's power of
review, the Court is not a trier of facts and does not normally
undertake the re-examination of the evidence presented by the
contending parties during the trial of the case considering that the
findings of facts of the CA are conclusive and binding on the Court.
However, the Court had recognized several exceptions to this rule, to
wit: (1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when in
making its findings the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to the
trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth
in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the
evidence on record; and (11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion.

We note in this regard that the RTC, in awarding the amount of P460,505.86 in
favor of the respondent, principally relied on the Breakdown of Account. Under
this document, numerous entries, including the cash loan, were enumerated and
identified with their corresponding amounts. It included the items of expenses
allegedly chargeable to the petitioners, the value of the machineries, the amount
credited as paid, and the interest and penalty allegedly incurred.
A careful perusal of the records, however, reveals that the entries in the
Breakdown of Account and their corresponding amounts are not supported by
the respondent's presented evidence. The itemized expenses, as repeatedly
pointed out by the petitioners, were not proven, and the remaining indebtedness,
after the partial payment of P600,000.00, was merely derived by the RTC from
the Breakdown of Account.
Significantly, the RTC ruling neither showed how the award was computed nor
how the interest and penalty were calculated. In fact, it merely declared the
petitioners liable for the amount claimed by the respondent and adopted the
breakdown of liability in the Breakdown of Account. This irregularity is even
aggravated by the RTC's explicit refusal to explain why the payment of
P600,000.00 did not extinguish the debt. While it may be true that the petitioners'
indebtedness, aside from the cash loan of P300,000.00, undoubtedly covered the
value of the machineries, the RTC decision was far from clear and instructive on
the actual remaining indebtedness (inclusive of the machineries' value, penalties
and interests) after the partial payment was made and how these were all
computed.
We, thus, find it unacceptable for the RTC to simply come up with a conclusion
that the payment of P600,000.00 did not extinguish the debt, or, assuming it
really did not, that the remaining amount of indebtedness amounts exactly to
P460,505.86, without any showing of how this balance was arrived at. To our
mind, the RTC's ruling, in so far as the determination of the actual indebtedness
is concerned, is incomplete. CAScIH

What happened at the RTC likewise transpired at the CA when the latter
affirmed the appealed decision; the CA merely glossed over the contention of the
petitioners, and adopted the RTC's findings without giving any enlightenment.
To reiterate, nowhere in the decisions of the RTC and the CA did they specify
how the award, including the penalty and interest, was determined. The
petitioners were left in the dark as to how their indebtedness of P300,000.00,
after making a payment of P600,000.00, ballooned to P460,505.86. Worse,
unsubstantiated expenses, appearing in the Breakdown of Account, were
charged to them.
We, therefore, hold it inescapable that the prayer for proper accounting to
determine the petitioners' actual remaining indebtedness should be granted. As
this requires presentation of additional evidence, a remand of the case is only
proper and in order.
Piercing the veil of corporate fiction
is not justified. The petitioners are
not one and the same.
At the outset, we note that the question of whether NSI is an alter ego of Nuccio
is a factual one. This is also true with respect to the question of whether the
totality of the evidence adduced by the respondent warrants the application of
the piercing the veil of corporate fiction doctrine. As we did in the issue of
accounting, we hold that the Court may properly wade into the piercing the veil
issue although purely factual questions are involved.
After a careful study of the records and the findings of both the RTC and the CA,
we hold that their conclusions, based on the given findings, are not supported by
the evidence on record.
The rule is settled that a corporation is vested by law with a personality separate
and distinct from the persons composing it. Following this principle, a
stockholder, generally, is not answerable for the acts or liabilities of the
corporation, and vice versa. The obligations incurred by the corporate officers,
or other persons acting as corporate agents, are the direct accountabilities of the
corporation they represent, and not theirs. A director, officer or employee of a
corporation is generally not held personally liable for obligations incurred by the
corporation 9 and while there may be instances where solidary liabilities may
arise, these circumstances are exceptional. 10
Incidentally, we have ruled that mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stocks of the corporation is
not, by itself, a sufficient ground for disregarding the separate corporate
personality. Other than mere ownership of capital stocks, circumstances
showing that the corporation is being used to commit fraud or proof of existence
of absolute control over the corporation have to be proven. In short, before the
corporate fiction can be disregarded, alter-ego elements must first be sufficiently
established. DISaEA

In Hi-Cement Corporation v. Insular Bank of Asia and America (later PCI-Bank,

now Equitable PCI-Bank), 11 we refused to apply the piercing the veil doctrine
on the ground that the corporation was a mere alter ego because mere ownership
by a stockholder of all or nearly all of the capital stocks of a corporation does not,
by itself, justify the disregard of the separate corporate personality. In this cited
case, we ruled that in order for the ground of corporate ownership to stand, the
following circumstances should also be established: (1) that the stockholders had
control or complete domination of the corporation's finances and that the latter
had no separate existence with respect to the act complained of; (2) that they
used such control to commit a wrong or fraud; and (3) the control was the
proximate cause of the loss or injury.
Applying these principles to the present case, we opine and so hold that the
attendant circumstances do not warrant the piercing of the veil of NSI's corporate
fiction.
Aside from the undisputed fact of Nuccio's 40% shareholdings with NSI, the
RTC applied the piercing the veil doctrine based on the following
reasons. First, there was no board resolution authorizing Nuccio to enter into a
contract of loan. Second, the petitioners were represented by one and the same
counsel. Third, NSI did not object to Nuccio's act of contracting the
loan. Fourth, the control over NSI was used to commit a wrong or
fraud. Fifth, Nuccio's admission that "NS" in the corporate name "NSI" means
"Nuccio Saverio."
We are not convinced of the sufficiency of these cited reasons. In our view, the
RTC failed to provide a clear and convincing explanation why the doctrine was
applied. It merely declared that its application of the doctrine of piercing the veil
of corporate fiction has a basis, specifying for this purpose the act of Nuccio's
entering into a contract of loan with the respondent and the reasons stated above.
The records of the case, however, do not show that Nuccio had control or
domination over NSI's finances. The mere fact that it was Nuccio who, in behalf
of the corporation, signed the MOA is not sufficient to prove that he exercised
control over the corporation's finances. Neither the absence of a board resolution
authorizing him to contract the loan nor NSI's failure to object thereto supports
this conclusion. These may be indicators that, among others, may point the proof
required to justify the piercing the veil of corporate fiction, but by themselves,
they do not rise to the level of proof required to support the desired conclusion. It
should be noted in this regard that while Nuccio was the signatory of the loan and
the money was delivered to him, the proceeds of the loan were unquestionably
intended for NSI's proposed business plan. That the business did not materialize
is not also sufficient proof to justify a piercing, in the absence of proof that the
business plan was a fraudulent scheme geared to secure funds from the
respondent for the petitioners' undisclosed goals. HTCSDE

Considering that the basis for holding Nuccio liable for the payment of the loan
has been proven to be insufficient, we find no justification for the RTC to hold
him jointly and solidarily liable for NSI's unpaid loan. Similarly, we find that the
CA ruling is wanting in sufficient explanation to justify the doctrine's application
and affirmation of the RTC's ruling. With these points firmly in mind, we hold
that NSI's liability should not attach to Nuccio.
On the final issue of the award of attorney's fees, Article 1229 of the New Civil
Code provides:
Article 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable.

Under the circumstances of the case, we find the respondent's entitlement to

attorney's fees to be justified. There is no doubt that he was forced to litigate to
protect his interest, i.e., to recover his money. We find, however, that in view of
the partial payment of P600,000.00, the award of attorney's fees equivalent to 25%
should be reduced to 10% of the total amount due. The award of appearance fee
of P3,000.00 and litigation cost of P10,000.00 should, however, stand as these
are costs necessarily attendant to litigation.
WHEREFORE, the petition is GRANTED. The October 27, 2008 decision and
the February 10, 2009 resolution of the Court of Appeals in CA-G.R. CV. No.
87879 are REVERSED AND SET ASIDE. The case is REMANDED to the
Regional Trial Court of Makati City, Branch 136, for proper accounting and
reception of such evidence as may be needed to determine the actual amount of
petitioner NS International, Inc.'s indebtedness, and to adjudicate respondent
Alfonso G. Puyat's claims as such evidence may warrant.
SO ORDERED.
||| (Saverio v. Puyat, G.R. No. 186433, [November 27, 2013], 722 PHIL 211-223)

[G.R. No. 192571. July 23, 2013.]

ABBOTT LABORATORIES, PHILIPPINES, CECILLE A.
TERRIBLE, EDWIN D. FEIST, MARIA OLIVIA T.
YABUT-MISA, TERESITA C. BERNARDO, AND ALLAN
G. ALMAZAR, petitioners, vs. PEARLIE ANN F.
ALCARAZ, respondent.

DECISION

PERLAS-BERNABE, J : p

Assailed in this petition for review on certiorari 1 are the Decision 2 dated
December 10, 2009 and Resolution 3 dated June 9, 2010 of the Court of Appeals
(CA) in CA-G.R. SP No. 101045 which pronounced that the National Labor
Relations Commission (NLRC) did not gravely abuse its discretion when it ruled
that respondent Pearlie Ann F. Alcaraz (Alcaraz) was illegally dismissed from
her employment.
The Facts
On June 27, 2004, petitioner Abbott Laboratories, Philippines (Abbott) caused
the publication in a major broadsheet newspaper of its need for a Medical and
Regulatory Affairs Manager (Regulatory Affairs Manager) who would: (a) be
responsible for drug safety surveillance operations, staffing, and budget; (b) lead
the development and implementation of standard operating procedures/policies
for drug safety surveillance and vigilance; and (c) act as the primary interface
with internal and external customers regarding safety operations and
queries. 4 Alcaraz — who was then a Regulatory Affairs and Information
Manager at Aventis Pasteur Philippines, Incorporated (another pharmaceutical
company like Abbott) — showed interest and submitted her application on
October 4, 2004. 5
On December 7, 2004, Abbott formally offered Alcaraz the above-mentioned
position which was an item under the company's Hospira Affiliate Local
Surveillance Unit (ALSU) department. 6 In Abbott's offer sheet, 7 it was stated
that Alcaraz was to be employed on a probationary basis. 8 Later that day, she
accepted the said offer and received an electronic mail (e-mail) from Abbott's
Recruitment Officer, petitioner Teresita C. Bernardo (Bernardo), confirming the
same. Attached to Bernardo's e-mail were Abbott's organizational chart and a job
description of Alcaraz's work. 9 IDSaEA

On February 12, 2005, Alcaraz signed an employment contract which

stated, inter alia, that she was to be placed on probation for a period of six (6)
months beginning February 15, 2005 to August 14, 2005. The said contract was
also signed by Abbott's General Manager, petitioner Edwin Feist (Feist): 10
PROBATIONARY EMPLOYMENT

Dear Pearl,

After having successfully passed the pre-employment requirements,

you are hereby appointed as follows:

Position Title : Regulatory Affairs Manager

Department : Hospira

The terms of your employment are:

Nature of Employment : Probationary

Effectivity : February 15, 2005 to August 14, 2005

Basic Salary : P110,000.00/month

It is understood that you agree to abide by all existing policies, rules

and regulations of the company, as well as those, which may be
hereinafter promulgated. TaCSAD

Unless renewed, probationary appointment expires on the date

indicated subject to earlier termination by the Company for any
justifiable reason.
 If you agree to the terms and conditions of your employment, please
signify your conformity below and return a copy to HRD.

Welcome to Abbott!

Very truly yours,

Sgd. EDWIN D. FEIST

General Manager

CONFORME:

Sgd. PEARLIE ANN

FERRER-ALCARAZ

During Alcaraz's pre-employment orientation, petitioner Allan G. Almazar

(Almazar), Hospira's Country Transition Manager, briefed her on her duties and
responsibilities as Regulatory Affairs Manager, stating that: (a) she will handle
the staff of Hospira ALSU and will directly report to Almazar on matters
regarding Hopira's local operations, operational budget, and performance
evaluation of the Hospira ALSU Staff who are on probationary status; (b) she
must implement Abbott's Code of Good Corporate Conduct (Code of Conduct),
office policies on human resources and finance, and ensure that Abbott will hire
people who are fit in the organizational discipline; (c) petitioner Kelly Walsh
(Walsh), Manager of the Literature Drug Surveillance Drug Safety of Hospira,
will be her immediate supervisor; (d) she should always coordinate with
Abbott's human resource officers in the management and discipline of the
staff; (e) Hospira ALSU will spin off from Abbott in early 2006 and will be
officially incorporated and known as Hospira, Philippines. In the interim,
Hospira ALSU operations will still be under Abbott's management, excluding
the technical aspects of the operations which is under the control and supervision
of Walsh; and (f) the processing of information and/or raw material data subject
of Hospira ALSU operations will be strictly confined and controlled under the
computer system and network being maintained and operated from the United
States. For this purpose, all those involved in Hospira ALSU are required to use
two identification cards: one, to identify them as Abbott's employees and another,
to identify them as Hospira employees. 11 IcESaA

On March 3, 2005, petitioner Maria Olivia T. Yabut-Misa (Misa), Abbott's

Human Resources (HR) Director, sent Alcaraz an e-mail which contained an
explanation of the procedure for evaluating the performance of probationary
employees and further indicated that Abbott had only one evaluation system for
all of its employees. Alcaraz was also given copies of Abbott's Code of Conduct
and Probationary Performance Standards and Evaluation (PPSE) and
Performance Excellence Orientation Modules (Performance Modules) which
she had to apply in line with her task of evaluating the Hospira ALSU staff. 12
Abbott's PPSE procedure mandates that the job performance of a probationary
employee should be formally reviewed and discussed with the employee at least
twice: first on the third month and second on the fifth month from the date of
employment. The necessary Performance Improvement Plan should also be
made during the third-month review in case of a gap between the employee's
performance and the standards set. These performance standards should be
discussed in detail with the employee within the first two (2) weeks on the job. It
was equally required that a signed copy of the PPSE form must be submitted to
Abbott's Human Resources Department (HRD) and shall serve as documentation
of the employee's performance during his/her probationary period. This shall
form the basis for recommending the confirmation or termination of the
probationary employment. 13
During the course of her employment, Alcaraz noticed that some of the staff had
disciplinary problems. Thus, she would reprimand them for their unprofessional
behavior such as non-observance of the dress code, moonlighting, and disrespect
of Abbott officers. However, Alcaraz's method of management was considered
by Walsh to be "too strict." 14 Alcaraz approached Misa to discuss these
concerns and was told to "lie low" and let Walsh handle the matter. Misa even
assured her that Abbott's HRD would support her in all her management
decisions. 15
On April 12, 2005, Alcaraz received an e-mail from Misa requesting immediate
action on the staff's performance evaluation as their probationary periods were
about to end. This Alcaraz eventually submitted. 16
On April 20, 2005, Alcaraz had a meeting with petitioner Cecille Terrible
(Terrible), Abbott's former HR Director, to discuss certain issues regarding staff
performance standards. In the course thereof, Alcaraz accidentally saw a printed
copy of an e-mail sent by Walsh to some staff members which essentially
contained queries regarding the former's job performance. Alcaraz asked if
Walsh's action was the normal process of evaluation. Terrible said that it was
not. 17aHECST

On May 16, 2005, Alcaraz was called to a meeting with Walsh and Terrible
where she was informed that she failed to meet the regularization standards for
the position of Regulatory Affairs Manager. 18 Thereafter, Walsh and Terrible
requested Alcaraz to tender her resignation, else they be forced to terminate her
services. She was also told that, regardless of her choice, she should no longer
report for work and was asked to surrender her office identification cards. She
requested to be given one week to decide on the same, but to no avail. 19
On May 17, 2005, Alcaraz told her administrative assistant, Claude Gonzales
(Gonzales), that she would be on leave for that day. However, Gonzales told her
that Walsh and Terrible already announced to the whole Hospira ALSU staff that
Alcaraz already resigned due to health reasons. 20
On May 23, 2005, Walsh, Almazar, and Bernardo personally handed to Alcaraz
a letter stating that her services had been terminated effective May 19,
2005. 21 The letter detailed the reasons for Alcaraz's termination — particularly,
that Alcaraz: (a) did not manage her time effectively; (b) failed to gain the trust
of her staff and to build an effective rapport with them; (c) failed to train her staff
effectively; and (d) was not able to obtain the knowledge and ability to make
sound judgments on case processing and article review which were necessary for
the proper performance of her duties. 22 On May 27, 2005, Alcaraz received
another copy of the said termination letter via registered mail. 23 ECTSDa

Alcaraz felt that she was unjustly terminated from her employment and thus,
filed a complaint for illegal dismissal and damages against Abbott and its
officers, namely, Misa, Bernardo, Almazar, Walsh, Terrible, and Feist. 24 She
claimed that she should have already been considered as a regular and not a
probationary employee given Abbott's failure to inform her of the reasonable
standards for her regularization upon her engagement as required under Article
295 25 of the Labor Code.In this relation, she contended that while her
employment contract stated that she was to be engaged on a probationary status,
the same did not indicate the standards on which her regularization would be
based. 26 She further averred that the individual petitioners maliciously connived
to illegally dismiss her when: (a) they threatened her with termination; (b) she
was ordered not to enter company premises even if she was still an employee
thereof; and (c) they publicly announced that she already resigned in order to
humiliate her. 27
On the contrary, petitioners maintained that Alcaraz was validly terminated from
her probationary employment given her failure to satisfy the prescribed
standards for her regularization which were made known to her at the time of her
engagement. 28
The LA Ruling
In a Decision dated March 30, 2006, 29 the LA dismissed Alcaraz's complaint for
lack of merit.
The LA rejected Alcaraz's argument that she was not informed of the reasonable
standards to qualify as a regular employee considering her admissions that she
was briefed by Almazar on her work during her pre-employment orientation
meeting 30 and that she received copies of Abbott's Code of Conduct and
Performance Modules which were used for evaluating all types of Abbott
employees. 31 As Alcaraz was unable to meet the standards set by Abbott as per
her performance evaluation, the LA ruled that the termination of her
probationary employment was justified. 32 Lastly, the LA found that there was
no evidence to conclude that Abbott's officers and employees acted in bad faith
in terminating Alcaraz's employment. 33
Displeased with the LA's ruling, Alcaraz filed an appeal with the National Labor
Relations Commission (NLRC). DTcACa

The NLRC Ruling

On September 15, 2006, the NLRC rendered a Decision, 34 annulling and setting
aside the LA's ruling, the dispositive portion of which reads:
WHEREFORE, the Decision of the Labor Arbiter dated 31 March
2006 [sic] is hereby reversed, annulled and set aside and judgment is
hereby rendered:

1. Finding respondents Abbot [sic] and individual respondents to

have committed illegal dismissal;

2. Respondents are ordered to immediately reinstate complainant to

her former position without loss of seniority rights immediately upon
receipt hereof;

3. To jointly and severally pay complainant backwages computed

from 16 May 2005 until finality of this decision. As of the date hereof
the backwages is computed at

a. Backwages for 15 months - PhP1,650,000.00

b. 13th month pay - 110,000.00

————————

TOTAL PhP1,760,000.00

==========

4. Respondents are ordered to pay complainant moral damages of

P50,000.00 and exemplary damages of P50,000.00.

5. Respondents are also ordered to pay attorney's fees of 10% of the

total award.cDCSTA

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

 SO ORDERED. 35

The NLRC reversed the findings of the LA and ruled that there was no evidence
showing that Alcaraz had been apprised of her probationary status and the
requirements which she should have complied with in order to be a regular
employee. 36 It held that Alcaraz's receipt of her job description and Abbott's
Code of Conduct and Performance Modules was not equivalent to her being
actually informed of the performance standards upon which she should have
been evaluated on. 37 It further observed that Abbott did not comply with its own
standard operating procedure in evaluating probationary employees. 38 The
NLRC was also not convinced that Alcaraz was terminated for a valid cause
given that petitioners' allegation of Alcaraz's "poor performance" remained
unsubstantiated. 39
Petitioners filed a motion for reconsideration which was denied by the NLRC in
a Resolution dated July 31, 2007. 40 CHEIcS

Aggrieved, petitioners filed with the CA a Petition for Certiorari with Prayer for
Issuance of a Temporary Restraining Order and/or Writ of Preliminary
Injunction, docketed as CA G.R. SP No. 101045 (First CA Petition), alleging
grave abuse of discretion on the part of NLRC when it ruled that Alcaraz was
illegally dismissed. 41
Pending resolution of the First CA Petition, Alcaraz moved for the execution of
the NLRC's Decision before the LA, which petitioners strongly opposed. The
LA denied the said motion in an Order dated July 8, 2008 which was, however,
eventually reversed on appeal by the NLRC. 42 Due to the foregoing, petitioners
filed another Petition for Certiorari with the CA, docketed as CA G.R. SP No.
111318 (Second CA Petition), assailing the propriety of the execution of the
NLRC decision. 43
The CA Ruling
With regard to the First CA Petition, the CA, in a Decision 44 dated December 10,
2009, affirmed the ruling of the NLRC and held that the latter did not commit
any grave abuse of discretion in finding that Alcaraz was illegally dismissed.
It observed that Alcaraz was not apprised at the start of her employment of the
reasonable standards under which she could qualify as a regular
employee. 45 This was based on its examination of the employment contract
which showed that the same did not contain any standard of performance or any
stipulation that Alcaraz shall undergo a performance evaluation before she could
qualify as a regular employee. 46 It also found that Abbott was unable to prove
that there was any reasonable ground to terminate Alcaraz's
employment. 47 Abbott moved for the reconsideration of the aforementioned
ruling which was, however, denied by the CA in a Resolution 48 dated June 9,
2010.
The CA likewise denied the Second CA Petition in a Resolution dated May 18,
2010 (May 18, 2010 Resolution) and ruled that the NLRC was correct in
upholding the execution of the NLRC Decision. 49 Thus, petitioners filed a
motion for reconsideration. SHADEC

While the petitioners' motion for reconsideration of the CA's May 18, 2010
Resolution was pending, Alcaraz again moved for the issuance of a writ of
execution before the LA. On June 7, 2010, petitioners received the LA's order
granting Alcaraz's motion for execution which they in turn appealed to the
NLRC — through a Memorandum of Appeal dated June 16, 2010 (June 16, 2010
Memorandum of Appeal) — on the ground that the implementation of the LA's
order would render its motion for reconsideration moot and academic. 50
Meanwhile, petitioners' motion for reconsideration of the CA's May 18, 2010
Resolution in the Second CA Petition was denied via a Resolution dated October
4, 2010. 51 This attained finality on January 10, 2011 for petitioners' failure to
timely appeal the same. 52 Hence, as it stands, only the issues in the First CA
petition are left to be resolved.
Incidentally, in her Comment dated November 15, 2010, Alcaraz also alleges
that petitioners were guilty of forum shopping when they filed the Second CA
Petition pending the resolution of their motion for reconsideration of the CA's
December 10, 2009 Decision i.e., the decision in the First CA Petition. 53 She
also contends that petitioners have not complied with the certification
requirement under Section 5, Rule 7 of the Rules of Court when they failed to
disclose in the instant petition the filing of the June 16, 2010 Memorandum of
Appeal filed before the NLRC. 54
The Issues Before the Court
The following issues have been raised for the Court's resolution: (a) whether or
not petitioners are guilty of forum shopping and have violated the certification
requirement under Section 5, Rule 7 of the Rules of Court; (b) whether or not
Alcaraz was sufficiently informed of the reasonable standards to qualify her as a
regular employee; (c) whether or not Alcaraz was validly terminated from her
employment; and (d) whether or not the individual petitioners herein are
liable.
CTcSAE

The Court's Ruling

A. Forum Shopping and
Violation of Section 5, Rule 7
of the Rules of Court.
At the outset, it is noteworthy to mention that the prohibition against forum
shopping is different from a violation of the certification requirement under
Section 5, Rule 7 of the Rules of Court. In Sps. Ong v. CA, 55 the Court explained
that:
. . . The distinction between the prohibition against forum shopping
and the certification requirement should by now be too elementary to
be misunderstood. To reiterate, compliance with the certification
against forum shopping is separate from and independent of the
avoidance of the act of forum shopping itself. There is a difference in
the treatment between failure to comply with the certification
requirement and violation of the prohibition against forum shopping
not only in terms of imposable sanctions but also in the manner of
enforcing them. The former constitutes sufficient cause for the
dismissal without prejudice [to the filing] of the complaint or
initiatory pleading upon motion and after hearing, while the latter is a
ground for summary dismissal thereof and for direct contempt. . . . . 56

As to the first, forum shopping takes place when a litigant files multiple suits
involving the same parties, either simultaneously or successively, to secure a
favorable judgment. It exists where the elements of litis pendentia are present,
namely: (a) identity of parties, or at least such parties who represent the same
interests in both actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (c) the identity with respect to the
two preceding particulars in the two (2) cases is such that any judgment that may
be rendered in the pending case, regardless of which party is successful, would
amount to res judicata in the other case. 57 HSATIC

In this case, records show that, except for the element of identity of parties, the
elements of forum shopping do not exist. Evidently, the First CA Petition was
instituted to question the ruling of the NLRC that Alcaraz was illegally
dismissed. On the other hand, the Second CA Petition pertains to the propriety of
the enforcement of the judgment award pending the resolution of the First CA
Petition and the finality of the decision in the labor dispute between Alcaraz and
the petitioners. Based on the foregoing, a judgment in the Second CA Petition
will not constitute res judicata insofar as the First CA Petition is concerned.
Thus, considering that the two petitions clearly cover different subject matters
and causes of action, there exists no forum shopping.
As to the second, Alcaraz further imputes that the petitioners violated the
certification requirement under Section 5, Rule 7 of the Rules of Court 58 by not
disclosing the fact that it filed the June 16, 2010 Memorandum of Appeal before
the NLRC in the instant petition.
In this regard, Section 5 (b), Rule 7 of the Rules of Court requires that a plaintiff
who files a case should provide a complete statement of the present status of any
pending case if the latter involves the same issues as the one that was filed. If
there is no such similar pending case, Section 5 (a) of the same rule provides that
the plaintiff is obliged to declare under oath that to the best of his knowledge, no
such other action or claim is pending.
Records show that the issues raised in the instant petition and those in the June
16, 2010 Memorandum of Appeal filed with the NLRC likewise cover different
subject matters and causes of action. In this case, the validity of Alcaraz's
dismissal is at issue whereas in the said Memorandum of Appeal, the propriety
of the issuance of a writ of execution was in question. Thus, given the dissimilar
issues, petitioners did not have to disclose in the present petition the filing of
their June 16, 2010 Memorandum of Appeal with the NLRC. In any event,
considering that the issue on the propriety of the issuance of a writ of execution
had been resolved in the Second CA Petition — which in fact had already
attained finality — the matter of disclosing the June 16, 2010 Memorandum of
Appeal is now moot and academic. HCacDE

Having settled the foregoing procedural matter, the Court now proceeds to
resolve the substantive issues.
B. Probationary employment;
grounds for termination.
A probationary employee, like a regular employee, enjoys security of tenure.
However, in cases of probationary employment, aside from just or authorized
causes of termination, an additional ground is provided under Article 295 of the
Labor Code,i.e., the probationary employee may also be terminated for failure to
qualify as a regular employee in accordance with the reasonable standards made
known by the employer to the employee at the time of the engagement. 59 Thus,
the services of an employee who has been engaged on probationary basis may be
terminated for any of the following: (a) a just or (b) an authorized cause;
and (c) when he fails to qualify as a regular employee in accordance with
reasonable standards prescribed by the employer. 60
Corollary thereto, Section 6 (d), Rule I, Book VI of the Implementing Rules of
the Labor Code provides that if the employer fails to inform the probationary
employee of the reasonable standards upon which the regularization would be
based on at the time of the engagement, then the said employee shall be deemed
a regular employee, viz.:
(d)In all cases of probationary employment, the employer shall
make known to the employee the standards under which he will
qualify as a regular employee at the time of his engagement. Where
 no standards are made known to the employee at that time, he shall
be deemed a regular employee. caEIDA

In other words, the employer is made to comply with two (2) requirements when
dealing with a probationary employee: first, the employer must communicate
the regularization standards to the probationary employee; and second, the
employer must make such communication at the time of the probationary
employee's engagement. If the employer fails to comply with either, the
employee is deemed as a regular and not a probationary employee.
Keeping with these rules, an employer is deemed to have made known the
standards that would qualify a probationary employee to be a regular employee
when it has exerted reasonable efforts to apprise the employee of what he is
expected to do or accomplish during the trial period of probation. This goes
without saying that the employee is sufficiently made aware of his probationary
status as well as the length of time of the probation.
The exception to the foregoing is when the job is self-descriptive in nature, for
instance, in the case of maids, cooks, drivers, or messengers. 61 Also,
in Aberdeen Court, Inc. v. Agustin, 62 it has been held that the rule on notifying a
probationary employee of the standards of regularization should not be used to
exculpate an employee who acts in a manner contrary to basic knowledge and
common sense in regard to which there is no need to spell out a policy or
standard to be met. In the same light, an employee's failure to perform the duties
and responsibilities which have been clearly made known to him constitutes a
justifiable basis for a probationary employee's non-regularization.
In this case, petitioners contend that Alcaraz was terminated because she failed
to qualify as a regular employee according to Abbott's standards which were
made known to her at the time of her engagement. Contrarily, Alcaraz claims
that Abbott never apprised her of these standards and thus, maintains that she is a
regular and not a mere probationary employee.
The Court finds petitioners' assertions to be well-taken.
A punctilious examination of the records reveals that Abbott had indeed
complied with the above-stated requirements. This conclusion is largely
impelled by the fact that Abbott clearly conveyed to Alcaraz her duties and
responsibilities as Regulatory Affairs Manager prior to, during the time of her
engagement, and the incipient stages of her employment. On this score, the
Court finds it apt to detail not only the incidents which point out to the efforts
made by Abbott but also those circumstances which would show that Alcaraz
was well-apprised of her employer's expectations that would, in turn, determine
her regularization:DTCSHA
(a) On June 27, 2004, Abbott caused the publication in a major broadsheet
newspaper of its need for a Regulatory Affairs Manager, indicating therein the
job description for as well as the duties and responsibilities attendant to the
aforesaid position; this prompted Alcaraz to submit her application to Abbott on
October 4, 2004;
(b) In Abbott's December 7, 2004 offer sheet, it was stated that Alcaraz was to
be employed on a probationary status;
(c) On February 12, 2005, Alcaraz signed an employment contract which
specifically stated, inter alia, that she was to be placed on probation for a period
of six (6) months beginning February 15, 2005 to August 14, 2005;
(d) On the day Alcaraz accepted Abbott's employment offer, Bernardo sent her
copies of Abbott's organizational structure and her job description through
e-mail;
(e) Alcaraz was made to undergo a pre-employment orientation where Almazar
informed her that she had to implement Abbott's Code of Conduct and office
policies on human resources and finance and that she would be reporting directly
to Walsh;
(f) Alcaraz was also required to undergo a training program as part of her
orientation;
(g) Alcaraz received copies of Abbott's Code of Conduct and Performance
Modules from Misa who explained to her the procedure for evaluating the
performance of probationary employees; she was further notified that Abbott
had only one evaluation system for all of its employees; and
(h) Moreover, Alcaraz had previously worked for another pharmaceutical
company and had admitted to have an "extensive training and background" to
acquire the necessary skills for her job. 63DIcSHE

Considering the totality of the above-stated circumstances, it cannot, therefore,

be doubted that Alcaraz was well-aware that her regularization would depend on
her ability and capacity to fulfill the requirements of her position as Regulatory
Affairs Manager and that her failure to perform such would give Abbott a valid
cause to terminate her probationary employment.
Verily, basic knowledge and common sense dictate that the adequate
performance of one's duties is, by and of itself, an inherent and implied standard
for a probationary employee to be regularized; such is a regularization standard
which need not be literally spelled out or mapped into technical indicators in
every case. In this regard, it must be observed that the assessment of adequate
duty performance is in the nature of a management prerogative which when
reasonably exercised — as Abbott did in this case — should be respected. This is
especially true of a managerial employee like Alcaraz who was tasked with the
vital responsibility of handling the personnel and important matters of her
department.
In fine, the Court rules that Alcaraz's status as a probationary employee and her
consequent dismissal must stand. Consequently, in holding that Alcaraz was
illegally dismissed due to her status as a regular and not a probationary employee,
the Court finds that the NLRC committed a grave abuse of discretion.
To elucidate, records show that the NLRC based its decision on the premise that
Alcaraz's receipt of her job description and Abbott's Code of Conduct and
Performance Modules was not equivalent to being actually informed of the
performance standards upon which she should have been evaluated on. 64 It,
however, overlooked the legal implication of the other attendant circumstances
as detailed herein which should have warranted a contrary finding that Alcaraz
was indeed a probationary and not a regular employee — more particularly the
fact that she was well-aware of her duties and responsibilities and that her failure
to adequately perform the same would lead to her non-regularization and
eventually, her termination.
Accordingly, by affirming the NLRC's pronouncement which is tainted with
grave abuse of discretion, the CA committed a reversible error which, perforce,
necessitates the reversal of its decision.
C. Probationary employment;
termination procedure.
A different procedure is applied when terminating a probationary employee; the
usual two-notice rule does not govern. 65 Section 2, Rule I, Book VI of
the Implementing Rules of the Labor Code states that "[i]f the termination is
brought about by the . . . failure of an employee to meet the standards of the
employer in case of probationary employment, it shall be sufficient that a written
notice is served the employee, within a reasonable time from the effective date of
termination." TIaCHA

As the records show, Alcaraz's dismissal was effected through a letter dated May
19, 2005 which she received on May 23, 2005 and again on May 27, 2005. Stated
therein were the reasons for her termination, i.e., that after proper evaluation,
Abbott determined that she failed to meet the reasonable standards for her
regularization considering her lack of time and people management and
decision-making skills, which are necessary in the performance of her functions
as Regulatory Affairs Manager. 66 Undeniably, this written notice sufficiently
meets the criteria set forth above, thereby legitimizing the cause and manner of
Alcaraz's dismissal as a probationary employee under the parameters set by the
Labor Code. 67
D. Employer's violation of
company policy and
procedure.
Nonetheless, despite the existence of a sufficient ground to terminate Alcaraz's
employment and Abbott's compliance with the Labor Code termination
procedure, it is readily apparent that Abbott breached its contractual obligation
to Alcaraz when it failed to abide by its own procedure in evaluating the
performance of a probationary employee.
Veritably, a company policy partakes of the nature of an implied contract
between the employer and employee. In Parts Depot, Inc. v. Beiswenger, 68 it
has been held that:EHaCTA

[E]mployer statements of policy . . . can give rise to contractual

rights in employees without evidence that the parties mutually
agreed that the policy statements would create contractual rights in
the employee, and, hence, although the statement of policy is signed
by neither party, can be unilaterally amended by the employer
without notice to the employee, and contains no reference to a
specific employee, his job description or compensation, and
although no reference was made to the policy statement in
pre-employment interviews and the employee does not learn of its
existence until after his hiring. Toussaint, 292 N.W .2d at 892. The
principle is akin to estoppel. Once an employer establishes an
express personnel policy and the employee continues to work
while the policy remains in effect, the policy is deemed an
implied contract for so long as it remains in effect. If the
employer unilaterally changes the policy, the terms of the
implied contract are also thereby changed. (Emphasis and
underscoring supplied.)

Hence, given such nature, company personnel policies create an obligation on

the part of both the employee and the employer to abide by the same.
Records show that Abbott's PPSE procedure mandates, inter alia, that the job
performance of a probationary employee should be formally reviewed and
discussed with the employee at least twice: first on the third month and second
on the fifth month from the date of employment. Abbott is also required to come
up with a Performance Improvement Plan during the third month review to
bridge the gap between the employee's performance and the standards set, if
any. 69 In addition, a signed copy of the PPSE form should be submitted to
Abbott's HRD as the same would serve as basis for recommending the
confirmation or termination of the probationary employment. 70
In this case, it is apparent that Abbott failed to follow the above-stated procedure
in evaluating Alcaraz. For one, there lies a hiatus of evidence that a signed copy
of Alcaraz's PPSE form was submitted to the HRD. It was not even shown that a
PPSE form was completed to formally assess her performance. Neither was the
performance evaluation discussed with her during the third and fifth months of
her employment. Nor did Abbott come up with the necessary Performance
Improvement Plan to properly gauge Alcaraz's performance with the set
company standards. cHATSI

While it is Abbott's management prerogative to promulgate its own company

rules and even subsequently amend them, this right equally demands that when it
does create its own policies and thereafter notify its employee of the same, it
accords upon itself the obligation to faithfully implement them. Indeed, a
contrary interpretation would entail a disharmonious relationship in the work
place for the laborer should never be mired by the uncertainty of flimsy rules in
which the latter's labor rights and duties would, to some extent, depend.
In this light, while there lies due cause to terminate Alcaraz's probationary
employment for her failure to meet the standards required for her regularization,
and while it must be further pointed out that Abbott had satisfied its statutory
duty to serve a written notice of termination, the fact that it violated its own
company procedure renders the termination of Alcaraz's employment
procedurally infirm, warranting the payment of nominal damages. A further
exposition is apropos.
Case law has settled that an employer who terminates an employee for a valid
cause but does so through invalid procedure is liable to pay the latter nominal
damages.
In Agabon v. NLRC (Agabon), 71 the Court pronounced that where the dismissal
is for a just cause, the lack of statutory due process should not nullify the
dismissal, or render it illegal, or ineffectual. However, the employer should
indemnify the employee for the violation of his statutory rights. 72 Thus,
in Agabon, the employer was ordered to pay the employee nominal damages in
the amount of P30,000.00. 73
Proceeding from the same ratio, the Court modified Agabon in the case of Jaka
Food Processing Corporation v. Pacot (Jaka) 74where it created a distinction
between procedurally defective dismissals due to a just cause, on one hand, and
those due to an authorized cause, on the other. ACcHIa
It was explained that if the dismissal is based on a just cause under Article 282
of the Labor Code (now Article 296) but the employer failed to comply with the
notice requirement, the sanction to be imposed upon him should
be tempered because the dismissal process was, in effect, initiated by an act
imputable to the employee; if the dismissal is based on an authorized cause under
Article 283 (now Article 297) but the employer failed to comply with the notice
requirement, the sanction should be stiffer because the dismissal process was
initiated by the employer's exercise of his management prerogative. 75 Hence,
in Jaka, where the employee was dismissed for an authorized cause of
retrenchment 76 — as contradistinguished from the employee in Agabonwho
was dismissed for a just cause of neglect of duty 77 — the Court ordered the
employer to pay the employee nominal damages at the higher amount of
P50,000.00.
Evidently, the sanctions imposed in both Agabon and Jaka proceed from the
necessity to deter employers from future violations of the statutory due process
rights of employees. 78 In similar regard, the Court deems it proper to apply the
same principle to the case at bar for the reason that an employer's contractual
breach of its own company procedure — albeit not statutory in source — has the
parallel effect of violating the laborer's rights. Suffice it to state, the contract is
the law between the parties and thus, breaches of the same impel recompense to
vindicate a right that has been violated. Consequently, while the Court is wont to
uphold the dismissal of Alcaraz because a valid cause exists, the payment of
nominal damages on account of Abbott's contractual breach is warranted in
accordance with Article 2221 of the Civil Code.79
Anent the proper amount of damages to be awarded, the Court observes that
Alcaraz's dismissal proceeded from her failure to comply with the standards
required for her regularization. As such, it is undeniable that the dismissal
process was, in effect, initiated by an act imputable to the employee, akin to
dismissals due to just causes under Article 296 of the Labor Code. Therefore,
the Court deems it appropriate to fix the amount of nominal damages at the
amount of P30,000.00, consistent with its rulings in both Agabon and Jaka. cDHCAE

E. Liability of individual
petitioners as corporate
officers.
It is hornbook principle that personal liability of corporate directors, trustees or
officers attaches only when: (a) they assent to a patently unlawful act of the
corporation, or when they are guilty of bad faith or gross negligence in directing
its affairs, or when there is a conflict of interest resulting in damages to the
corporation, its stockholders or other persons; (b) they consent to the issuance of
watered down stocks or when, having knowledge of such issuance, do not
forthwith file with the corporate secretary their written objection; (c) they agree
to hold themselves personally and solidarily liable with the corporation;
or (d) they are made by specific provision of law personally answerable for their
corporate action. 80
In this case, Alcaraz alleges that the individual petitioners acted in bad faith with
regard to the supposed crude manner by which her probationary employment
was terminated and thus, should be held liable together with Abbott. In the same
vein, she further attributes the loss of some of her remaining belongings to
them. 81
Alcaraz's contention fails to persuade.
A judicious perusal of the records show that other than her unfounded assertions
on the matter, there is no evidence to support the fact that the individual
petitioners herein, in their capacity as Abbott's officers and employees, acted in
bad faith or were motivated by ill will in terminating Alcaraz's services. The fact
that Alcaraz was made to resign and not allowed to enter the workplace does not
necessarily indicate bad faith on Abbott's part since a sufficient ground existed
for the latter to actually proceed with her termination. On the alleged loss of her
personal belongings, records are bereft of any showing that the same could be
attributed to Abbott or any of its officers. It is a well-settled rule that bad faith
cannot be presumed and he who alleges bad faith has the onus of proving it. All
told, since Alcaraz failed to prove any malicious act on the part of Abbott or any
of its officers, the Court finds the award of moral or exemplary damages
unwarranted. CHDaAE

WHEREFORE, the petition is GRANTED. The Decision dated December 10,

2009 and Resolution dated June 9, 2010 of the Court of Appeals in CA-G.R. SP
No. 101045 are hereby REVERSED and SET ASIDE. Accordingly, the
Decision dated March 30, 2006 of the Labor Arbiter is REINSTATED with
the MODIFICATION that petitioner Abbott Laboratories, Philippines
be ORDERED to pay respondent Pearlie Ann F. Alcaraz nominal damages in
the amount of P30,000.00 on account of its breach of its own company
procedure.
SO ORDERED.
(Abbott Laboratories, Phils. v. Alcaraz, G.R. No. 192571, [July 23, 2013], 714
|||

PHIL 510-574)
[G.R. No. 167530. March 13, 2013.]
 PHILIPPINE NATIONAL BANK, petitioner, vs. HYDRO
RESOURCES CONTRACTORS
CORPORATION, respondent.

[G.R. No. 167561. March 13, 2013.]

ASSET PRIVATIZATION TRUST, petitioner, vs. HYDRO
RESOURCES CONTRACTORS
CORPORATION, respondent.

[G.R. No. 167603. March 13, 2013.]

DEVELOPMENT BANK OF THE
PHILIPPINES, petitioner, vs. HYDRO RESOURCES
CONTRACTORS CORPORATION,respondent.

DECISION

LEONARDO-DE CASTRO, J : p

These petitions for review on certiorari 1 assail the Decision 2 dated November
30, 2004 and the Resolution 3 dated March 22, 2005 of the Court of Appeals in
CA-G.R. CV No. 57553. The said Decision affirmed the Decision 4 dated
November 6, 1995 of the Regional Trial Court (RTC) of Makati City, Branch 62,
granting a judgment award of P8,370,934.74, plus legal interest, in favor of
respondent Hydro Resources Contractors Corporation (HRCC) with the
modification that the Privatization and Management Office (PMO), successor of
petitioner Asset Privatization Trust (APT), 5 has been held solidarily liable with
Nonoc Mining and Industrial Corporation (NMIC) 6 and petitioners Philippine
National Bank (PNB) and Development Bank of the Philippines (DBP), while
the Resolution denied reconsideration separately prayed for by PNB, DBP, and
APT.
Sometime in 1984, petitioners DBP and PNB foreclosed on certain mortgages
made on the properties of Marinduque Mining and Industrial Corporation
(MMIC). As a result of the foreclosure, DBP and PNB acquired substantially all
the assets of MMIC and resumed the business operations of the defunct MMIC
by organizing NMIC. 7 DBP and PNB owned 57% and 43% of the shares of
NMIC, respectively, except for five qualifying shares. 8 As of September 1984,
the members of the Board of Directors of NMIC, namely, Jose Tengco, Jr.,
Rolando Zosa, Ruben Ancheta, Geraldo Agulto, and Faustino Agbada, were
either from DBP or PNB. 9
Subsequently, NMIC engaged the services of Hercon, Inc., for NMIC's Mine
Stripping and Road Construction Program in 1985 for a total contract price of
P35,770,120. After computing the payments already made by NMIC under the
program and crediting the NMIC's receivables from Hercon, Inc., the latter
found that NMIC still has an unpaid balance of P8,370,934.74. 10 Hercon, Inc.
made several demands on NMIC, including a letter of final demand dated
August 12, 1986, and when these were not heeded, a complaint for sum of
money was filed in the RTC of Makati, Branch 136 seeking to hold petitioners
NMIC, DBP, and PNB solidarily liable for the amount owing Hercon,
Inc. 11 The case was docketed as Civil Case No. 15375. EHScCA

Subsequent to the filing of the complaint, Hercon, Inc. was acquired by HRCC in
a merger. This prompted the amendment of the complaint to substitute HRCC
for Hercon, Inc. 12
Thereafter, on December 8, 1986, then President Corazon C. Aquino
issued Proclamation No. 50 creating the APT for the expeditious disposition and
privatization of certain government corporations and/or the assets thereof.
Pursuant to the said Proclamation, on February 27, 1987, DBP and PNB
executed their respective deeds of transfer in favor of the National Government
assigning, transferring and conveying certain assets and liabilities, including
their respective stakes in NMIC. 13 In turn and on even date, the National
Government transferred the said assets and liabilities to the APT as trustee under
a Trust Agreement. 14 Thus, the complaint was amended for the second time to
implead and include the APT as a defendant.
In its answer, 15 NMIC claimed that HRCC had no cause of action. It also
asserted that its contract with HRCC was entered into by its then President
without any authority. Moreover, the said contract allegedly failed to comply
with laws, rules and regulations concerning government contracts. NMIC further
claimed that the contract amount was manifestly excessive and grossly
disadvantageous to the government. NMIC made counterclaims for the amounts
already paid to Hercon, Inc. and attorney's fees, as well as payment for
equipment rental for four trucks, replacement of parts and other services, and
damage to some of NMIC's properties. 16
For its part, DBP's answer 17 raised the defense that HRCC had no cause of
action against it because DBP was not privy to HRCC's contract with NMIC.
Moreover, NMIC's juridical personality is separate from that of DBP. DBP
further interposed a counterclaim for attorney's fees. 18
PNB's answer 19 also invoked lack of cause of action against it. It also raised
estoppel on HRCC's part and laches as defenses, claiming that the inclusion of
PNB in the complaint was the first time a demand for payment was made on it by
HRCC. PNB also invoked the separate juridical personality of NMIC and made
counterclaims for moral damages and attorney's fees. 20
APT set up the following defenses in its answer: 21 lack of cause of action
against it, lack of privity between Hercon, Inc. and APT, and the National
Government's preferred lien over the assets of NMIC. 22
After trial, the RTC of Makati rendered a Decision dated November 6, 1995 in
favor of HRCC. It pierced the corporate veil of NMIC and held DBP and PNB
solidarily liable with NMIC: IaHSCc

On the issue of whether or not there is sufficient ground to pierce the

veil of corporate fiction, this Court likewise finds for the plaintiff.

From the documentary evidence adduced by the plaintiff, some of

which were even adopted by defendants and DBP and PNB as their
own evidence (Exhibits "I", "I-1", "I-2", "I-3", "I-4", "I-5", "I-5-A",
"I-5-B", "I-5-C", "I-5-D" and submarkings, inclusive), it had been
established that except for five (5) qualifying shares, [NMIC] is
owned by defendants DBP and PNB, with the former owning 57%
thereof, and the latter 43%. As of September 24, 1984, all the
members of [NMIC]'s Board of Directors, namely, Messrs. Jose
Tengco, Jr., Rolando M. Zosa, Ruben Ancheta, Geraldo Agulto, and
Faustino Agbada are either from DBP or PNB (Exhibits "I-5", "I-5-C",
"I-5-D").

The business of [NMIC] was then also being conducted and controlled
by both DBP and PNB. In fact, it was Rolando M. Zosa, then
Governor of DBP, who was signing and entering into contracts with
third persons, on behalf of [NMIC].

In this jurisdiction, it is well-settled that "where it appears that the

business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights
of third persons, disregard legal fiction that two (2) corporations are
distinct entities, and treat them as identical." (Phil. Veterans
Investment Development Corp. vs. CA, 181 SCRA 669).

From all indications, it appears that [NMIC] is a mere adjunct,

business conduit or alter ego of both DBP and PNB. Thus, the DBP
and PNB are jointly and severally liable with [NMIC] for the latter's
unpaid obligations to plaintiff. 23
Having found DBP and PNB solidarily liable with NMIC, the dispositive portion
of the Decision of the trial court reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered
in favor of the plaintiff HYDRO RESOURCES CONTRACTORS
CORPORATION and against the defendant[s] NONOC MINING
AND INDUSTRIAL CORPORATION, DEVELOPMENT BANK
OF THE PHILIPPINES and PHILIPPINE NATIONAL BANK,
ordering the aforenamed defendants, to pay the plaintiff jointly and
severally, the sum of P8,370,934.74 plus legal interest thereon from
date of demand, and attorney's fees equivalent to 25% of the judgment
award. aIcSED

The complaint against APT is hereby dismissed. However, APT, as

trustee of NONOC MINING AND INDUSTRIAL CORPORATION
is directed to ensure compliance with this Decision. 24

DBP and PNB filed their respective appeals in the Court of Appeals. Both
insisted that it was wrong for the RTC to pierce the veil of NMIC's corporate
personality and hold DBP and PNB solidarily liable with NMIC. 25
The Court of Appeals rendered the Decision dated November 30, 2004, affirmed
the piercing of the veil of the corporate personality of NMIC and held DBP, PNB,
and APT solidarily liable with NMIC. In particular, the Court of Appeals made
the following findings:
In the case before Us, it is indubitable that [NMIC] was owned by
appellants DBP and PNB to the extent of 57% and 43% respectively;
that said two (2) appellants are the only stockholders, with the
qualifying stockholders of five (5) consisting of its own officers and
included in its charter merely to comply with the requirement of the
law as to number of incorporators; and that the directorates of DBP,
PNB and [NMIC] are interlocked.

xxx xxx xxx

We find it therefore correct for the lower court to have ruled that:

"From all indications, it appears that [NMIC] is a mere adjunct,

business conduit or alter ego of both DBP and PNB. Thus, the
DBP and PNB are jointly and severally liable with [NMIC] for
the latter's unpaid obligation to plaintiff." 26(Citation
omitted.)
The Court of Appeals then concluded that, "in keeping with the concept of
justice and fair play," the corporate veil of NMIC should be pierced,
ratiocinating:
For to treat [NMIC] as a separate legal entity from DBP and PNB for
the purpose of securing beneficial contracts, and then using such
separate entity to evade the payment of a just debt, would be the
height of injustice and iniquity. Surely that could not have been the
intendment of the law with respect to corporations. . . . . 27

The dispositive portion of the Decision of the Court of Appeals reads: CDcaSA

WHEREFORE, premises considered, the Decision appealed from is

hereby MODIFIED. The judgment in favor of appellee Hydro
Resources Contractors Corporation in the amount of P8,370,934.74
with legal interest from date of demand is hereby AFFIRMED, but the
dismissal of the case as against Assets Privatization Trust is
REVERSED, and its successor the Privatization and Management
Office is INCLUDED as one of those jointly and severally liable for
such indebtedness. The award of attorney's fees is DELETED.

All other claims and counter-claims are hereby DISMISSED.

Costs against appellants. 28

The respective motions for reconsideration of DBP, PNB, and APT were
denied. 29
Hence, these consolidated petitions. 30
All three petitioners assert that NMIC is a corporate entity with a juridical
personality separate and distinct from both PNB and DBP. They insist that the
majority ownership by DBP and PNB of NMIC is not a sufficient ground for
disregarding the separate corporate personality of NMIC because NMIC was not
a mere adjunct, business conduit or alter ego of DBP and PNB. According to
them, the application of the doctrine of piercing the corporate veil is unwarranted
as nothing in the records would show that the ownership and control of the
shareholdings of NMIC by DBP and PNB were used to commit fraud, illegality
or injustice. In the absence of evidence that the stock control by DBP and PNB
over NMIC was used to commit some fraud or a wrong and that said control was
the proximate cause of the injury sustained by HRCC, resort to the doctrine of
"piercing the veil of corporate entity" is misplaced. 31
DBP and PNB further argue that, assuming they may be held solidarily liable
with NMIC to pay NMIC's exclusive and separate corporate indebtedness to
HRCC, such liability of the two banks was transferred to and assumed by the
National Government through the APT, now the PMO, under the respective
deeds of transfer both dated February 27, 1997 executed by DBP and PNB
pursuant to Proclamation No. 50 dated December 8, 1986 and Administrative
Order No. 14 dated February 3, 1987. 32
For its part, the APT contends that, in the absence of an unqualified assumption
by the National Government of all liabilities incurred by NMIC, the National
Government through the APT could not be held liable for NMIC's contractual
liability. The APT asserts that HRCC had not sufficiently shown that the APT is
the successor-in-interest of all the liabilities of NMIC, or of DBP and PNB as
transferors, and that the adjudged liability is included among the liabilities
assigned and transferred by DBP and PNB in favor of the National
Government. 33
HRCC counters that both the RTC and the CA correctly applied the doctrine of
"piercing the veil of corporate fiction." It claims that NMIC was the alter ego of
DBP and PNB which owned, conducted and controlled the business of NMIC as
shown by the following circumstances: NMIC was owned by DBP and PNB, the
officers of DBP and PNB were also the officers of NMIC, and DBP and PNB
financed the operations of NMIC. HRCC further argues that a parent corporation
may be held liable for the contracts or obligations of its subsidiary corporation
where the latter is a mere agency, instrumentality or adjunct of the parent
corporation. 34
ICcaST

Moreover, HRCC asserts that the APT was properly held solidarily liable with
DBP, PNB, and NMIC because the APT assumed the obligations of DBP and
PNB as the successor-in-interest of the said banks with respect to the assets and
liabilities of NMIC. 35 As trustee of the Republic of the Philippines, the APT
also assumed the responsibility of the Republic pursuant to the following
provision of Section 2.02 of the respective deeds of transfer executed by DBP
and PNB in favor of the Republic:
SECTION 2. TRANSFER OF BANK'S LIABILITIES. —

xxx xxx xxx

2.02 With respect to the Bank's liabilities which are contingent and
those liabilities where the Bank's creditors consent to the transfer
thereof is not obtained, said liabilities shall remain in the books of
the BANK with the GOVERNMENT funding the payment
thereof. 36

After a careful review of the case, this Court finds the petitions impressed with
merit.
A corporation is an artificial entity created by operation of law. It possesses the
right of succession and such powers, attributes, and properties expressly
authorized by law or incident to its existence. 37 It has a personality separate and
distinct from that of its stockholders and from that of other corporations to which
it may be connected. 38 As a consequence of its status as a distinct legal entity
and as a result of a conscious policy decision to promote capital formation, 39 a
corporation incurs its own liabilities and is legally responsible for payment of its
obligations. 40 In other words, by virtue of the separate juridical personality of a
corporation, the corporate debt or credit is not the debt or credit of the
stockholder. 41 This protection from liability for shareholders is the principle of
limited liability. 42
Equally well-settled is the principle that the corporate mask may be removed or
the corporate veil pierced when the corporation is just an alter ego of a person or
of another corporation. For reasons of public policy and in the interest of justice,
the corporate veil will justifiably be impaled only when it becomes a shield for
fraud, illegality or inequity committed against third persons. 43
However, the rule is that a court should be careful in assessing the milieu where
the doctrine of the corporate veil may be applied. Otherwise an injustice,
although unintended, may result from its erroneous application. 44 Thus, cutting
through the corporate cover requires an approach characterized by due care and
caution: CAcIES

Hence, any application of the doctrine of piercing the corporate

veil should be done with caution. A court should be mindful of the
milieu where it is to be applied. It must be certain that the
corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. . . . . 45 (Emphases supplied;
citations omitted.)
Sarona v. National Labor Relations Commission 46 has defined the scope of
application of the doctrine of piercing the corporate veil:
The doctrine of piercing the corporate veil applies only in three (3)
basic areas, namely: 1) defeat of public convenience as when the
corporate fiction is used as a vehicle for the evasion of an existing
obligation; 2) fraud cases or when the corporate entity is used to
justify a wrong, protect fraud, or defend a crime; or 3) alter ego cases,
where a corporation is merely a farce since it is a mere alter ego or
business conduit of a person, or where the corporation is so organized
and controlled and its affairs are so conducted as to make it merely an
 instrumentality, agency, conduit or adjunct of another corporation.
(Citation omitted.)

Here, HRCC has alleged from the inception of this case that DBP and PNB (and
the APT as assignee of DBP and PNB) should be held solidarily liable for using
NMIC as alter ego. 47 The RTC sustained the allegation of HRCC and pierced
the corporate veil of NMIC pursuant to the alter ego theory when it concluded
that NMIC "is a mere adjunct, business conduit or alter ego of both DBP and
PNB." 48 The Court of Appeals upheld such conclusion of the trial court. 49 In
other words, both the trial and appellate courts relied on the alter ego theory
when they disregarded the separate corporate personality of NMIC.
In this connection, case law lays down a three-pronged test to determine the
application of the alter ego theory, which is also known as the instrumentality
theory, namely:
(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;aASEcH

(2) Such control must have been used by the defendant to commit
fraud or wrong, to perpetuate the violation of a statutory or other
positive legal duty, or dishonest and unjust act in contravention of
plaintiff's legal right; and

(3) The aforesaid control and breach of duty must have proximately
caused the injury or unjust loss complained of. 50(Emphases
omitted.)
The first prong is the "instrumentality" or "control" test. This test requires that
the subsidiary be completely under the control and domination of the parent. 51 It
examines the parent corporation's relationship with the subsidiary. 52 It inquires
whether a subsidiary corporation is so organized and controlled and its affairs
are so conducted as to make it a mere instrumentality or agent of the parent
corporation such that its separate existence as a distinct corporate entity will be
ignored. 53 It seeks to establish whether the subsidiary corporation has no
autonomy and the parent corporation, though acting through the subsidiary in
form and appearance, "is operating the business directly for itself." 54
The second prong is the "fraud" test. This test requires that the parent
corporation's conduct in using the subsidiary corporation be unjust, fraudulent or
wrongful. 55 It examines the relationship of the plaintiff to the corporation. 56 It
recognizes that piercing is appropriate only if the parent corporation uses the
subsidiary in a way that harms the plaintiff creditor. 57 As such, it requires a
showing of "an element of injustice or fundamental unfairness." 58
The third prong is the "harm" test. This test requires the plaintiff to show that the
defendant's control, exerted in a fraudulent, illegal or otherwise unfair manner
toward it, caused the harm suffered. 59 A causal connection between the
fraudulent conduct committed through the instrumentality of the subsidiary and
the injury suffered or the damage incurred by the plaintiff should be established.
The plaintiff must prove that, unless the corporate veil is pierced, it will have
been treated unjustly by the defendant's exercise of control and improper use of
the corporate form and, thereby, suffer damages. 60
To summarize, piercing the corporate veil based on the alter ego theory requires
the concurrence of three elements: control of the corporation by the stockholder
or parent corporation, fraud or fundamental unfairness imposed on the plaintiff,
and harm or damage caused to the plaintiff by the fraudulent or unfair act of the
corporation. The absence of any of these elements prevents piercing the
corporate veil. 61
This Court finds that none of the tests has been satisfactorily met in this case. aCHDST

In applying the alter ego doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual defendant's
relationship to that operation. 62 With respect to the control element, it refers not
to paper or formal control by majority or even complete stock control but actual
control which amounts to "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." 63 In addition, the
control must be shown to have been exercised at the time the acts complained of
took place. 64
Both the RTC and the Court of Appeals applied the alter ego theory and
penetrated the corporate cover of NMIC based on two factors: (1) the ownership
by DBP and PNB of effectively all the stocks of NMIC, and (2) the alleged
interlocking directorates of DBP, PNB and NMIC. 65 Unfortunately, the
conclusion of the trial and appellate courts that the DBP and PNB fit the alter
ego theory with respect to NMIC's transaction with HRCC on the premise of
complete stock ownership and interlocking directorates involved a quantum leap
in logic and law exposing a gap in reason and fact.
While ownership by one corporation of all or a great majority of stocks of
another corporation and their interlocking directorates may serve as indicia of
control, by themselves and without more, however, these circumstances are
insufficient to establish an alter ego relationship or connection between DBP
and PNB on the one hand and NMIC on the other hand, that will justify the
puncturing of the latter's corporate cover. This Court has declared that "mere
ownership by a single stockholder or by another corporation of all or nearly all of
the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality." 66 This Court has likewise ruled
that the "existence of interlocking directors, corporate officers and shareholders
is not enough justification to pierce the veil of corporate fiction in the absence of
fraud or other public policy considerations." 67
True, the findings of fact of the Court of Appeals are conclusive and cannot be
reviewed on appeal to this Court, provided they are borne out of the record or are
based on substantial evidence. 68 It is equally true that the question of whether
one corporation is merely an alter ego of another is purely one of fact. So is the
question of whether a corporation is a paper company, a sham or subterfuge or
whether the requisite quantum of evidence has been adduced warranting the
piercing of the veil of corporate personality. 69 Nevertheless, it has been held
in Sarona v. National Labor Relations Commission 70 that this Court has the
power to resolve a question of fact, such as whether a corporation is a mere alter
ego of another entity or whether the corporate fiction was invoked for fraudulent
or malevolent ends, if the findings in the assailed decision are either not
supported by the evidence on record or based on a misapprehension of facts. aTAEHc

In this case, nothing in the records shows that the corporate finances, policies
and practices of NMIC were dominated by DBP and PNB in such a way that
NMIC could be considered to have no separate mind, will or existence of its own
but a mere conduit for DBP and PNB. On the contrary, the evidence establishes
that HRCC knew and acted on the knowledge that it was dealing with NMIC, not
with NMIC's stockholders. The letter proposal of Hercon, Inc., HRCC's
predecessor-in-interest, regarding the contract for NMIC's mine stripping and
road construction program was addressed to and accepted by NMIC. 71 The
various billing reports, progress reports, statements of accounts and
communications of Hercon, Inc./HRCC regarding NMIC's mine stripping and
road construction program in 1985 concerned NMIC and NMIC's officers,
without any indication of or reference to the control exercised by DBP and/or
PNB over NMIC's affairs, policies and practices. 72
HRCC has presented nothing to show that DBP and PNB had a hand in the act
complained of, the alleged undue disregard by NMIC of the demands of HRCC
to satisfy the unpaid claims for services rendered by HRCC in connection with
NMIC's mine stripping and road construction program in 1985. On the contrary,
the overall picture painted by the evidence offered by HRCC is one where
HRCC was dealing with NMIC as a distinct juridical person acting through its
own corporate officers. 73
Moreover, the finding that the respective boards of directors of NMIC, DBP, and
PNB were interlocking has no basis. HRCC's Exhibit "I-5," 74 the initial General
Information Sheet submitted by NMIC to the Securities and Exchange
Commission, relied upon by the trial court and the Court of Appeals may have
proven that DBP and PNB owned the stocks of NMIC to the extent of 57% and
43%, respectively. However, nothing in it supports a finding that NMIC, DBP,
and PNB had interlocking directors as it only indicates that, of the five members
of NMIC's board of directors, four were nominees of either DBP or PNB and
only one was a nominee of both DBP and PNB. 75 Only two members of the
board of directors of NMIC, Jose Tengco, Jr. and Rolando Zosa, were
established to be members of the board of governors of DBP and none was
proved to be a member of the board of directors of PNB. 76 No director of NMIC
was shown to be also sitting simultaneously in the board of governors/directors
of both DBP and PNB.
In reaching its conclusion of an alter ego relationship between DBP and PNB on
the one hand and NMIC on the other hand, the Court of Appeals invoked Sibagat
Timber Corporation v. Garcia, 77 which it described as "a case under a similar
factual milieu." 78However, in Sibagat Timber Corporation, this Court took care
to enumerate the circumstances which led to the piercing of the corporate veil of
Sibagat Timber Corporation for being the alter ego of Del Rosario & Sons
Logging Enterprises, Inc. Those circumstances were as follows: holding office
in the same building, practical identity of the officers and directors of the two
corporations and assumption of management and control of Sibagat Timber
Corporation by the directors/officers of Del Rosario & Sons Logging Enterprises,
Inc.cCaEDA

Here, DBP and PNB maintain an address different from that of NMIC. 79 As
already discussed, there was insufficient proof of interlocking directorates.
There was not even an allegation of similarity of corporate officers. Instead of
evidence that DBP and PNB assumed and controlled the management of NMIC,
HRCC's evidence shows that NMIC operated as a distinct entity endowed with
its own legal personality. Thus, what obtains in this case is a factual backdrop
different from, not similar to, Sibagat Timber Corporation.
In relation to the second element, to disregard the separate juridical personality
of a corporation, the wrongdoing or unjust act in contravention of a plaintiff's
legal rights must be clearly and convincingly established; it cannot be presumed.
Without a demonstration that any of the evils sought to be prevented by the
doctrine is present, it does not apply. 80
In this case, the Court of Appeals declared:
 We are not saying that PNB and DBP are guilty of fraud in forming
[NMIC], nor are we implying that [NMIC] was used to conceal
fraud. . . . . 81

Such a declaration clearly negates the possibility that DBP and PNB exercised
control over NMIC which DBP and PNB used "to commit fraud or wrong, to
perpetuate the violation of a statutory or other positive legal duty, or dishonest
and unjust act in contravention of plaintiff's legal rights." It is a recognition that,
even assuming that DBP and PNB exercised control over NMIC, there is no
evidence that the juridical personality of NMIC was used by DBP and PNB to
commit a fraud or to do a wrong against HRCC.
There being a total absence of evidence pointing to a fraudulent, illegal or unfair
act committed against HRCC by DBP and PNB under the guise of NMIC, there
is no basis to hold that NMIC was a mere alter ego of DBP and PNB. As this
Court ruled in Ramoso v. Court of Appeals: 82
As a general rule, a corporation will be looked upon as a legal entity,
unless and until sufficient reason to the contrary appears. 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. Also, the corporate entity
may be disregarded in the interest of justice in such cases as fraud that
may work inequities among members of the corporation internally,
involving no rights of the public or third persons. In both
instances, there must have been fraud, and proof of it. For the
separate juridical personality of a corporation to be disregarded, the
wrongdoing must be clearly and convincingly established. It cannot be
presumed. ScAaHE

As regards the third element, in the absence of both control by DBP and PNB of
NMIC and fraud or fundamental unfairness perpetuated by DBP and PNB
through the corporate cover of NMIC, no harm could be said to have been
proximately caused by DBP and PNB on HRCC for which HRCC could hold
DBP and PNB solidarily liable with NMIC.
Considering that, under the deeds of transfer executed by DBP and PNB, the
liability of the APT as transferee of the rights, titles and interests of DBP and
PNB in NMIC will attach only if DBP and PNB are held liable, the APT incurs
no liability for the judgment indebtedness of NMIC. Even HRCC recognizes that
"as assignee of DBP and PNB's loan receivables," the APT simply "stepped into
the shoes of DBP and PNB with respect to the latter's rights and obligations" in
NMIC. 83 As such assignee, therefore, the APT incurs no liability with respect to
NMIC other than whatever liabilities may be imputable to its assignors, DBP and
PNB.
Even under Section 2.02 of the respective deeds of transfer executed by DBP and
PNB which HRCC invokes, the APT cannot be held liable. The contingent
liability for which the National Government, through the APT, may be held
liable under the said provision refers to contingent liabilities of DBP and PNB.
Since DBP and PNB may not be held solidarily liable with NMIC, no contingent
liability may be imputed to the APT as well. Only NMIC as a distinct and
separate legal entity is liable to pay its corporate obligation to HRCC in the
amount of P8,370,934.74, with legal interest thereon from date of demand.
As trustee of the assets of NMIC, however, the APT should ensure compliance
by NMIC of the judgment against it. The APT itself acknowledges this. 84
WHEREFORE, the petitions are hereby GRANTED.
The complaint as against Development Bank of the Philippines, the Philippine
National Bank, and the Asset Privatization Trust, now the Privatization and
Management Office, is DISMISSED for lack of merit. The Asset Privatization
Trust, now the Privatization and Management Office, as trustee of Nonoc
Mining and Industrial Corporation, now the Philnico Processing Corporation,
is DIRECTED to ensure compliance by the Nonoc Mining and Industrial
Corporation, now the Philnico Processing Corporation, with this Decision. AaIDHS

SO ORDERED.
(Philippine National Bank v. Hydro Resources Contractors Corp., G.R. No.
|||

167530, 167561, 167603, [March 13, 2013], 706 PHIL 297-319)

[G.R. No. 173297. March 6, 2013.]

STRONGHOLD INSURANCE COMPANY,
INC., petitioner, vs. TOMAS CUENCA, MARCELINA
CUENCA, MILAGROS CUENCA, BRAMIE T.
TAYACTAC, and MANUEL D. MARAÑON,
JR., respondents.

DECISION

BERSAMIN, J : p
The personality of a corporation is distinct and separate from the personalities of
its stockholders. Hence, its stockholders are not themselves the real parties in
interest to claim and recover compensation for the damages arising from the
wrongful attachment of its assets. Only the corporation is the real party in
interest for that purpose.
The Case
Stronghold Insurance Company, Inc. (Stronghold Insurance), a domestic
insurance company, assails the decision promulgated on January 31,
2006, 1 whereby the Court of Appeals (CA) in CA-G.R. CV No. 79145 affirmed
the judgment rendered on April 28, 2003 by the Regional Trial Court in
Parañaque City (RTC) holding Stronghold Insurance and respondent Manuel D.
Marañon, Jr. jointly and solidarily liable for damages to respondents Tomas
Cuenca, Marcelina Cuenca, Milagros Cuenca (collectively referred to as
Cuencas), and Bramie Tayactac, upon the latter's claims against the surety bond
issued by Stronghold Insurance for the benefit of Marañon. 2
Antecedents
On January 19, 1998, Marañon filed a complaint in the RTC against the Cuencas
for the collection of a sum of money and damages. His complaint, docketed as
Civil Case No. 98-023, included an application for the issuance of a writ of
preliminary attachment. 3 On January 26, 1998, the RTC granted the application
for the issuance of the writ of preliminary attachment conditioned upon the
posting of a bond of P1,000,000.00 executed in favor of the Cuencas. Less than a
month later, Marañon amended the complaint to implead Tayactac as a
defendant. 4 TaEIcS

On February 11, 1998, Marañon posted SICI Bond No. 68427 JCL (4) No.
02370 in the amount of P1,000,000.00 issued by Stronghold Insurance. Two
days later, the RTC issued the writ of preliminary attachment. 5 The sheriff
served the writ, the summons and a copy of the complaint on the Cuencas on the
same day. The service of the writ, summons and copy of the complaint were
made on Tayactac on February 16, 1998. 6
Enforcing the writ of preliminary attachment on February 16 and February 17,
1998, the sheriff levied upon the equipment, supplies, materials and various
other personal property belonging to Arc Cuisine, Inc. that were found in the
leased corporate office-cum-commissary or kitchen of the corporation. 7 On
February 19, 1998, the sheriff submitted a report on his proceedings, 8and filed
an ex parte motion seeking the transfer of the levied properties to a safe place.
The RTC granted the ex parte motion on February 23, 1998. 9
On February 25, 1998, the Cuencas and Tayactac presented in the RTC a Motion
to Dismiss and to Quash Writ of Preliminary Attachment on the grounds that: (1)
the action involved intra-corporate matters that were within the original and
exclusive jurisdiction of the Securities and Exchange Commission (SEC); and (2)
there was another action pending in the SEC as well as a criminal complaint in
the Office of the City Prosecutor of Parañaque City. 10
On March 5, 1998, Marañon opposed the motion. 11
On August 10, 1998, the RTC denied the Motion to Dismiss and to Quash Writ
of Preliminary Attachment, stating that the action, being one for the recovery of a
sum of money and damages, was within its jurisdiction. 12
Under date of September 3, 1998, the Cuencas and Tayactac moved for the
reconsideration of the denial of their Motion to Dismiss and to Quash Writ of
Preliminary Attachment, but the RTC denied their motion for reconsideration on
September 16, 1998.
Thus, on October 14, 1998, the Cuencas and Tayactac went to the CA
on certiorari and prohibition to challenge the August 10, 1998 and September
16, 1998 orders of the RTC on the basis of being issued with grave abuse of
discretion amounting to lack or excess of jurisdiction (C.A.-G.R. SP No.
49288). 13
On June 16, 1999, the CA promulgated its assailed decision in C.A.-G.R. SP No.
49288, 14 granting the petition. It annulled and set aside the challenged orders,
and dismissed the amended complaint in Civil Case No. 98-023 for lack of
jurisdiction, to wit:
TCDcSE

WHEREFORE, the Orders herein assailed are hereby ANNULLED

AND SET ASIDE, and the judgment is hereby
rendered DISMISSING the Amended Complaint in Civil Case No.
98-023 of the respondent court, for lack of jurisdiction.

SO ORDERED.

On December 27, 1999, the CA remanded to the RTC for hearing and resolution
of the Cuencas and Tayactac's claim for the damages sustained from the
enforcement of the writ of preliminary attachment. 15
On February 17, 2000, 16 the sheriff reported to the RTC, as follows:
On the scheduled inventory of the properties (February 17, 2000) and
to comply with the Resolution of the Court of Appeals dated
December 24, 1999 ordering the delivery of the attached properties to
the defendants, the proceedings thereon being:
 1. With the assistance for (sic) the counsel of Cuencas, Atty.
Pulumbarit, Atty. Ayo, defendant Marcelina Cuenca, and two Court
Personnel, Robertson Catorce and Danilo Abanto, went to the
warehouse where Mr. Marañon recommended for safekeeping the
properties in which he personally assured its safety, at No. 14, Marian
II Street, East Service Road, Parañaque Metro Manila.

2. That to our surprise, said warehouse is now tenanted by a new

lessee and the properties were all gone and missing.

3. That there are informations (sic) that the properties are seen at
Conti's Pastry & Bake Shop owned by Mr. Marañon, located at BF
Homes in Parañaque City.

On April 6, 2000, the Cuencas and Tayactac filed a Motion to Require Sheriff to
Deliver Attached Properties and to Set Case for Hearing, 17 praying that: (1) the
Branch Sheriff be ordered to immediately deliver the attached properties to them;
(2) Stronghold Insurance be directed to pay them the damages being sought in
accordance with its undertaking under the surety bond for P1,000,0000.00; (3)
Marañon be held personally liable to them considering the insufficiency of the
amount of the surety bond; (4) they be paid the total of P1,721,557.20 as actual
damages representing the value of the lost attached properties because they,
being accountable for the properties, would be turning that amount over to Arc
Cuisine, Inc.; and (5) Marañon be made to pay P200,000.00 as moral damages,
P100,000.00 as exemplary damages, and P100,000.00 as attorney's fees. HCacTI

Stronghold Insurance filed its answer and opposition on April 13, 2000. In turn,
the Cuencas and Tayactac filed their reply on May 5, 2000.
On May 25, 2000, Marañon filed his own comment/opposition to the Motion to
Require Sheriff to Deliver Attached Properties and to Set Case for Hearing of
the Cuencas and Tayactac, arguing that because the attached properties belonged
to Arc Cuisine, Inc. 50% of the stockholding of which he and his relatives owned,
it should follow that 50% of the value of the missing attached properties
constituted liquidating dividends that should remain with and belong to him.
Accordingly, he prayed that he should be required to return only P100,000.00 to
the Cuencas and Tayactac. 18
On June 5, 2000, the RTC commanded Marañon to surrender all the attached
properties to the RTC through the sheriff within 10 days from notice; and
directed the Cuencas and Tayactac to submit the affidavits of their witnesses in
support of their claim for damages. 19
On June 6, 2000, the Cuencas and Tayactac submitted their Manifestation and
Compliance. 20
 Ruling of the RTC
After trial, the RTC rendered its judgment on April 28, 2003, holding Marañon
and Stronghold Insurance jointly and solidarily liable for damages to the
Cuencas and Tayactac, 21 viz.:
WHEREFORE, premises considered, as the defendants were able to
preponderantly prove their entitlement for damages by reason of the
unlawful and wrongful issuance of the writ of attachment, MANUEL
D. MARAÑON, JR., plaintiff and defendant, Stronghold Insurance
Company, Inc., are found to be jointly and solidarily liable to pay the
defendants the following amount to wit:

(1) PhP1,000,000.00 representing the amount of the bond;

(2) PhP100,000.00 as moral damages;

(3) PhP50,000.00 as exemplary damages;

(4) Php100,000.00 as attorney's fees; and

(5) To pay the cost of suit.

SO ORDERED. HSIDTE

Ruling of the CA
Only Stronghold Insurance appealed to the CA (C.A.-G.R. CV No. 79145),
assigning the following errors to the RTC, to wit:
I.

THE LOWER COURT ERRED IN ORDERING

SURETY-APPELLANT TO PAY THE AMOUNT OF
P1,000,000.00 REPRESENTING THE AMOUNT OF THE BOND
AND OTHER DAMAGES TO THE DEFENDANTS.

II.

THE LOWER COURT ERRED IN NOT TAKING INTO

ACCOUNT THE INDEMNITY AGREEMENT (EXH.
"2-SURETY") EXECUTED BY MANUEL D. MARAÑON, JR. IN
FAVOR OF STRONGHOLD WHEREIN HE BOUND HIMSELF
TO INDEMNIFY STRONGHOLD OF WHATEVER AMOUNT
IT MAY BE HELD LIABLE ON ACCOUNT OF THE ISSUANCE
OF THE ATTACHMENT BOND. 22

On January 31, 2006, the CA, finding no reversible error, promulgated its
decision affirming the judgment of the RTC. 23
Stronghold Insurance moved for reconsideration, but the CA denied its motion
for reconsideration on June 22, 2006.
Issues
Hence, this appeal by petition for review on certiorari by Stronghold Insurance,
which submits that:
I.

THE COURT OF APPEALS COMMITTED GRAVE

REVERSIBLE ERROR AND DECIDED QUESTIONS OF
SUBSTANCE IN A WAY NOT IN ACCORDANCE WITH LAW
AND APPLICABLE DECISIONS OF THE HONORABLE
COURT CONSIDERING THAT THE COURT OF APPEALS
AFFIRMED THE ERRONEOUS DECISION OF THE TRIAL
COURT HOLDING RESPONDENT MARA[Ñ]ON AND
PETITIONER STRONGHOLD JOINTLY AND SOLIDARILY
LIABLE TO PAY THE RESPONDENTS CUENCA, et al., FOR
PURPORTED DAMAGES BY REASON OF THE ALLEGED
UNLAWFUL AND WRONGFUL ISSUANCE OF THE WRIT OF
ATTACHMENT, DESPITE THE FACT THAT: HICSaD

A) RESPONDENT CUENCA, et al., ARE NOT THE

OWNERS OF THE PROPERTIES ATTACHED AND THUS,
ARE NOT THE PROPER PARTIES TO CLAIM ANY
PURPORTED DAMAGES ARISING THEREFROM.
B) THE PURPORTED DAMAGES BY REASON OF THE
ALLEGED UNLAWFUL AND WRONGFUL ISSUANCE
OF THE WRIT OF ATTACHMENT WERE CAUSED BY
THE NEGLIGENCE OF THE BRANCH SHERIFF OF THE
TRIAL COURT AND HIS FAILURE TO COMPLY WITH
THE PROVISIONS OF THE RULES OF
COURT PERTAINING TO THE ATTACHMENT OF
PROPERTIES.
C) THE TRIAL COURT GRAVELY ERRED WHEN IT
HELD PETITIONER STRONGHOLD TO BE SOLIDARILY
LIABLE WITH RESPONDENT MARA[Ñ]ON TO
RESPONDENTS CUENCA, et al., FOR MORAL
DAMAGES, EXEMPLARY DAMAGES, ATTORNEY'S
FEES AND COST OF SUIT DESPITE THE FACT THAT
THE GUARANTY OF PETITIONER STRONGHOLD
 PURSUANT TO ITS SURETY BOND IS LIMITED ONLY
TO THE AMOUNT OF P1,000,000.00.
II.

IN ANY EVENT, THE DECISION OF THE COURT APPEALS

SHOULD HAVE HELD RESPONDENT MARA[Ñ]ON TO BE
LIABLE TO INDEMNIFY PETITIONER STRONGHOLD FOR
ALL PAYMENTS, DAMAGES, COSTS, LOSSES, PENALTIES,
CHARGES AND EXPENSES IT SUSTAINED IN CONNECTION
WITH THE INSTANT CASE, PURSUANT TO THE
INDEMNITY AGREEMENT ENTERED INTO BY PETITIONER
STRONGHOLD AND RESPONDENT MARA[Ñ]ON. 24

On their part, the Cuencas and Tayactac counter:

A. Having actively participated in the trial and appellate
proceedings of this case before the Regional Trial Court and
the Court of Appeals, respectively, petitioner Stronghold is
legally and effectively BARRED by ESTOPPEL from raising
for the first time on appeal before this Honorable Court a
defense and/or issue not raised below. 25
B. Even assuming arguendo without admitting that the
principle of estoppel is not applicable in this instant case, the
assailed Decision and Resolution find firm basis in law
considering that the writ of attachment issued and enforced
against herein respondents has been declared ILLEGAL,
NULL AND VOID for having been issued beyond the
jurisdiction of the trial court.cEHSTC

C. There having been a factual and legal finding of the

illegality of the issuance and consequently, the enforcement of
the writ of attachment, Marañon and his surety Stronghold,
consistent with the facts and the law, including the contract of
suretyship they entered into, are JOINTLY AND
SEVERALLY liable for the damages sustained by herein
respondents by reason thereof.
D. Contrary to the allegations of Stronghold, its liability as
surety under the attachment bond without which the writ of
attachment shall not issue and be enforced against herein
respondent if prescribed by law. In like manner, the
obligations and liability on the attachment bond are also
prescribed by law and not left to the discretion or will of the
 contracting parties to the prejudice of the persons against
whom the writ was issued.
E. Contrary to the allegations of Stronghold, its liability for the
damages sustained by herein respondents is both a statutory
and contractual obligation and for which, it cannot escape
accountability and liability in favor of the person against
whom the illegal writ of attachment was issued and enforced.
To allow Stronghold to delay, excuse or exempt itself from
liability is unconstitutional, unlawful, and contrary to the basic
tenets of equity and fair play.
F. While the liability of Stronghold as surety indeed covers the
principal amount of P1,000,000.00, nothing in the law and the
contract between the parties limit or exempt Stronghold from
liability for other damages. Including costs of suit and
interest. 26
In his own comment, 27 Marañon insisted that he could not be personally held
liable under the attachment bond because the judgment of the RTC was rendered
without jurisdiction over the subject matter of the action that involved an
intra-corporate controversy among the stockholders of Arc Cuisine, Inc.; and
that the jurisdiction properly pertained to the SEC, where another action was
already pending between the parties.
Ruling
Although the question of whether the Cuencas and Tayactac could themselves
recover damages arising from the wrongful attachment of the assets of Arc
Cuisine, Inc. by claiming against the bond issued by Stronghold Insurance was
not raised in the CA, we do not brush it aside because the actual legal interest of
the parties in the subject of the litigation is a matter of substance that has
jurisdictional impact, even on appeal before this Court. CTAIHc

The petition for review is meritorious.

There is no question that a litigation should be disallowed immediately if it
involves a person without any interest at stake, for it would be futile and
meaningless to still proceed and render a judgment where there is no actual
controversy to be thereby determined. Courts of law in our judicial system are
not allowed to delve on academic issues or to render advisory opinions. They
only resolve actual controversies, for that is what they are authorized to do by the
Fundamental Law itself, which forthrightly ordains that the judicial power is
wielded only to settle actual controversies involving rights that are legally
demandable and enforceable. 28
To ensure the observance of the mandate of the Constitution, Section 2, Rule 3
of the Rules of Court requires that unless otherwise authorized by law or
the Rules of Court every action must be prosecuted or defended in the name of
the real party in interest. 29 Under the same rule, a real party in interest is one
who stands to be benefited or injured by the judgment in the suit, or one who is
entitled to the avails of the suit. Accordingly, a person, to be a real party in
interest in whose name an action must be prosecuted, should appear to be the
present real owner of the right sought to be enforced, that is, his interest must be
a present substantial interest, not a mere expectancy, or a future, contingent,
subordinate, or consequential interest. 30 Where the plaintiff is not the real party
in interest, the ground for the motion to dismiss is lack of cause of action. 31 The
reason for this is that the courts ought not to pass upon questions not derived
from any actual controversy. Truly, a person having no material interest to
protect cannot invoke the jurisdiction of the court as the plaintiff in an
action. 32 Nor does a court acquire jurisdiction over a case where the real party in
interest is not present or impleaded.
The purposes of the requirement for the real party in interest prosecuting or
defending an action at law are: (a) to prevent the prosecution of actions by
persons without any right, title or interest in the case; (b) to require that the actual
party entitled to legal relief be the one to prosecute the action; (c) to avoid a
multiplicity of suits; and (d) to discourage litigation and keep it within certain
bounds, pursuant to sound public policy. 33 Indeed, considering that all civil
actions must be based on a cause of action, 34defined as the act or omission by
which a party violates the right of another, 35 the former as the defendant must
be allowed to insist upon being opposed by the real party in interest so that he is
protected from further suits regarding the same claim. 36Under this rationale, the
requirement benefits the defendant because "the defendant can insist upon a
plaintiff who will afford him a setup providing good res judicata protection if
the struggle is carried through on the merits to the end." 37
The rule on real party in interest ensures, therefore, that the party with the legal
right to sue brings the action, and this interest ends when a judgment involving
the nominal plaintiff will protect the defendant from a subsequent identical
action. Such a rule is intended to bring before the court the party rightfully
interested in the litigation so that only real controversies will be presented and
the judgment, when entered, will be binding and conclusive and the defendant
will be saved from further harassment and vexation at the hands of other
claimants to the same demand. 38 cIETHa

But the real party in interest need not be the person who ultimately will benefit
from the successful prosecution of the action. Hence, to aid itself in the proper
identification of the real party in interest, the court should first ascertain the
nature of the substantive right being asserted, and then must determine whether
the party asserting that right is recognized as the real party in interest under the
rules of procedure. Truly, that a party stands to gain from the litigation is not
necessarily controlling. 39
It is fundamental that the courts are established in order to afford reliefs to
persons whose rights or property interests have been invaded or violated, or are
threatened with invasion by others' conduct or acts, and to give relief only at the
instance of such persons. The jurisdiction of a court of law or equity may not be
invoked by or for an individual whose rights have not been breached. 40
The remedial right or the remedial obligation is the person's interest in the
controversy. The right of the plaintiff or other claimant is alleged to be violated
by the defendant, who has the correlative obligation to respect the right of the
former. Otherwise put, without the right, a person may not become a party
plaintiff; without the obligation, a person may not be sued as a party defendant;
without the violation, there may not be a suit. In such a situation, it is legally
impossible for any person or entity to be both plaintiff and defendant in the same
action, thereby ensuring that the controversy is actual and exists between
adversary parties. Where there are no adversary parties before it, the court would
be without jurisdiction to render a judgment. 41
There is no dispute that the properties subject to the levy on attachment belonged
to Arc Cuisine, Inc. alone, not to the Cuencas and Tayactac in their own right.
They were only stockholders of Arc Cuisine, Inc., which had a personality
distinct and separate from that of any or all of them. 42 The damages occasioned
to the properties by the levy on attachment, wrongful or not, prejudiced Arc
Cuisine, Inc., not them. As such, only Arc Cuisine, Inc. had the right under the
substantive law to claim and recover such damages. This right could not also be
asserted by the Cuencas and Tayactac unless they did so in the name of the
corporation itself. But that did not happen herein, because Arc Cuisine, Inc. was
not even joined in the action either as an original party or as an intervenor.
The Cuencas and Tayactac were clearly not vested with any direct interest in the
personal properties coming under the levy on attachment by virtue alone of their
being stockholders in Arc Cuisine, Inc. Their stockholdings represented only
their proportionate or aliquot interest in the properties of the corporation, but did
not vest in them any legal right or title to any specific properties of the
corporation. Without doubt, Arc Cuisine, Inc. remained the owner as a distinct
legal person. 43IATSHE

Given the separate and distinct legal personality of Arc Cuisine, Inc., the
Cuencas and Tayactac lacked the legal personality to claim the damages
sustained from the levy of the former's properties. According to Asset
Privatization Trust v. Court of Appeals, 44 even when the foreclosure on the
assets of the corporation was wrongful and done in bad faith the stockholders
had no standing to recover for themselves moral damages; otherwise, they would
be appropriating and distributing part of the corporation's assets prior to the
dissolution of the corporation and the liquidation of its debts and liabilities.
Moreover, in Evangelista v. Santos, 45 the Court, resolving whether or not the
minority stockholders had the right to bring an action for damages against the
principal officers of the corporation for their own benefit, said:
As to the second question, the complaint shows that the action is for
damages resulting from mismanagement of the affairs and assets of
the corporation by its principal officer, it being alleged that
defendant's maladministration has brought about the ruin of the
corporation and the consequent loss of value of its stocks. The injury
complained of is thus primarily to the corporation, so that the suit
for the damages claimed should be by the corporation rather than
by the stockholders (3 Fletcher, Cyclopedia of Corporation pp.
977-980). The stockholders may not directly claim those damages
for themselves for that would result in the appropriation by, and the
distribution among them of part of the corporate assets before the
dissolution of the corporation and the liquidation of its debts and
liabilities, something which cannot be legally done in view of section
16 of the Corporation Law, which provides:

No shall corporation shall make or declare any stock or bond

dividend or any dividend whatsoever except from the surplus
profits arising from its business, or divide or distribute its
capital stock or property other than actual profits among its
members or stockholders until after the payment of its debts
and the termination of its existence by limitation or lawful
dissolution.
xxx xxx xxx
In the present case, the plaintiff stockholders have brought the
action not for the benefit of the corporation but for their own
benefit, since they ask that the defendant make good the losses
occasioned by his mismanagement and pay to them the value of their
respective participation in the corporate assets on the basis of their
respective holdings. Clearly, this cannot be done until all corporate
debts, if there be any, are paid and the existence of the
corporation terminated by the limitation of its charter or by
 lawful dissolution in view of the provisions of section 16 of the
Corporation Law. (Emphasis ours) DaHcAS

It results that plaintiff's complaint shows no cause of action in their

favor so that the lower court did not err in dismissing the complaint on
that ground.

While plaintiffs ask for remedy to which they are not entitled unless
the requirement of section 16 of the Corporation Law be first
complied with, we note that the action stated in their complaint is
susceptible of being converted into a derivative suit for the benefit of
the corporation by a mere change in the prayer. Such amendment,
however, is not possible now, since the complaint has been filed in the
wrong court, so that the same has to be dismissed. 46

That Marañon knew that Arc Cuisine, Inc. owned the properties levied on
attachment but he still excluded Arc Cuisine, Inc. from his complaint was of no
consequence now. The Cuencas and Tayactac still had no right of action even if
the affected properties were then under their custody at the time of the
attachment, considering that their custody was only incidental to the operation of
the corporation.
It is true, too, that the Cuencas and Tayactac could bring in behalf of Arc Cuisine,
Inc. a proper action to recover damages resulting from the attachment. Such
action would be one directly brought in the name of the corporation. Yet, that
was not true here, for, instead, the Cuencas and Tayactac presented the claim in
their own names.
In view of the outcome just reached, the Court deems it unnecessary to give any
extensive consideration to the remaining issues.
WHEREFORE, the Court GRANTS the petition for review;
and REVERSES and SETS ASIDE the decision of the Court of Appeals in
CA-G.R. CV No. 79145 promulgated on January 31, 2006.
No pronouncements on costs of suit.
SO ORDERED.
(Stronghold Insurance Co., Inc. v. Cuenca, G.R. No. 173297, [March 6, 2013],
|||

705 PHIL 441-460)

[G.R. No. 166282. February 13, 2013.]

 HEIRS OF FE TAN UY (Represented by her heir, Manling
Uy Lim), petitioners, vs. INTERNATIONAL EXCHANGE
BANK, respondent.

[G.R. No. 166283. February 13, 2013.]

GOLDKEY DEVELOPMENT
CORPORATION, petitioner, vs. INTERNATIONAL
EXCHANGE BANK, respondent.

DECISION

MENDOZA, J : p

Before the Court are two consolidated petitions for review on certiorari under
Rule 45 of the 1997 Revised Rules of Civil Procedure, assailing the August 16,
2004 Decision 1 and the December 2, 2004 Resolution 2 of the Court of
Appeals (CA) in CA-G.R. CV No. 69817 entitled "International Exchange Bank
v. Hammer Garments Corp., et al."
The Facts
On several occasions, from June 23, 1997 to September 3, 1997, respondent
International Exchange Bank (iBank), granted loans to Hammer Garments
Corporation (Hammer), covered by promissory notes and deeds of assignment,
in the following amounts: 3
Date of Promissory Note Amount

June 23, 1997 P5,599,471.33

July 24, 1997 2,700,000.00

July 25, 1997 2,300,000.00

August 1, 1997 2,938,505.04

August 1, 1997 3,361,494.96

August 14, 1997 980,000.00

August 21, 1997 2,527,200.00

August 21, 1997 3,146,715.00

September 3, 1997 1,385,511.75

 —————————————

Total P24,938,898.08

============

These were made pursuant to the Letter-Agreement, 4 dated March 23, 1996,
between iBank and Hammer, represented by its President and General Manager,
Manuel Chua (Chua) a.k.a. Manuel Chua Uy Po Tiong, granting Hammer a P25
Million-Peso Omnibus Line. 5 The loans were secured by a P9 Million-Peso
Real Estate Mortgage 6 executed on July 1, 1997 by Goldkey Development
Corporation (Goldkey) over several of its properties and a P25 Million-Peso
Surety Agreement 7 signed by Chua and his wife, Fe Tan Uy (Uy), on April 15,
1996. ASHaDT

As of October 28, 1997, Hammer had an outstanding obligation of

P25,420,177.62 to iBank. 8 Hammer defaulted in the payment of its loans,
prompting iBank to foreclose on Goldkey's third-party Real Estate Mortgage.
The mortgaged properties were sold for P12 million during the foreclosure sale,
leaving an unpaid balance of P13,420,177.62. 9 For failure of Hammer to pay the
deficiency, iBank filed a Complaint 10 for sum of money on December 16, 1997
against Hammer, Chua, Uy, and Goldkey before the Regional Trial Court,
Makati City (RTC). 11
Despite service of summons, Chua and Hammer did not file their respective
answers and were declared in default. In her separate answer, Uy claimed that
she was not liable to iBank because she never executed a surety agreement in
favor of iBank. Goldkey, on the other hand, also denies liability, averring that it
acted only as a third-party mortgagor and that it was a corporation separate and
distinct from Hammer. 12
Meanwhile, iBank applied for the issuance of a writ of preliminary attachment
which was granted by the RTC in its December 17, 1997 Order. 13 The Notice of
Levy on Attachment of Real Properties, dated July 15, 1998, covering the
properties under the name of Goldkey, was sent by the sheriff to the Registry of
Deeds of Quezon City. 14
The RTC, in its Decision, 15 dated December 27, 2000, ruled in favor of iBank.
While it made the pronouncement that the signature of Uy on the Surety
Agreement was a forgery, it nevertheless held her liable for the outstanding
obligation of Hammer because she was an officer and stockholder of the said
corporation. The RTC agreed with Goldkey that as a third-party mortgagor, its
liability was limited to the properties mortgaged. It came to the conclusion,
however, that Goldkey and Hammer were one and the same entity for the
following reasons: (1) both were family corporations of Chua and Uy, with Chua
as the President and Chief Operating Officer; (2) both corporations shared the
same office and transacted business from the same place, (3) the assets of
Hammer and Goldkey were co-mingled; and (4) when Chua absconded, both
Hammer and Goldkey ceased to operate. As such, the piercing of the veil of
corporate fiction was warranted. Uy, as an officer and stockholder of Hammer
and Goldkey, was found liable to iBank together with Chua, Hammer and
Goldkey for the deficiency of P13,420,177.62.
Aggrieved, the heirs of Uy and Goldkey (petitioners) elevated the case to the CA.
On August 16, 2004, it promulgated its decision affirming the findings of the
RTC. The CA found that iBank was not negligent in evaluating the financial
stability of Hammer. According to the appellate court, iBank was induced to
grant the loan because petitioners, with intent to defraud the bank, submitted a
falsified Financial Report for 1996 which incorrectly declared the assets and
cashflow of Hammer. 16 Because petitioners acted maliciously and in bad faith
and used the corporate fiction to defraud iBank, they should be treated as one and
the same as Hammer. 17 DACaTI

Hence, these petitions filed separately by the heirs of Uy and Goldkey. On

February 9, 2005, this Court ordered the consolidation of the two cases. 18
The Issues
Petitioners raise the following issues:
Whether or not a trial court, under the facts of this case, can go
out of the issues raised by the pleadings; 19

Whether or not there is guilt by association in those cases where

the veil of corporate fiction may be pierced; 20and

Whether or not the "alter ego" theory in disregarding the

corporate personality of a corporation is applicable to
Goldkey. 21

Simplifying the issues in this case, the Court must resolve the following: (1)
whether Uy can be held liable to iBank for the loan obligation of Hammer as an
officer and stockholder of the said corporation; and (2) whether Goldkey can be
held liable for the obligation of Hammer for being a mere alter ego of the latter.
The Court's Ruling
The petitions are partly meritorious.
Uy is not liable; The piercing of the
veil of corporate fiction is not justified
The heirs of Uy argue that the latter could not be held liable for being merely an
officer of Hammer and Goldkey because it was not shown that she had
committed any actionable wrong 22 or that she had participated in the transaction
between Hammer and iBank. They further claim that she had cut all ties with
Hammer and her husband long before the execution of the loan. 23
The Court finds in favor of Uy.
Basic is the rule in corporation law that a corporation is a juridical entity which is
vested with a legal personality separate and distinct from those acting for and in
its behalf and, in general, from the people comprising it. Following this principle,
obligations incurred by the corporation, acting through its directors, officers and
employees, are its sole liabilities. A director, officer or employee of a
corporation is generally not held personally liable for obligations incurred by the
corporation. 24 Nevertheless, this legal fiction may be disregarded if it is used as
a means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, or to confuse legitimate
issues. 25 This is consistent with the provisions of the Corporation Code of the
Philippines, which states: cAaDCE

Sec. 31. Liability of directors, trustees or officers. — Directors or

trustees who wilfully and knowingly vote for or assent to patently
unlawful acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of the corporation or
acquire any personal or pecuniary interest in conflict with their duty
as such directors or trustees shall be liable jointly and severally for
all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

Solidary liability will then attach to the directors, officers or employees of the
corporation in certain circumstances, such as:
1. When directors and trustees or, in appropriate cases,
the officers of a corporation: (a) vote for or assent to
patently unlawful acts of the corporation; (b) act in bad
faith or with gross negligence in directing the corporate
affairs; and (c) are guilty of conflict of interest to the
prejudice of the corporation, its stockholders or members,
and other persons;
2. When a director or officer has consented to the
issuance of watered stocks or who, having knowledge
thereof, did not forthwith file with the corporate secretary
his written objection thereto;
 3. When a director, trustee or officer has contractually
agreed or stipulated to hold himself personally and
solidarily liable with the corporation; or
4. When a director, trustee or officer is made, by specific
provision of law, personally liable for his corporate
action. 26
Before a director or officer of a corporation can be held personally liable for
corporate obligations, however, the following requisites must concur: (1) the
complainant must allege in the complaint that the director or officer assented to
patently unlawful acts of the corporation, or that the officer was guilty of gross
negligence or bad faith; and (2) the complainant must clearly and convincingly
prove such unlawful acts, negligence or bad faith. 27 CaATDE

While it is true that the determination of the existence of any of the

circumstances that would warrant the piercing of the veil of corporate fiction is a
question of fact which cannot be the subject of a petition for review
on certiorari under Rule 45, this Court can take cognizance of factual issues if
the findings of the lower court are not supported by the evidence on record or are
based on a misapprehension of facts. 28
In this case, petitioners are correct to argue that it was not alleged, much less
proven, that Uy committed an act as an officer of Hammer that would permit the
piercing of the corporate veil. A reading of the complaint reveals that with regard
to Uy, iBank did not demand that she be held liable for the obligations of
Hammer because she was a corporate officer who committed bad faith or gross
negligence in the performance of her duties such that the lifting of the corporate
mask would be merited. What the complaint simply stated is that she, together
with her errant husband Chua, acted as surety of Hammer, as evidenced by her
signature on the Surety Agreement which was later found by the RTC to have
been forged. 29
Considering that the only basis for holding Uy liable for the payment of the loan
was proven to be a falsified document, there was no sufficient justification for
the RTC to have ruled that Uy should be held jointly and severally liable to
iBank for the unpaid loan of Hammer. Neither did the CA explain its affirmation
of the RTC's ruling against Uy. The Court cannot give credence to the simplistic
declaration of the RTC that liability would attach directly to Uy for the sole
reason that she was an officer and stockholder of Hammer.
At most, Uy could have been charged with negligence in the performance of her
duties as treasurer of Hammer by allowing the company to contract a loan
despite its precarious financial position. Furthermore, if it was true, as
petitioners claim, that she no longer performed the functions of a treasurer, then
she should have formally resigned as treasurer to isolate herself from any
liability that could result from her being an officer of the corporation.
Nonetheless, these shortcomings of Uy are not sufficient to justify the piercing
of the corporate veil which requires that the negligence of the officer must be so
gross that it could amount to bad faith and must be established by clear and
convincing evidence. Gross negligence is one that is characterized by the lack of
the slightest care, acting or failing to act in a situation where there is a duty to act,
wilfully and intentionally with a conscious indifference to the consequences
insofar as other persons may be affected. 30 ASHaDT

It behooves this Court to emphasize that the piercing of the veil of corporate
fiction is frowned upon and can only be done if it has been clearly established
that the separate and distinct personality of the corporation is used to justify a
wrong, protect fraud, or perpetrate a deception. 31 As aptly explained
in Philippine National Bank v. Andrada Electric & Engineering Company: 32
Hence, any application of the doctrine of piercing the corporate veil
should be done with caution. A court should be mindful of the milieu
where it is to be applied. It must be certain that the corporate fiction
was misused to such an extent that injustice, fraud, or crime was
committed against another, in disregard of its rights. The wrongdoing
must be clearly and convincingly established; it cannot be presumed.
Otherwise, an injustice that was never unintended may result from an
erroneous application. 33

Indeed, there is no showing that Uy committed gross negligence. And in the

absence of any of the aforementioned requisites for making a corporate officer,
director or stockholder personally liable for the obligations of a corporation, Uy,
as a treasurer and stockholder of Hammer, cannot be made to answer for the
unpaid debts of the corporation.
Goldkey is a mere alter ego of Hammer
Goldkey contends that it cannot be held responsible for the obligations of its
stockholder, Chua. 34 Moreover, it theorizes that iBank is estopped from
expanding Goldkey's liability beyond the real estate mortgage. 35 It adds that it
did not authorize the execution of the said mortgage. 36 Finally, it passes the
blame on to iBank for failing to exercise the requisite due diligence in properly
evaluating Hammer's creditworthiness before it was extended an omnibus
line. 37
The Court disagrees with Goldkey.
There is no reason to discount the findings of the CA that iBank duly inspected
the viability of Hammer and satisfied itself that the latter was a good credit risk
based on the Financial Statement submitted. In addition, iBank required that the
loan be secured by Goldkey's Real Estate Mortgage and the Surety Agreement
with Chua and Uy. The records support the factual conclusions made by the RTC
and the CA. CITaSA

To the Court's mind, Goldkey's argument, that iBank is barred from pursuing
Goldkey for the satisfaction of the unpaid obligation of Hammer because it had
already limited its liability to the real estate mortgage, is completely absurd.
Goldkey needs to be reminded that it is being sued not as a consequence of the
real estate mortgage, but rather, because it acted as an alter ego of Hammer.
Accordingly, they must be treated as one and the same entity, making Goldkey
accountable for the debts of Hammer.
In fact, it is Goldkey who is now precluded from denying the validity of the Real
Estate Mortgage. In its Answer with Affirmative Defenses and Compulsory
Counterclaim, dated January 5, 1998, it already admitted that it acted as a
third-party mortgagor to secure the obligation of Hammer to iBank. 38 Thus, it
cannot, at this late stage, question the due execution of the third-party mortgage.
Similarly, Goldkey is undoubtedly mistaken in claiming that iBank is seeking to
enforce an obligation of Chua. The records clearly show that it was Hammer, of
which Chua was the president and a stockholder, which contracted a loan from
iBank. What iBank sought was redress from Goldkey by demanding that the veil
of corporate fiction be lifted so that it could not raise the defense of having a
separate juridical personality to evade liability for the obligations of Hammer.
Under a variation of the doctrine of piercing the veil of corporate fiction, when
two business enterprises are owned, conducted and controlled by the same
parties, both law and equity will, when necessary to protect the rights of third
parties, disregard the legal fiction that two corporations are distinct entities and
treat them as identical or one and the same. 39
While the conditions for the disregard of the juridical entity may vary, the
following are some probative factors of identity that will justify the application
of the doctrine of piercing the corporate veil, as laid down in Concept Builders,
Inc. v. NLRC: 40
(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;
and
(4) Methods of conducting the business. 41
These factors are unquestionably present in the case of Goldkey and Hammer, as
observed by the RTC, as follows: TaDSCA

1. Both corporations are family corporations of defendants Manuel

Chua and his wife Fe Tan Uy. The other incorporators and
shareholders of the two corporations are the brother and sister of
Manuel Chua (Benito Ng Po Hing and Nenita Chua Tan) and the
sister of Fe Tan Uy, Milagros Revilla. The other incorporator/share
holder is Manling Uy, the daughter of Manuel Chua Uy Po Tiong
and Fe Tan Uy.

The stockholders of Hammer Garments as of March 23, 1987, aside

from spouses Manuel and Fe Tan Uy are: Benito Chua, brother
Manuel Chua, Nenita Chua Tan, sister of Manuel Chua and Tessie See
Chua Tan. On March 8, 1988, the shares of Tessie See Chua Uy were
assigned to Milagros T. Revilla, thereby consolidating the shares in
the family of Manuel Chua and Fe Tan Uy.

2. Hammer Garments and Goldkey share the same office and

practically transact their business from the same place.

3. Defendant Manuel Chua is the President and Chief Operating

Officer of both corporations. All business transactions of Goldkey
and Hammer are done at the instance of defendant Manuel Chua
who is authorized to do so by the corporations.

The promissory notes subject of this complaint are signed by him as

Hammer's President and General Manager. The third-party real estate
mortgage of defendant Goldkey is signed by him for Goldkey to
secure the loan obligation of Hammer Garments with plaintiff "iBank".
The other third-party real estate mortgages which Goldkey executed in
favor of the other creditor banks of Hammer are also signed by
Manuel Chua.

4. The assets of Goldkey and Hammer are co-mingled. The real

properties of Goldkey are mortgaged to secure Hammer's obligation
with creditor banks.

The proceeds of at least two loans which Hammer obtained from

plaintiff "iBank", purportedly to finance its export to Wal-Mart are
instead used to finance the purchase of a manager's check payable to
 Goldkey. The defendants' claim that Goldkey is a creditor of Hammer
to justify its receipt of the Manager's check is not substantiated by
evidence. Despite subpoenas issued by this Court, Goldkey thru its
treasurer, defendant Fe Tan Uy and or its corporate secretary Manling
Uy failed to produce the Financial Statement of Goldkey. THEDCA

5. When defendant Manuel Chua "disappeared", the

defendant Goldkey ceased to operate despite the claim
that the other "officers" and stockholders like Benito
Chua, Nenita Chua Tan, Fe Tan Uy, Manling Uy and
Milagros T. Revilla are still around and may be able to
continue the business of Goldkey, if it were different or
distinct from Hammer which suffered financial set
back. 42
Based on the foregoing findings of the RTC, it was apparent that Goldkey was
merely an adjunct of Hammer and, as such, the legal fiction that it has a separate
personality from that of Hammer should be brushed aside as they are, undeniably,
one and the same.
WHEREFORE, the petitions are PARTLY GRANTED. The August 16, 2004
Decision and the December 2, 2004 Resolution of the Court of Appeals, in
CA-G.R. CV No. 69817, are hereby MODIFIED. Fe Tan Uy is released from
any liability arising from the debts incurred by Hammer from iBank. Hammer
Garments Corporation, Manuel Chua Uy Po Tiong and Goldkey Development
Corporation are jointly and severally liable to pay International Exchange Bank
the sum of P13,420,177.62 representing the unpaid loan obligation of Hammer
as of December 12, 1997 plus interest. No costs.
SO ORDERED.
(Heirs of Tan Uy v. International Exchange Bank, G.R. No. 166282, 166283,
|||

[February 13, 2013], 703 PHIL 477-492)

[G.R. No. 171118. September 10, 2012.]

PARK HOTEL, J's PLAYHOUSE BURGOS CORP., INC.,
and/or GREGG HARBUTT, General Manager, ATTY.
ROBERTO ENRIQUEZ, President, and BILL
PERCY, petitioners, vs. MANOLO SORIANO, LESTER
GONZALES, and YOLANDA BADILLA, respondents.
 DECISION

PERALTA, J : p

Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking to set aside the Decision 1 and the Resolution 2 of the
Court of Appeals (CA) in CA-G.R. SP No. 67766. cHSTEA

The antecedents are as follows:

Petitioner Park Hotel 3 is a corporation engaged in the hotel business. Petitioners
Gregg Harbutt 4 (Harbutt) and Bill Percy 5 (Percy) are the General Manager and
owner, respectively, of Park Hotel. Percy, Harbutt and Atty. Roberto Enriquez
are also the officers and stockholders of Burgos Corporation (Burgos), 6 a sister
company of Park Hotel.
Respondent Manolo Soriano (Soriano) was hired by Park Hotel in July 1990 as
Maintenance Electrician, and then transferred to Burgos in 1992. Respondent
Lester Gonzales (Gonzales) was employed by Burgos as Doorman, and later
promoted as Supervisor. Respondent Yolanda Badilla (Badilla) was a bartender
of J's Playhouse operated by Burgos.
In October of 1997, Soriano, Gonzales and Badilla 7 were dismissed from work
for allegedly stealing company properties. As a result, respondents filed
complaints for illegal dismissal, unfair labor practice, and payment of moral and
exemplary damages and attorney's fees, before the Labor Arbiter (LA). In their
complaints, respondents alleged that the real reason for their dismissal was that
they were organizing a union for the company's employees.
On the other hand, petitioners alleged that aside from the charge of theft, Soriano
and Gonzales have violated various company rules and regulations 8 contained
in several memoranda issued to them. After dismissing respondents, Burgos
filed a case for qualified theft against Soriano and Gonzales before the Makati
City Prosecutor's Office, but the case was dismissed for insufficiency of
evidence.
In his Affidavit, 9 Soriano claimed that on October 4, 1997, he was barred from
entering the company premises and that the following day, Harbutt shouted at
him for having participated in the formation of a union. He was later dismissed
from work. For his part, Gonzales averred that he was coerced to resign by Percy
and Harbutt in the presence of their goons. Badilla 10 claimed that she was also
forced by Percy and Harbutt to sign a resignation letter, but she refused to do so
because she was innocent of the charges against her. She was nevertheless
dismissed from service. ATSIED
The three (3) respondents averred that they never received the memoranda
containing their alleged violation of company rules and they argued that these
memoranda were fabricated to give a semblance of cause to their termination.
Soriano and Gonzales further claimed that the complaint filed against them was
only an afterthought as the same was filed after petitioners learned that a
complaint for illegal dismissal was already instituted against them.
On September 27, 1998, the LA rendered a Decision 11 finding that respondents
were illegally dismissed because the alleged violations they were charged with
were not reduced in writing and were not made known to them, thus, denying
them due process. The LA found that respondents did not actually receive the
memoranda allegedly issued by petitioners, and that the same were mere
afterthought to conceal the illegal dismissal. The dispositive portion of the
Decision reads:
WHEREFORE, premises all considered, respondents (petitioners
herein) are hereby ordered, jointly and severally:

a. To reinstate within ten (10) days herein complainants to

their former positions without loss of seniority rights with full
backwages from actual dismissal to actual reinstatement;

b. To declare the respondents (petitioners herein) guilty of

unfair labor practice for terminating complainants due to their
union activities, which is union-busting, and to pay a fine of
Ten Thousand Pesos (P10,000.00) pursuant to Article 288 of
the Labor Code, as amended, payable to the Commission;

c. To pay the amount of One Hundred Fifty Thousand [Pesos]

(P150,000.00) each to complainants by way of moral and
exemplary damages, plus ten percent (10%) attorney's fees of
the total award, chargeable to the respondents (petitioners
herein).caIETS

SO ORDERED. 12

Unsatisfied with the LA's decision, petitioners appealed to the National Labor
Relations Commission (NLRC). On August 31, 1999, the NLRC, First Division,
rendered a Decision 13 remanding the case to the arbitration branch of origin for
further proceedings. 14On August 3, 2000, the LA rendered a new Decision, the
dispositive portion of which reads as follows:
WHEREFORE, premises all considered, respondents (petitioners
herein) are hereby ORDERED, jointly and severally:
 a. to reinstate within ten (10) days herein three (3)
complainants to their former positions without loss of seniority
rights with full backwages from actual dismissal to actual
reinstatement; to pay complainant Soriano his unpaid wages
for seven (7) days in the amount of P1,680.00, his five (5) days
incentive leave pay in the amount of P1,200,00 * (P240x5),
unpaid proportionate 13th month pay in the amount of
P4,992.00, plus other benefits;

b. to cease and desist from committing unfair labor practice

against the complainant and to pay a fine of Ten Thousand
(P10,000.00) Pesos pursuant to Art. 288 of the Labor
Code,payable to the Commission; and

c. to pay the amount of P150,000.00 15 each to the

complainants by way of moral and exemplary damages,
plus ten percent (10%) attorney's fees of the total award,
chargeable to the respondents (petitioners herein).
SO ORDERED. 16

Discontented with the LA's decision, petitioners again appealed to the NLRC.
On February 1, 2001, the NLRC affirmed the LA's decision and dismissed the
appeal for lack of merit. 17 Petitioners filed a motion for reconsideration, but it
was denied for lack of merit. 18
Undaunted, Park Hotel, Percy, and Harbutt filed a petition for certiorari with the
CA ascribing grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the NLRC in holding Park Hotel, Harbutt and Percy
jointly and severally liable to respondents. cSITDa

On January 24, 2005, the CA rendered a Decision 19 dismissing the petition and
affirming with modification the ruling of the NLRC, the dispositive portion of
which states:
WHEREFORE, the instant Petition is DISMISSED for lack of merit
and the assailed Decision dated 1 February 2001 of the 1st Division of
the NLRC is hereby AFFIRMED with MODIFICATION in that the
award of damages is reduced to P100,000.00 in favor of each of the
Private Respondents, including 10% of the total amount of wages to
be received as attorney's fees.

SO ORDERED. 20

The CA ruled that petitioners failed to observe the mandatory requirements

provided by law in the conduct of terminating respondents, i.e., lack of due
process and just cause. The CA also found that petitioners' primary objective in
terminating respondents' employment was to suppress their right to
self-organization.
Petitioners filed a Motion for Reconsideration, but was denied in the
Resolution 21 dated January 13, 2006.
Hence, the instant petition assigning the following errors:
I

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED

ITS DISCRETION AND ACTED WITHOUT AUTHORITY IN
FINDING PARK HOTEL, BILL PERCY AND [GREGORY]
HARBUTT, TOGETHER WITH BURGOS CORPORATION
AND ITS PRESIDENT, AS ONE AND THE SAME ENTITY.

II

THE HONORABLE COURT OF APPEALS COMMITTED

ERROR WHEN IT OVERLOOKED MATERIAL
CIRCUMSTANCES AND FACTS, WHICH IF TAKEN INTO
ACCOUNT, WOULD ALTER THE RESULTS OF ITS
DECISION, PARTICULARLY IN FINDING [THAT] THE SAID
ENTITIES WERE FORMED IN PURSUANCE TO THE
COMMISSION OF FRAUD. DHTECc

III

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED

ITS DISCRETION AND ACTED WITHOUT AUTHORITY IN
FINDING PARK HOTEL, BILL PERCY AND GREGORY
HARBUTT, TOGETHER WITH BURGOS CORPORATION
AND ITS PRESIDENT, GUILTY OF UNFAIR LABOR
PRACTICE. 22

For brevity and clarity, the issues in this case may be re-stated and simplified as
follows: (1) whether the respondents were validly dismissed; and (2) if
petitioners are liable, whether Park Hotel, Percy and Harbutt are jointly and
severally liable with Burgos for the dismissal of respondents.
Park Hotel argued that it is not liable on the ground that respondents were not its
employees. On the other hand, Percy and Harbutt argued that the CA committed
error in piercing the corporate veil between them and respondent corporations,
thereby making them all solidarily liable to the respondents.
To begin with, it is significant to note that the LA, the NLRC and the CA were
unanimous in their findings that respondents were dismissed without just cause
and due process. They were also in agreement that unfair labor practice was
committed against respondents. We reiterate the rule that findings of fact of the
Court of Appeals, particularly where it is in absolute agreement with that of the
NLRC and the LA, as in this case, are accorded not only respect but even finality
and are deemed binding upon this Court so long as they are supported by
substantial evidence. 23 The function of this Court is limited to the review of the
appellate court's alleged errors of law. It is not required to weigh all over again
the factual evidence already considered in the proceedings below. 24 In any event,
we found no compelling reason to disturb the unanimous findings and
conclusions of the CA, the NLRC and the LA with respect to the finding of
illegal dismissal.
The requisites for a valid dismissal are: (a) the employee must be afforded due
process, i.e., he must be given an opportunity to be heard and defend himself;
and (b) the dismissal must be for a valid cause as provided in Article 282 of the
Labor Code, or for any of the authorized causes under Articles 283 and 284 of
the same Code. 25 In the case before us, both elements are completely lacking.
Respondents were dismissed without any just or authorized cause and without
being given the opportunity to be heard and defend themselves. The law
mandates that the burden of proving the validity of the termination of
employment rests with the employer. Failure to discharge this evidentiary
burden would necessarily mean that the dismissal was not justified and, therefore,
illegal. Unsubstantiated suspicions, accusations, and conclusions of employers
do not provide for legal justification for dismissing employees. In case of doubt,
such cases should be resolved in favor of labor, pursuant to the social justice
policy of labor laws and the Constitution. 26
Anent the unfair labor practice, Article 248 (a) of the Labor Code 27 considers it
an unfair labor practice when an employer interferes, restrains or coerces
employees in the exercise of their right to self-organization or the right to form
an association. 28In order to show that the employer committed unfair labor
practice under the Labor Code, substantial evidence is required to support the
claim. Substantial evidence has been defined as such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion. 29 In the case
at bar, respondents were indeed unceremoniously dismissed from work by
reason of their intent to form and organize a union. As found by the LA: DEICHc

The immediate impulse of respondents (petitioners herein), as in the

case at bar, was to terminate the organizers. Respondents (petitioners
herein) have to cripple the union at sight, to frustrate attempts of
employees from joining or supporting it, preventing them, at all cost
 and to frustrate the employees' bid to exercise their right to
self-organization. . . . 30

Having settled that respondents were illegally dismissed and were victims of
unfair labor practice, the question that comes to fore is who are liable for the
illegal dismissal and unfair labor practice?
A perusal of the records would show that Burgos is the respondents' employer at
the time they were dismissed. Notwithstanding, the CA held that despite
Soriano's transfer to Burgos in 1992, he was still an employee of Park Hotel at
the time of his dismissal in 1997. The Court, however, rules that the CA's finding
is clearly contrary to the evidence presented. From the documents presented by
Soriano, it appears that Soriano's payroll passbook 31 contained withdrawals and
deposits, made in 1991, and that Soriano's payslip 32 issued by Park Hotel
covered the period from September to October 1990. Hence, these documents
merely show that Soriano was employed by Park Hotel before he was transferred
to Burgos in 1992. Nowhere in these documents does it state that Soriano
continued to work for Park Hotel in 1992 and onwards. Clearly therefore, Park
Hotel cannot be made liable for illegal dismissal as it no longer had Soriano in its
employ at the time he was dismissed from work.
As to whether Park Hotel may be held solidarily liable with Burgos, the Court
rules that before a corporation can be held accountable for the corporate
liabilities of another, the veil of corporate fiction must first be pierced. 33 Thus,
before Park Hotel can be held answerable for the obligations of Burgos to its
employees, it must be sufficiently established that the two companies are
actually a single corporate entity, such that the liability of one is the liability of
the other. 34
A corporation is an artificial being invested by law with a personality separate
and distinct from that of its stockholders and from that of other corporations to
which it may be connected. 35 While a corporation may exist for any lawful
purpose, the law will regard it as an association of persons or, in case of two
corporations, merge them into one, when its corporate legal entity is used as a
cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate
fiction. The doctrine applies only when such corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend crime, or when it is
made as a shield to confuse the legitimate issues, or where a corporation is the
mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. 36 To
disregard the separate juridical personality of a corporation, the wrongdoing
must be established clearly and convincingly. It cannot be presumed. 37
In the case at bar, respondents utterly failed to prove by competent evidence that
Park Hotel was a mere instrumentality, agency, conduit or adjunct of Burgos, or
that its separate corporate veil had been used to cover any fraud or illegality
committed by Burgos against the respondents. Accordingly, Park Hotel and
Burgos cannot be considered as one and the same entity, and Park Hotel cannot
be held solidary liable with Burgos. HScAEC

Nonetheless, although the corporate veil between Park Hotel and Burgos cannot
be pierced, it does not necessarily mean that Percy and Harbutt are exempt from
liability towards respondents. Verily, a corporation, being a juridical entity, may
act only through its directors, officers and employees. Obligations incurred by
them, while acting as corporate agents, are not their personal liability but the
direct accountability of the corporation they represent. 38 However, corporate
officers may be deemed solidarily liable with the corporation for the termination
of employees if they acted with malice or bad faith. 39 In the present case, the
lower tribunals unanimously found that Percy and Harbutt, in their capacity as
corporate officers of Burgos, acted maliciously in terminating the services of
respondents without any valid ground and in order to suppress their right to
self-organization.
Section 31 40 of the Corporation Code makes a director personally liable for
corporate debts if he willfully and knowingly votes for or assents to patently
unlawful acts of the corporation. It also makes a director personally liable if he is
guilty of gross negligence or bad faith in directing the affairs of the corporation.
Thus, Percy and Harbutt, having acted in bad faith in directing the affairs of
Burgos, are jointly and severally liable with the latter for respondents' dismissal.
In cases when an employee is unjustly dismissed from work, he shall be entitled
to reinstatement without loss of seniority rights and other privileges, inclusive of
allowances, and other benefits or their monetary equivalent from the time the
compensation was withheld up to the time of actual reinstatement. 41
In the case at bar, the Court finds that it would be best to award separation pay
instead of reinstatement, in view of the passage of a long period of time since
respondents' dismissal. In St. Luke's Medical Center, Inc. v. Notario, 42 the Court
held that if reinstatement proves impracticable, and hardly in the best interest of
the parties, due to the lapse of time since the employee's dismissal, the latter
should be awarded separation pay in lieu of reinstatement.
In view of the foregoing, respondents are entitled to the payment of full
backwages, inclusive of allowances, and other benefits or their monetary
equivalent, and separation pay in lieu of reinstatement equivalent to one month
salary for every year of service. 43The awards of separation pay and backwages
are not mutually exclusive, and both may be given to respondents. 44
The awards of moral and exemplary damages 45 in favor of respondents are also
in order. Moral damages may be recovered where the dismissal of the employee
was tainted by bad faith or fraud, or where it constituted an act oppressive to
labor, and done in a manner contrary to morals, good customs or public policy,
while exemplary damages are recoverable only if the dismissal was done in a
wanton, oppressive, or malevolent manner. 46 The grant of attorney's fees is
likewise proper. Attorney's fees may likewise be awarded to respondents who
were illegally dismissed in bad faith and were compelled to litigate or incur
expenses to protect their rights by reason of the oppressive acts 47 of petitioners.
The unjustified act of petitioners had obviously compelled respondents to
institute an action primarily to protect their rights and interests which warrants
the granting of the award. IEHScT

WHEREFORE, the Decision and Resolution of the Court of Appeals in

CA-G.R. SP No. 67766, dated January 24, 2005 and January 13, 2006,
respectively, are AFFIRMED with the following MODIFICATIONS: (a)
Petitioner Park Hotel is exonerated from any liability to respondents; and (b) The
award of reinstatement is deleted, and in lieu thereof, respondents are awarded
separation pay.
The case is REMANDEDto the Labor Arbiter for the purpose of computing
respondents' full backwages, inclusive of allowances, and other benefits or their
monetary equivalent, computed from the date of their dismissal up to the finality
of the decision, and separation pay in lieu of reinstatement equivalent to one
month salary for every year of service, computed from the time of their
engagement up to the finality of this Decision.
SO ORDERED.
(Park Hotel v. Soriano, G.R. No. 171118, [September 10, 2012], 694 PHIL
|||

471-488)

[G.R. No. 159108. June 18, 2012.]

GOLD LINE TOURS, INC., petitioner, vs. HEIRS OF
MARIA CONCEPCION LACSA, respondents.

DECISION

BERSAMIN, J : p
The veil of corporate existence of a corporation is a fiction of law that should not
defeat the ends of justice.
Petitioner seeks to reverse the decision promulgated on October 30, 2002 1 and
the resolution promulgated on June 25, 2003, 2whereby the Court of Appeals
(CA) upheld the orders issued on August 2, 2001 3 and October 22, 2001 4 by the
Regional Trial Court (RTC), Branch 51, in Sorsogon in Civil Case No. 93-5917
entitled Heirs of Concepcion Lacsa, represented by Teodoro Lacsa v. Travel &
Tours Advisers, Inc., et al. authorizing the implementation of the writ of
execution against petitioner despite its protestation of being a separate and
different corporate personality from Travel & Tours Advisers, Inc. (defendant in
Civil Case No. 93-5917).
In the orders assailed in the CA, the RTC declared petitioner and Travel & Tours
Advisers, Inc. to be one and the same entity, and ruled that the levy of petitioner's
property to satisfy the final and executory decision rendered on June 30, 1997
against Travel & Tours Advisers, Inc. in Civil Case No. 93-5917 5 was valid
even if petitioner had not been impleaded as a party.
Antecedents
On August 2, 1993, Ma. Concepcion Lacsa (Concepcion) and her sister, Miriam
Lacsa (Miriam), boarded a Goldline passenger bus with Plate No. NXM-105
owned and operated by Travel & Tours Advisers, Inc. They were enroute from
Sorsogon to Cubao, Quezon City. 6 At the time, Concepcion, having just
obtained her degree of Bachelor of Science in Nursing at the Ago Medical and
Educational Center, was proceeding to Manila to take the nursing licensure
board examination. 7 Upon reaching the highway at Barangay San Agustin in
Pili, Camarines Sur, the Goldline bus, driven by Rene Abania (Abania), collided
with a passenger jeepney with Plate No. EAV-313 coming from the opposite
direction and driven by Alejandro Belbis. 8 As a result, a metal part of the
jeepney was detached and struck Concepcion in the chest, causing her instant
death. 9aITECD

On August 23, 1993, Concepcion's heirs, represented by Teodoro Lacsa,

instituted in the RTC a suit against Travel & Tours Advisers, Inc. and Abania to
recover damages arising from breach of contract of carriage. 10 The complaint,
docketed as Civil Case No. 93-5917 and entitled Heirs of Concepcion Lacsa,
represented by Teodoro Lacsa v. Travel & Tours Advisers, Inc. (Goldline) and
Rene Abania, alleged that the collision was due to the reckless and imprudent
manner by which Abania had driven the Goldline bus. 11
In support of the complaint, Miriam testified that Abania had been occasionally
looking up at the video monitor installed in the front portion of the Goldline bus
despite driving his bus at a fast speed; 12 that in Barangay San Agustin, the
Goldline bus had collided with a service jeepney coming from the opposite
direction while in the process of overtaking another bus; 13 that the impact had
caused the angle bar of the jeepney to detach and to go through the windshield of
the bus directly into the chest of Concepcion who had then been seated behind
the driver's seat; 14 that concerned bystanders had hailed another bus to rush
Concepcion to the Ago Foundation Hospital in Naga City because the Goldline
bus employees and her co-passengers had ignored Miriam's cries for help; 15 and
that Concepcion was pronounced dead upon arrival at the hospital. 16
To refute the plaintiffs' allegations, the defendants presented SPO1 Pedro
Corporal of the Philippine National Police Station in Pili, Camarines Sur, and
William Cheng, the operator of the Goldline bus. 17 SPO1 Corporal opined that
based on his investigation report, the driver of the jeepney had been at fault for
failing to observe precautionary measures to avoid the collision; 18 and
suggested that criminal and civil charges should be brought against the operator
and driver of the jeepney. 19 On his part, Cheng attested that he had exercised the
required diligence in the selection and supervision of his employees; and that he
had been engaged in the transportation business since 1980 with the use of a total
of 60 units of Goldline buses, employing about 100 employees (including
drivers, conductors, maintenance personnel, and mechanics); 20 that as a
condition for regular employment, applicant drivers had undergone a one-month
training period and a six-month probationary period during which they had
gotten acquainted with Goldline's driving practices and demeanor; 21 that the
employees had come under constant supervision, rendering improbable the
claim that Abania, who was a regular employee, had been glancing at the video
monitor while driving the bus; 22 that the incident causing Concepcion's death
was the first serious incident his (Cheng) transportation business had
encountered, because the rest had been only minor traffic accidents; 23 and that
immediately upon being informed of the accident, he had instructed his
personnel to contact the family of Concepcion. 24 TSacAE

The defendants blamed the death of Concepcion to the recklessness of Bilbes as

the driver of the jeepney, and of its operator, Salvador Romano; 25 and that they
had consequently brought a third-party complaint against the latter. 26
After trial, the RTC rendered its decision dated June 30, 1997, disposing:
ACCORDINGLY, judgment is hereby rendered:

(1) Finding the plaintiffs entitled to damages for the death of Ma.
Concepcion Lacsa in violation of the contract of carriage;
 (2) Ordering defendant Travel & Tours Advisers, Inc. (Goldline) to
pay plaintiffs:

a. P30,000.00 — expenses for the wake;

b. P6,000.00 — funeral expenses;

c. P50,000.00 — for the death of Ma. Concepcion Lacsa;

d. P150,000.00 — for moral damages;

e. P20,000.00 — for exemplary damages;

f. P8,000.00 — for attorney's fees;

g. P2,000.00 — for litigation expenses;

h. Costs of suit.

(3) Ordering the dismissal of the case against Rene Abania;

(4) Ordering the dismissal of the third-party complaint.

SO ORDERED. 27

The RTC found that a contract of carriage had been forged between Travel &
Tours Advisers, Inc. and Concepcion as soon as she had boarded the Goldline
bus as a paying passenger; that Travel & Tours Advisers, Inc. had then become
duty-bound to safely transport her as its passenger to her destination; that due to
Travel & Tours Advisers, Inc.'s inability to perform its duty, Article 1786 of
the Civil Code created against it the disputable presumption that it had been at
fault or had been negligent in the performance of its obligations towards the
passenger; that Travel & Tours Advisers, Inc. failed to disprove the presumption
of negligence; and that a rigid selection of employees was not sufficient to
exempt Travel & Tours Advisers, Inc. from the obligation of exercising
extraordinary diligence to ensure that its passenger was carried safely to her
destination.
Aggrieved, the defendants appealed to the CA.
On June 11, 1998, 28 the CA dismissed the appeal for failure of the defendants to
pay the docket and other lawful fees within the required period as provided in
Rule 41, Section 4 of the Rules of Court (1997). The dismissal became final, and
entry of judgment was made on July 17, 1998. 29
Thereafter, the plaintiffs moved for the issuance of a writ of execution to
implement the decision dated June 30, 1997. 30 The RTC granted their motion on
January 31, 2000, 31 and issued the writ of execution on February 24, 2000. 32 EHITaS
On May 10, 2000, the sheriff implementing the writ of execution rendered a
Sheriff's Partial Return, 33 certifying that the writ of execution had been
personally served and a copy of it had been duly tendered to Travel & Tours
Advisers, Inc. or William Cheng, through his secretary, Grace Miranda, and that
Cheng had failed to settle the judgment amount despite promising to do so.
Accordingly, a tourist bus bearing Plate No. NWW-883 was levied pursuant to
the writ of execution.
The plaintiffs moved to cite Cheng in contempt of court for failure to obey a
lawful writ of the RTC. 34 Cheng filed his opposition. 35Acting on the motion to
cite Cheng in contempt of court, the RTC directed the plaintiffs to file a verified
petition for indirect contempt on February 19, 2001. 36
On April 20, 2001, petitioner submitted a so-called verified third party
claim, 37 claiming that the tourist bus bearing Plate No. NWW-883 be returned
to petitioner because it was the owner; that petitioner had not been made a party
to Civil Case No. 93-5917; and that petitioner was a corporation entirely
different from Travel & Tours Advisers, Inc., the defendant in Civil Case No.
93-5917.
It is notable that petitioner's Articles of Incorporation was amended on
November 8, 1993, 38 shortly after the filing of Civil Case No. 93-5917 against
Travel & Tours Advisers, Inc.
Respondents opposed petitioner's verified third-party claim on the following
grounds, namely: (a) the third-party claim did not comply with the required
notice of hearing as required by Rule 15, Sections 4 and 5 of the Rules of
Court; (b) Travel & Tours Advisers, Inc. and petitioner were identical entities
and were both operated and managed by the same person, William Cheng;
and (c) petitioner was attempting to defraud its creditors — respondents herein
— hence, the doctrine of piercing the veil of corporate entity was squarely
applicable. 39
On August 2, 2001, the RTC dismissed petitioner's verified third-party claim,
observing that the identity of Travel & Tours Advisers, Inc. could not be
divorced from that of petitioner considering that Cheng had claimed to be the
operator as well as the President/Manager/incorporator of both entities; and that
Travel & Tours Advisers, Inc. had been known in Sorsogon as Goldline. 40
Petitioner moved for reconsideration, 41 but the RTC denied the motion on
October 22, 2001. 42
Thence, petitioner initiated a special civil action for certiorari in the
CA, 43 asserting:IcSEAH
 THE RESPONDENT HONORABLE RTC JUDGE HAD ACTED
WITHOUT JURISDICTION OR COMMITTED GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF JURISDICTION
IN ISSUING THE: (A) ORDER DATED 2 AUGUST 2001, COPY
OF WHICH IS HERETO ATTACHED AS ANNEX A,
DISMISSING HEREIN PETITIONER'S THIRD PARTY CLAIM;
AND (B) ORDER DATED 22 OCTOBER 2001, COPY OF WHICH
IS HERETO ATTACHED AS ANNEX B DENYING SAID
PETITIONER'S MOTION FOR RECONSIDERATION; AND
THAT THERE IS NO APPEAL, OR ANY PLAIN, SPEEDY AND
ADEQUATE REMEDY AVAILABLE TO SAID PETITIONER.

On October 30, 2002, the CA promulgated its decision dismissing the petition
for certiorari, 44 holding as follows:
The petition lacks merit.

As stated in the decision supra, William Ching disclosed during the

trial of the case that defendant Travel & Tours Advisers, Inc.
(Goldline), of which he is an officer, is operating sixty (60) units of
Goldline buses. That the Goldline buses are used in the operations of
defendant company is obvious from Mr. Cheng's admission. The
Amended Articles of Incorporation of Gold Line Tours, Inc. disclose
that the following persons are the original incorporators thereof:
Antonio O. Ching, Maribel Lim Ching, witness William Ching, Anita
Dy Ching and Zosimo Ching. (Rollo, pp. 105-106) We see no reason
why defendant company would be using Goldline buses in its
operations unless the two companies are actually one and the same.

Moreover, the name Goldline was added to defendant's name in the

Complaint. There was no objection from William Ching who could
have raised the defense that Gold Line Tours, Inc. was in no way liable
or involved. Indeed, it appears to this Court that rather than Travel &
Tours Advisers, Inc., it is Gold Line Tours, Inc., which should have
been named party defendant.

Be that as it may, We concur in the trial court's finding that the two
companies are actually one and the same, hence the levy of the bus in
question was proper.

WHEREFORE, for lack of merit, the petition is DISMISSED and the

assailed Orders are AFFIRMED.

SO ORDERED.
Petitioner filed a motion for reconsideration, 45 which the CA denied on June 25,
2003. 46
Hence, this appeal, in which petitioner faults the CA for holding that the RTC
did not act without jurisdiction or grave abuse of discretion in finding that
petitioner and Travel & Tours Advisers, Inc., the defendant in Civil Case No.
5917, were one and same entity, and for sustaining the propriety of the levy of
the tourist bus with Plate No. NWW-883 in satisfaction of the writ of
execution. 47
In the meantime, respondents filed in the RTC a motion to direct the sheriff to
implement the writ of execution in view of the non-issuance of any restraining
order either by this Court or the CA. 48 On February 23, 2007, the RTC granted
the motion and directed the sheriff to sell the Goldline tourist bus with Plate No.
NWW-883 through a public auction. 49 cHAaEC

Issue
Did the CA rightly find and conclude that the RTC did not gravely abuse its
discretion in denying petitioner's verified third-party claim?
Ruling
We find no reason to reverse the assailed CA decision.
In the order dated August 2, 2001, the RTC rendered its justification for rejecting
the third-party claim of petitioner in the following manner:
xxx xxx xxx

The main contention of Third Party Claimant is that it is the owner of

the Bus and therefore, it should not be seized by the sheriff because the
same does not belong to the defendant Travel & Tours Advisers, Inc.
(GOLDLINE) as the third party claimant and defendant are two
separate corporation with separate juridical personalities. Upon the
other hand, this Court had scrutinized the documents submitted by the
Third party Claimant and found out that William Ching who claimed
to be the operator of the Travel & Tours Advisers, Inc. (GOLDLINE)
is also the President/Manager and incorporator of the Third Party
Claimant Goldline Tours, Inc. and he is joined by his co-incorporators
who are "Ching" and "Dy" thereby this Court could only say that these
two corporations are one and the same corporations. This is of judicial
knowledge that since Travel & Tours Advisers, Inc. came to Sorsogon
it has been known as GOLDLINE.

This Court is not persuaded by the proposition of the third party

claimant that a corporation has an existence separate and/or distinct
 from its members insofar as this case at bar is concerned, for the
reason that whenever necessary for the interest of the public or for the
protection of enforcement of their rights, the notion of legal entity
should not and is not to be used to defeat public convenience, justify
wrong, protect fraud or defend crime.

Apposite to the case at bar is the case of Palacio vs. Fely

Transportation Co., L-15121, May 31, 1962, 5 SCRA 1011 where the
Supreme Court held: aIAHcE

"Where the main purpose in forming the corporation was to

evade one's subsidiary liability for damages in a criminal case,
the corporation may not be heard to say that it has a personality
separate and distinct from its members, because to allow it to
do so would be to sanction the use of fiction of corporate entity
as a shield to further an end subversive of justice (La Campana
Coffee Factory, et al. v. Kaisahan ng mga Manggagawa, etc.,
et al., L-5677, May 25, 1953). The Supreme Court can even
substitute the real party in interest in place of the defendant
corporation in order to avoid multiplicity of suits and thereby
save the parties unnecessary expenses and delay. (Alfonso vs.
Villamor, 16 Phil. 315)."

This is what the third party claimant wants to do including the

defendant in this case, to use the separate and distinct personality of
the two corporation as a shield to further an end subversive of justice
by avoiding the execution of a final judgment of the court. 50

As we see it, the RTC had sufficient factual basis to find that petitioner and
Travel and Tours Advisers, Inc. were one and the same entity, specifically:
— (a) documents submitted by petitioner in the RTC showing that William
Cheng, who claimed to be the operator of Travel and Tours Advisers, Inc., was
also the President/Manager and an incorporator of the petitioner; and (b) Travel
and Tours Advisers, Inc. had been known in Sorsogon as Goldline. On its part,
the CA cogently observed: EcTDCI

As stated in the (RTC) decision supra, William Ching disclosed

during the trial of the case that defendant Travel & Tours Advisers,
Inc. (Goldline), of which he is an officer, is operating sixty (60) units
of Goldline buses. That the Goldline buses are used in the operations
of defendant company is obvious from Mr. Cheng's admission. The
Amended Articles of Incorporation of Gold Line Tours, Inc. disclose
that the following persons are the original incorporators thereof:
Antonio O. Ching, Maribel Lim Ching, witness William Ching, Anita
 Dy Ching and Zosimo Ching. (Rollo, pp. 105-108) We see no reason
why defendant company would be using Goldline buses in its
operations unless the two companies are actually one and the same.

Moreover, the name Goldline was added to defendant's name in the

Complaint. There was no objection from William Ching who could
have raised the defense that Gold Line Tours, Inc. was in no way liable
or involved. Indeed it appears to this Court that rather than Travel &
Tours Advisers, Inc. it is Gold Line Tours, Inc., which should have
been named party defendant.

Be that as it may, We concur in the trial court's finding that the two
companies are actually one and the same, hence the levy of the bus in
question was proper. 51

The RTC thus rightly ruled that petitioner might not be shielded from liability
under the final judgment through the use of the doctrine of separate corporate
identity. Truly, this fiction of law could not be employed to defeat the ends of
justice.
But petitioner continues to challenge the RTC orders by insisting that the
evidence to establish its identity with Travel and Tours Advisers, Inc. was
insufficient.DacTEH

We cannot agree with petitioner. As already stated, there was sufficient evidence
that petitioner and Travel and Tours Advisers, Inc. were one and the same entity.
Moreover, we remind that a petition for the writ of certiorari neither deals with
errors of judgment nor extends to a mistake in the appreciation of the contending
parties' evidence or in the evaluation of their relative weight. 52 It is timely to
remind that the petitioner in a special civil action for certiorari commenced
against a trial court that has jurisdiction over the proceedings bears the burden to
demonstrate not merely reversible error, but grave abuse of discretion amounting
to lack or excess of jurisdiction on the part of the respondent trial court in issuing
the impugned order. 53 The term grave abuse of discretion is defined as a
capricious and whimsical exercise of judgment so patent and gross as to amount
to an evasion of a positive duty or a virtual refusal to perform a duty enjoined by
law, as where the power is exercised in an arbitrary and despotic manner because
of passion or hostility. 54 Mere abuse of discretion is not enough; it must be
grave. 55 Yet, here, petitioner did not discharge its burden because it failed to
demonstrate that the CA erred in holding that the RTC had not committed grave
abuse of discretion. A review of the records shows, indeed, that the RTC
correctly rejected petitioner's third-party claim. Hence, the rejection did not
come within the domain of the writ of certiorari's limiting requirement of excess
or lack of jurisdiction. 56
WHEREFORE, the Court DENIES the petition for review on certiorari,
and AFFIRMS the decision promulgated by the Court of Appeals on October 30,
2002. Costs of suit to be paid by petitioner.
SO ORDERED.
(Gold Line Tours, Inc. v. Heirs of Lacsa, G.R. No. 159108, [June 18, 2012],
|||

688 PHIL 50-64)

VIVIAN T. RAMIREZ, ALBERTO B. DIGNO, DANILO M.

CASQUITE, JUMADIYA A. KADIL, FAUJIA SALIH,
ANTONIO FABIAN, ROMEL DANAG, GINA PANTASAN,
ARTHUR MATUGAS, VIRGILIA OSARIO, ORLANDO
EBRADA, ROSANA CABATO, WILFREDO LUNA,
LILIA BARREDO, ISABEL ALBERTO, NORA BONIAO,
PILAR OSARIO, LYDIA ESLIT, AMMAN SALI, AKMAD
AKIL, ROGELIO LAZARO, ISABEL CONCILLADO,
MARLON ABIAL, HERMOCILLO NAPALCRUZ,
WALTER BUHIAN, ELISEO AMATORIO, JOSE
CASTRO, JAMIL LAGBAY, MA. EVELYN SANTOS,
LEDENIA T. BARON, ELSA AMATORIO, SARAH F.
BUCOY, EXPEDITO L. RELUYA, ARNULFO ALFARO,
EDGARDO F. BORGONIA, DANILO R. MANINGO,
ABDUSAID H. DAMBONG, LORINDA M. MUTIA,
DOMINADOR DEL ROSARIO, JOEL E. TRONO,
HUSSIN A. JAWAJI, JUL-ASNAM JAKARIA,
LUZVIMINDA A. NOLASCO, VILMA G. GASCO,
MORITA S. MARMETO, PROCESA JUANICO,
ANTONIO A. MONDRAGON, JR., JESSICA F.
QUIACHON, PACITA G. MEDINA, ARNEL S. SANTOS,
ANECITA T. TARAS, TOMINDAO T. TARAS, NULCA C.
SABDANI, AKMAD A. SABDANI, ROWENA J. GARCIA,
LINA P. CASAS, MARLYN G. FRANCISCO,
MERCEDITA MAQUINANO, NICOLAS T. RIO,
TERESITA A. CASINAS, VIRGILIO F. IB-IB,
PANTALEON S. ROJAS, JR., EVELYN V. BEATINGO,
MATILDE G. HUSSIN, ESPERANZA I. LLEDO,
ADOLFINA DELA MERCED, LAURA E. SANTOS,
ROGACIANA MAQUILING, ALELIE D. SAMSON,
SHIRLEY L. ALVAREZ, MAGDALENA A. MARCOS,
 VIRGINIA S. ESPINOSA, ANTONIO C. GUEVARA,
AUGUSTA S. DE JESUS, SERVILLA A. BANCALE,
PROSERFINA GATINAO, RASMA A. FABRIGA,
ROLANDO D. GATINAO, ANALISA G. MEÑA, SARAH A.
SALCEDO, ALICIA M. JAYAG, FERNANDO G.
CABEROY, ROMEO R. PONCE, EDNA S. PONCE,
TEODORA T. LUY, WALDERICO F. ARIÑO,
MELCHOR S. BUCOY, EDITA H. CINCO, RUDY I.
LIMBAROC, PETER MONTOJO, MARLYN S. ATILANO,
REGIDOR MEDALLO, EDWIN O. DEMASUAY, DENNIS
M. SUICANO, ROSALINA Q. ATILANO, ESTRELLA
FELICIANO, IMELDA T. DAGALEA, MARILYN
RUFINO, JOSE AGUSTIN, EFREN RIVERA, CRISALDO
VALERO, SAFIA HANDANG, LUCENA R. MEDINA,
DANNY BOY B. PANGASIAN, ABDURASA HASIL,
ROEL ALTA, JOBERT BELTRAN, EDNA FAUSTO,
TAJMAHAR HADJULA, ELENA MAGHANOY, ERIC B.
QUITIOL, JESSE D. FLORES, GEMMA CANILLAS,
ERNITO CANILLAS, MARILOU JAVIER, MARGANI
MADDIN, RICHARD SENA, FE D. CANOY, GEORGE
SALUD, EDGARDO BORGONIA, JR., ANTONIO
ATILANO, JOSE CASTRO, and LIBERATO
BAGALANON,petitioners, vs. MAR FISHING CO., INC.,
MIRAMAR FISHING CO., INC., ROBERT BUEHS AND
JEROME SPITZ,respondents.

DECISION

SERENO, J : p

Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, seeking a review of the Court of Appeals (CA) 19
March 2004 and 12 May 2005 Resolutions in CA-G.R. SP No. 82651. The
appellate court had dismissed the Petition for Review on the ground that it lacked
a Verification and Certification against forum shopping.
The pertinent facts are as follows:
On 28 June 2001, respondent Mar Fishing Co., Inc. (Mar Fishing), engaged in
the business of fishing and canning of tuna, sold its principal assets to
co-respondent Miramar Fishing Co., Inc. (Miramar) through public
bidding. 1 The proceeds of the sale were paid to the Trade and Investment
Corporation of the Philippines (TIDCORP) to cover Mar Fishing's outstanding
obligation in the amount of P897,560,041.26. 2 In view of that transfer, Mar
Fishing issued a Memorandum dated 23 October 2001 informing all its workers
that the company would cease to operate by the end of the month. 3 On 29
October 2001 or merely two days prior to the month's end, it notified the
Department of Labor and Employment (DOLE) of the closure of its business
operations. 4
Thereafter, Mar Fishing's labor union, Mar Fishing Workers Union — NFL —
and Miramar entered into a Memorandum of Agreement. 5 The Agreement
provided that the acquiring company, Miramar, shall absorb Mar Fishing's
regular rank and file employees whose performance was satisfactory, without
loss of seniority rights and privileges previously enjoyed. 6
Unfortunately, petitioners, who worked as rank and file employees, were not
hired or given separation pay by Miramar. 7 Thus, petitioners filed Complaints
for illegal dismissal with money claims before the Arbitration Branch of the
National Labor Relations Commission (NLRC).
In its 30 July 2002 Decision, the Labor Arbiter (LA) found that Mar Fishing had
necessarily closed its operations, considering that Miramar had already bought
the tuna canning plant. 8 By reason of the closure, petitioners were legally
dismissed for authorized cause. 9 In addition, even if Mar Fishing reneged on
notifying the DOLE within 30 days prior to its closure, that failure did not make
the dismissals void. Consequently, the LA ordered Mar Fishing to give
separation pay to its workers. 10
The LA held thus: 11 ESCTIA

WHEREFORE, in view of the foregoing considerations, judgment is

hereby rendered in these cases:

1. Ordering Mar Fishing Company, Inc., through its president,

treasurer, manager or other proper officer or representative, to pay the
complainants their respective separation pay, as computed in pages 12
to 33 hereof, all totaling SIX MILLION THREE HUNDRED
THIRTY SIX THOUSAND FIVE HUNDRED EIGHTY SEVEN
& 77/100 PESOS (P6,336,587.77);

2. Dismissing these case [sic] as against Miramar Fishing Company,

Inc., as well as against Robert Buehs and Jerome Spitz, for lack of
cause of action;
 3. Dismissing all other charges and claims of the complainants, for
lack of merit.

SO ORDERED.

Aggrieved, petitioners pursued the action before the NLRC, which modified the
LA's Decision. Noting that Mar Fishing notified the DOLE only two days before
the business closed, the labor court considered petitioners' dismissal as
ineffectual. 12 Hence, it awarded, apart from separation pay, full back wages to
petitioners from the time they were terminated on 31 October 2001 until the date
when the LA upheld the validity of their dismissal on 30 July 2002. 13
Additionally, the NLRC pierced the veil of corporate fiction and ruled that Mar
Fishing and Miramar were one and the same entity, since their officers were the
same. 14 Hence, both companies were ordered to solidarily pay the monetary
claims. 15
On reconsideration, the NLRC modified its ruling by imposing liability only on
Mar Fishing. The labor court held that petitioners had no cause of action against
Miramar, since labor contracts cannot be enforced against the transferee of an
enterprise in the absence of a stipulation in the contract that the transferee
assumes the obligation of the transferor. 16 Hence, the dispositive portion
reads: 17
WHEREFORE, foregoing premises considered, the assailed
resolution is MODIFIED in that only Mar Fishing Company, Inc.
through its responsible officers, is ordered to pay complainants their
separation pay, and full backwages from the date they were terminated
from employment until 30 July 2002, subject to computation during
execution stage of proceedings at the appropriate Regional Arbitration
Branch.

SO ORDERED.

Despite the award of separation pay and back wages, petitioners filed a Rule 65
Petition before the CA. This time, they argued that both Mar Fishing and
Miramar should be made liable for their separation pay, and that their back
wages should be up to the time of their actual reinstatement. However, finding
that only 3 of the 228 petitioners 18 signed the Verification and Certification
against forum shopping, the CA instantly dismissed the action
for certiorari against the 225 other petitioners without ruling on the substantive
aspects of the case. 19
cHECAS

By means of a Manifestation with Omnibus Motion, 20 petitioners submitted a

Verification and Certification against forum shopping executed by 161
signatories. In the said pleading, petitioners asked the CA to reconsider by
invoking the rule that technical rules do not strictly apply to labor cases. 21 Still,
the CA denied petitioners' contentions and held thus: 22
Anent the liberality in application of the rules, as alleged by
petitioners, the same deserves scant consideration. . . . .

. . . . While litigation is not a game of technicalities, and that the rules

of procedure should not be enforced strictly at the cost of substantial
justice, still it does not follow that the Rules of Court may be ignored
at will and at random to the prejudice of the orderly presentation,
assessment and just resolution of the issues. . . . .

Before this Court, 124 petitioners raise the issue of whether the CA gravely erred
in dismissing their Petition for Review on the ground that their pleading lacked a
Verification and Certification against forum shopping. 23
The Rules of Court provide that a petition for certiorari must be verified and
accompanied by a sworn certification of non-forum shopping. 24 Failure to
comply with these mandatory requirements shall be sufficient ground for the
dismissal of the petition. 25Considering that only 3 of the 228 named petitioners
signed the requirement, the CA dismissed the case against them, as they did not
execute a Verification and Certification against forum shopping.
Petitioners invoke substantial compliance with procedural rules when their
Manifestation already contains a Verification and Certification against forum
shopping executed by 161 signatories. They heavily rely on Jaro v. Court of
Appeals, 26 citing Piglas-Kamao v. National Labor Relations
Commission and Cusi-Hernandez v. Diaz, in which we discussed that the
subsequent submission of the missing documentary attachments with the Motion
for Reconsideration amounted to substantial compliance.
However, this very case does not involve a failure to attach the Annexes. Rather,
the procedural infirmity consists of omission — the failure to sign a Verification
and Certification against forum shopping. Addressing this defect squarely, we
have already resolved that because of noncompliance with the requirements
governing the certification of non-forum shopping, no error could be validly
attributed to the CA when it ordered the dismissal of the special civil action
for certiorari. 27 The lack of certification against forum shopping is not curable
by mere amendment of a complaint, but shall be a cause for the dismissal of the
case without prejudice. 28 Indeed, the general rule is that subsequent
compliance with the requirements will not excuse a party's failure to
comply in the first instance. 29 Thus, on procedural aspects, the appellate court
correctly dismissed the case.
However, this Court has recognized that the merit of a case is a special
circumstance or compelling reason that justifies the relaxation of the rule
requiring verification and certification of non-forum shopping. 30 In order to
fully resolve the issue, it is thus necessary to determine whether technical rules
were brushed aside at the expense of substantial justice. 31 This Court will then
delve into the issue on (1) the solidary liability of Mar Fishing and Miramar to
pay petitioners' monetary claims and (2) the reckoning period for the award of
back wages.
For a dismissal based on the closure of business to be valid, three (3)
requirements must be established. Firstly, the cessation of or withdrawal from
business operations must be bona fide in character. Secondly, there must be
payment to the employees of termination pay amounting to at least one-half (1/2)
month pay for each year of service, or one (1) month pay, whichever is higher.
Thirdly, the company must serve a written notice on the employees and on the
DOLE at least one (1) month before the intended termination. 32
In their Petition for Review on Certiorari, petitioners did not dispute the
conclusion of the LA and the NLRC that Mar Fishing had an authorized cause to
dismiss its workers. Neither did petitioners challenge the computation of their
separation pay. aCcEHS

Rather, they questioned the holding that only Mar Fishing was liable for their
monetary claims. 33
Basing their conclusion on the Memorandum of Agreement and Supplemental
Agreement between Miramar and Mar Fishing's labor union, as well as the
General Information Sheets and Company Profiles of the two companies,
petitioners assert that Miramar simply took over the operations of Mar Fishing.
In addition, they assert that these companies are one and the same entity, given
the commonality of their directors and the similarity of their business venture in
tuna canning plant operations. 34
At the fore, the question of whether one corporation is merely an alter ego of
another is purely one of fact generally beyond the jurisdiction of this Court. 35 In
any case, given only these bare reiterations, this Court sustains the ruling of the
LA as affirmed by the NLRC that Miramar and Mar Fishing are separate and
distinct entities, based on the marked differences in their stock
ownership. 36 Also, the fact that Mar Fishing's officers remained as such in
Miramar does not by itself warrant a conclusion that the two companies are one
and the same. As this Court held in Sesbreño v. Court of Appeals, the mere
showing that the corporations had a common director sitting in all the boards
without more does not authorize disregarding their separate juridical
personalities. 37
Neither can the veil of corporate fiction between the two companies be pierced
by the rest of petitioners' submissions, namely, the alleged take-over by Miramar
of Mar Fishing's operations and the evident similarity of their businesses. At this
point, it bears emphasizing that since piercing the veil of corporate fiction is
frowned upon, those who seek to pierce the veil must clearly establish that the
separate and distinct personalities of the corporations are set up to justify a
wrong, protect a fraud, or perpetrate a deception. 38 This, unfortunately,
petitioners have failed to do. In Indophil Textile Mill Workers Union vs. Calica,
we ruled thus: 39
In the case at bar, petitioner seeks to pierce the veil of corporate entity
of Acrylic, alleging that the creation of the corporation is a devi[c]e to
evade the application of the CBA between petitioner Union and
private respondent company. While we do not discount the possibility
of the similarities of the businesses of private respondent and Acrylic,
neither are we inclined to apply the doctrine invoked by petitioner in
granting the relief sought. The fact that the businesses of private
respondent and Acrylic are related, that some of the employees of
the private respondent are the same persons manning and
providing for auxiliary services to the units of Acrylic, and that
the physical plants, offices and facilities are situated in the same
compound, it is our considered opinion that these facts are not
sufficient to justify the piercing of the corporate veil of
Acrylic. (Emphasis supplied.)

Having been found by the trial courts to be a separate entity, Mar Fishing — and
not Miramar — is required to compensate petitioners. Indeed, the back wages
and retirement pay earned from the former employer cannot be filed against the
new owners or operators of an enterprise. 40
Evidently, the assertions of petitioners fail on both procedural and substantive
aspects. Therefore, no special reasons exist to reverse the CA's dismissal of the
case due to their failure to abide by the mandatory procedure for filing a petition
for review on certiorari. Given the correctness of the appellate court's ruling and
the lack of appropriate remedies, this Court will no longer dwell on the exact
computation of petitioners' claims for back wages, which have been sufficiently
threshed out by the LA and the NLRC. Judicial review of labor cases does not go
beyond an evaluation of the sufficiency of the evidence upon which labor
officials' findings rest. 41
ACcaET

While we sympathize with the situation of the workers in this case, we cannot
disregard, absent compelling reasons, the factual determinations and the legal
doctrines that support the findings of the courts a quo. Generally, the findings of
fact and the conclusion of the labor courts are not only accorded great weight and
respect, but are even clothed with finality and deemed binding on this Court, as
long as they are supported by substantial evidence. 42
On a final note, this Court reminds the parties seeking the ultimate relief
of certiorari to observe the rules, since nonobservance thereof cannot be
brushed aside as a "mere technicality." 43 Procedural rules are not to be belittled
or simply disregarded, for these prescribed procedures ensure an orderly and
speedy administration of justice. 44
IN VIEW THEREOF, the assailed 19 March 2004 and 12 May 2005
Resolutions of the Court of Appeals in CA-G.R. SP No. 82651 are AFFIRMED.
Hence, the 04 July 2005 Petition for Review filed by petitioners is
hereby DENIED for lack of merit.
SO ORDERED.
(Ramirez v. Mar Fishing Co., Inc., G.R. No. 168208, [June 13, 2012], 687
|||

PHIL 125-137)

[G.R. No. 182331. April 18, 2012.]

MA. CORINA C. JIAO, RODEN B. LOPEZ, FRANCISCO
L. DIMAYUGA, NORMA G. DEL VALLE, MACARIO G.
MARASIGAN, LANIE MARIA B. PASANA, NILO M. DE
CASTRO, ANGELITO M. BALITAAN, CESAR L. RICO,
CRISPIN S. CONSTANTINO, GLENDA S. CORPUZ,
LEONILA C. TUAZON, ALFREDO S. DAZA, LORNA R.
CRUZ, MARIA M. AMBOJIA, NOEMI M. JAPOR,
ANGELITO V. DANAN, GLORIA M. SALAZAR, JOHN V.
VIGILIA, ROEL D. ROBINO, WILLIAM L. ENDAYA,
TERESITA M. ROMAN, ARTURO M. SABALLE,
AUGUSTO N. RIGOR, ALLAN O. OLANO, RODOLFO T.
CABATU, NICANOR R. BRAVO, EDUARDO M.
ALCANTARA, FELIPE F. OCAMPO, ELPIDIO C.
ADALIA, RENATO M. CRUZ, JOSE C. PEREZ, JR.,
FERNANDO V. MAPILE, ROMEO R. PATRICIO,
FERNANDO N. RONGAVILLA, FERMIN A. COBRADOR,
ANTONIO O. BOSTRE, RALPH M. MICHAELSON,
CRISTINA G. MANIO, EDIGARDO M. BAUTISTA,
CYNTHIA C. SANIEL, PRISCILLA F. DAVID,
MACARIO V. ARNEDO, NORLITO V. HERNANDEZ,
ALFREDO G. BUENAVENTURA, JOSE R.
CASTRONUEVO, OLDERICO M. AGORILLA, CESAR
M. PEREZ, RONALD M. GENER, EMMANUEL G.
QUILAO, BENJAMIN C. CUBA, EDGARDO S.
MEDRANO, GODOFREDO D. PATENA, VIRGILIO G.
ILAGAN, MYRNA C. LEGASPI, ELIZABETH P. REYES,
ANTONIO A. TALON, ROMEO P. CRUZ, ELEANOR T.
TAN, FERDINAND G. PINAUIN, MA. OLIVETTE A.
NAKPIL, GILBERT NOVIEM A. COLUMNA, ARTHUR L.
ABELLA, BENJAMIN L. ENRIQUEZ, ANTONINO P.
QUEVEDO, ADFEL GEORGE MONTEMAYOR,
RAMON S. VELASCO, WILFREDO M. HALILI,
ANTONIO M. LUMANGLAS, ANDREW M. MAGNO,
SONNY S. ESTANISLAO, RODOLFO S. ALABASTRO,
MICAH B. MARALIT, LINA M. QUEBRAL, REBECCA R.
NARCISO, RONILO T. TOLENTINO, RUPERTO B.
LETAN, JR., MEDARDO A. VASQUEZ, VALENTINA A.
SANTIAGO, RODELO S. DIAZ, JOHN O. CORDIAL,
EDWIN J. ANDAYA, RODRIGO M. MOJADO, GERMAN
L. ESTRADA, BENJAMIN B. DADUYA, MARLYN A.
MUNOZ, MARIVIC M. DIONISIO, CESAR M. FLORES,
JACINTO T. GUINTO, JR., BELEN C. SALAVERRIA,
EVELYN M. ANZURES, GLORIA D. ABELLA, LILIAN V.
BUNUAN, MA. CONCEPCION G. UBIADAS, ROLANDO
I. CAMPOSANO, MONICO R. GOREMBALEM, ELADIO
M. VICENCIO, AMORSOLO B. BELTRAN, LEOPOLDO
B. JUAREZ, NEPHTALI V. SALAZAR, SANGGUNI P.
ROQUE, ROY O. SAPANGHILA, MELVIN A. DEVEZA,
CARMENCITA D. ABELLA, PRIMITIVO S. AGUAS,
JOSE MA. ANTONIO I. BUGAY, HILARIO P. DE
GUZMAN, WILLIAM C. VENTIGAN, NOEL L. AMA,
ROMEO G. USON, RAOUL E. VELASCO, FLORENCIO
B. PAGSALIGAN, RUBEN C. CRUZ, ANGELA D.
CUSTODIO, NOEL C. CABEROY, GUILLERMO V.
GAVINO, JR., GAUDENCIO P. BESA, AIDA M.
PADILLA, ROWENA M. BAUYON, HENRY C.
EPISCOPE, ALVIN T. PATRIARCA, EUSTAQUIO C.
AQUINO, JR., VALENTINO T. ARELLANO,
REYNALDO J. AUSTRIA, BAYANI A. CUNANAN,
EFREN T. JOSE, EDUARDO P. LORIA, REYNALDO M.
 PORTILLO, ARMANDO B. DUPAYA, SESINANDO S.
GOMEZ, BRICCIO B. GAFFUD III, DANILO N. PALO,
MARIO F. SOLANO, MARIANITO B. GOOT and ELSA S.
TANGO, ZENAIDA N. GARIN, RUBY L. TEJADA, JOEL
B. GARCIA, MA. RUBY L. JIMENEA, ARLENE L.
MADLANGBAYAN, ROCELY P. MARASIGAN, MA.
ROSARIO H. RIVERA, OSCAR G. BARACHINA, EDITA
M. REMO, ROBERTO P. ENDAYA, ALELI B. ALANO,
FRANCISCO T. MENEZ, CAMILO N. CARILLO,
ROSEMARIE A. DOMINGO, LYNDON D. ENOROBA,
MERLY H. JAVELLANA, HERNES M. MANDABON,
LUZ G. ONG, GILBERTO B. PICO, CRISPIN A.
TAMAYO, RICARDO C. VERNAIZ, RENATO V.
SACRAMENTO, CLODUALDO O. GOMEZ, MARINEL
O. ALPINO, ELY P. RAMOS, NICANOR E. REYES,
JR., petitioners, vs. NATIONAL LABOR RELATIONS
COMMISSION, GLOBAL BUSINESS BANK, INC.,
CORPORATE OFFICERS OF GLOBAL BANK: ROBIN
KING, HENRY M. SUN, BENJAMIN G. CHUA, JR.,
JOVENCIO F. CINCO, EDWARD S. GO, MARY VY TY,
TAKANORI NAKANO, JOHN K.C. NG, FLORENCIO T.
MALLARE, EDMUND/EDDIE GAISANO, FRANCISCO
SEBASTIAN, SAMUEL S. YAP, ALFRED VY TY, GEN
TOMII, CHARLES WAI-BUN CHEUNG and
METROPOLITAN BANK AND TRUST
COMPANY, respondents.

DECISION

REYES, J : p

Nature of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court wherein the petitioners assail the Resolutions dated
November 7, 2007 1 and March 26, 2008, 2 respectively, of the Court of Appeals
(CA) in CA-G.R. SP No. 101065.
Antecedent Facts
The petitioners were regular employees of the Philippine Banking Corporation
(Philbank), each with at least ten years of service in the company. 3 Pursuant to
its Memorandum dated August 28, 1970, Philbank established a Gratuity Pay
Plan (Old Plan) for its employees. The Old Plan provided:
1. Any employee who has reached the compulsory retirement age of
60 years, or who wishes to retire or resign prior to the attainment of
such age or who is separated from service by reason of death, sickness
or other causes beyond his/her control shall for himself or thru his/her
heirs file with the personnel office an application for the payment of
benefits under the plan[.]4

Section 1 laid down the benefits to which the employee would be entitled, to
wit:DTcHaA

Section 1

Benefits

1.1 The gratuity pay of an employee shall be an amount equivalent to

one-month salary for every year of credited service, computed on the
basis of last salary received.

1.2 An employee with credited service of 10 years or more, shall be

entitled to and paid the full amount of the gratuity pay, but in no case
shall the gratuity pay exceed the equivalent of 24 months, or two years,
salary. 5

On March 8, 1991, Philbank implemented a new Gratuity Pay Plan (New

Gratuity Plan). 6 In particular, the New Gratuity Plan stated thus:
. . . An Employee who is involuntarily separated from the service by
reason of death, sickness or physical disability, or for any authorized
cause under the law such as redundancy, or other causes not due to his
own fault, misconduct or voluntary resignation, shall be entitled to
either one hundred percent (100%) of his accrued gratuity benefit or
the actual benefit due him under the Plan, whichever is greater. 7

In February 2000, Philbank merged with Global Business Bank, Inc.

(Globalbank), with the former as the surviving corporation and the latter as the
absorbed corporation, but the bank operated under the name Global Business
Bank, Inc. As a result of the merger, complainants' respective positions became
redundant. A Special Separation Program (SSP) was implemented and the
petitioners were granted a separation package equivalent to one and a half
month's pay (or 150% of one month's salary) for every year of service based on
their current salary. Before the petitioners could avail of this program, they were
required to sign two documents, namely, an Acceptance Letter and a Release,
Waiver, Quitclaim (quitclaim). 8
As their positions were included in the redundancy declaration, the petitioners
availed of the SSP, signed acceptance letters and executed quitclaims in
Globalbank's favor 9 in consideration of their receipt of separation pay
equivalent to 150% of their monthly salaries for every year of service.
In August 2002, respondent Metropolitan Bank and Trust Company (Metrobank)
acquired the assets and liabilities of Globalbank through a Deed of Assignment
of Assets and Assumption of Liabilities. 10 STcEaI

Subsequently, the petitioners filed separate complaints for non-payment of

separation pay with prayer for damages and attorney's fees before the National
Labor Relations Commission (NLRC). 11
The petitioners asserted that, under the Old Plan, they were entitled to an
additional 50% of their gratuity pay on top of 150% of one month's salary for
every year of service they had already received. They insisted that 100% of the
150% rightfully belongs to them as their separation pay. Thus, the remaining 50%
was only half of the gratuity pay that they are entitled to under the Old Plan.
They argued that even if the New Gratuity Plan were to be followed, the
computation would be the same, since Section 10.1 of the New Gratuity Plan
provided that:
10.1 Employees who have attained a regular status as of March 8,
1991 who are covered by the Old Gratuity Plan and are now covered
by this Plan shall be entitled to which is the higher benefit between the
two Plans. Double recovery from both plans is not allowed. 12

The petitioners further argued that the quitclaims they signed should not bar
them from claiming their full entitlement under the law. They also claimed that
they were defrauded into signing the same without full knowledge of its legal
implications. 13
On the other hand, Globalbank asserted that the SSP should prevail and the
petitioners were no longer entitled to the additional 50% gratuity pay which was
already paid, the same having been included in the computation of their
separation pay. It maintained further that the waivers executed by the petitioners
should be held binding, since these were executed in good faith and with the
latter's full knowledge and understanding. 14
Meanwhile, Metrobank denied any liability, citing the absence of an
employment relationship with the petitioners. It argued that its acquisition of the
assets and liabilities of Globalbank did not include the latter's obligation to its
employees. Moreover, Metrobank pointed out that the petitioners' employment
with Globalbank had already been severed before it took over the latter's banking
operations. 15
 The Labor Arbiter's Decision
On August 30, 2004, the Labor Arbiter (LA) promulgated a
decision 16 dismissing the complaint. 17 The LA ruled that the petitioners were
not entitled to the additional 50% in gratuity pay that they were asking for. 18
DHCSTa

The LA held that the 150% rate used by Globalbank could legally cover both the
separation pay and the gratuity pay of complainants. The LA upheld the right of
the employer to enact a new gratuity plan after finding that its enactment was not
attended by bad faith or any design to defraud complainants. Thus, the New
Gratuity Plan must be deemed to have superseded the Old Plan. 19 The LA also
ruled that the minimum amount due to the petitioners under the New Gratuity
Plan, in relation to Article 283 of the Labor Code was one month's pay for every
year of service. Thus, anything over that amount was discretionary.
As to the validity of the quitclaim, the LA held that the issue has been rendered
moot. Nonetheless, the LA upheld the petitioners' undertaking under their
respective quitclaims, considering the amount involved is not unconscionable,
and that their supposed lack of complete understanding did not mean that they
were coerced or deceived into executing the same. 20
The LA also absolved Metrobank from liability. The LA found that the
petitioners had already been separated from Globalbank when Metrobank took
over the former's banking operations. Moreover, the liabilities that Metrobank
assumed were limited to those arising from banking operations and excluded
those pertaining to Globalbank's employees or to claims of previous
employees. 21
The NLRC's Decision
Aggrieved, the petitioners appealed to the NLRC. In a decision 22 dated August
15, 2007, the NLRC dismissed the appeal and affirmed the LA's decision.
The NLRC held that the petitioners did not acquire a vested right to Philbank's
gratuity plans since, at the outset, it was made clear that these plans would not
perpetuate into eternity. It also noted that, under the SSP, the employee to be
separated due to redundancy would be receiving more than the rate in the old
plan and higher than the legal rate for the separated employees.
The petitioners elevated the case to the CA via a Petition for Certiorari under
Rule 65. HICATc

The CA's Decision

In the first of the assailed CA resolutions, the CA ruled that the petition was
dismissible outright for failure of the petitioners to file a motion for
reconsideration of the decision under review before resorting to certiorari.
Further, the CA held that the case did not fall under any of the recognized
exceptions to the rule on motions for reconsideration. 23
The petitioners then moved for the reconsideration, which was denied in the
second assailed Resolution, noting the absence of an explanation for their failure
to file a motion for reconsideration of the assailed NLRC decision in their
petition for certiorari. 24
The Issues
The petitioners are now before this Court raising the following errors supposedly
committed by the CA:
1. In dismissing the petition for failure to file a motion for
reconsideration before filing a petition under Rule 65 as it blatantly
ignored the application of the recent jurisprudence on labor law.

2. In dismissing the petition without taking into consideration the

meritorious grounds laid down by [the] petitioners by categorically
outlining the grave abuse of discretion amounting to lack or excess of
jurisdiction committed by [the] NLRC in affirming the decision of the
Labor Arbiter, to wit:

2.a. In holding that [the] petitioners "did not acquire a vested

right under the PHILBANK gratuity plan."

2.b. In holding that "the bank had abandoned the old plan"
(referring to the old Gratuity Pay Plan) and replaced it with a
Special Separation Program under which [the] petitioners
"would be receiving more than the rate in the old plan and
higher than the legal rate for redundant employees."

2.c. In holding that the benefits under the Special Separation

Program legally replaced not only the gratuity pay plan to
which [the] petitioners were entitled under the old and new
Gratuity Pay Plans but also all other benefits including
separation pay under the law. cSTDIC

2.d. In not holding that when [the] petitioners were separated

due to redundancy they were entitled per provision of Article
283 of the Labor Code to separation pay equivalent to one
month pay for every year of service.

2.e. In holding that [the] petitioners are bound under the

Acceptance . . . and Release, Waiver and Quitclaim . . . that
they had executed and [cannot] question the same, hence they
 [cannot] claim benefits in addition to those they had received
from the bank.

2.f. In not holding that respondent METROBANK is the

parent corporation of GLOBALBANK and the latter is the
subsidiary, hence METROBANK is liable for the payment of
the employment benefits of [the] petitioners as it had acquired
all the assets of GLOBALBANK.

2.g. In not holding that the Assignment of Assets and

Liabilities . . . executed by GLOBALBANK and
METROBANK is a scheme to defraud [the] petitioners of the
employment benefits due them upon separation from service.

2.h. In not holding that [the] respondents are liable to [the]

petitioners for moral, exemplary and temperate damages
because [the] respondents are guilty of deceit and fraud in not
paying [the] petitioners the full amount of their employment
benefits. 25

The Court's Decision

The Petition has no merit, hence, must be denied.
The petitioners' unexplained failure to
move for the reconsideration of the
NLRC's resolution before applying for
a writ of certiorari in the CA is reason
enough to deny such application.
We shall first discuss the procedural issue raised by the petitioners: whether the
CA erred in dismissing their petition due to their failure to file a motion for
reconsideration of the NLRC's adverse resolution. cHCaIE

The petitioners claim that it was error for the CA to have dismissed their petition
on the sole basis thereof. According to the petitioners, they had opted not to file a
motion for reconsideration as the issues that will be raised therein are those that
the NLRC had already passed upon. The petitioners likewise invoke the liberal
application of procedural rules.
To begin with, the petitioners do not have the discretion or prerogative to
determine the propriety of complying with procedural rules. This Court had
repeatedly emphasized in various cases involving the tedious attempts of
litigants to relieve themselves of the consequences of their neglect to follow a
simple procedural requirement for perfecting a petition for certiorari that he
who seeks a writ of certiorari must apply for it only in the manner and strictly in
accordance with the provisions of the law and the Rules. The petitioners may not
arrogate to themselves the determination of whether a motion for reconsideration
is necessary or not. To dispense with the requirement of filing a motion for
reconsideration, the petitioners must show a concrete, compelling, and valid
reason for doing so. 26
As the CA correctly noted, the petitioners did not bother to explain their
omission and only did so in their motion for reconsideration of the dismissal of
their petition. Aside from the fact that such belated effort will not resurrect their
application for a writ of certiorari, the reason proffered by the petitioners does
not fall under any of the recognized instances when the filing of a motion for
reconsideration may be dispensed with. Whimsical and arbitrary deviations from
the rules cannot be condoned in the guise of a plea for a liberal interpretation
thereof. We cannot respond with alacrity to every claim of injustice and bend the
rules to placate vociferous protestors crying and claiming to be victims of a
wrong. 27
We now rule on the substantive issues.
The petitioners' receipt of separation pay equivalent to their one and a
half months salary for every year of service as provided in the SSP and
the New Gratuity Plan more than sufficiently complies with the Labor
Code, which only requires the payment of separation pay at the rate of
one month salary for every year of service. HCaDET

The petitioners do not question the legality of their separation from the service or
the basis for holding their positions redundant. What they raise is their
entitlement to gratuity pay, as provided in the Old Plan, in addition to what they
received under the SSP. According to the petitioners, they are entitled to
separation pay at a rate of one month salary for every year of service under
the Labor Code and gratuity pay at a rate of one month salary for every year of
service whether under the Old Plan or the New Gratuity Plan. Since what they
received as separation pay was equivalent to only 150% or one and one-half of
their monthly salaries for every year of service, the respondents are still liable to
pay them the deficiency equivalent to one-half of their monthly salary for every
year of service.
We disagree.
The New Gratuity Plan has
repealed the Old Plan.
It is clear from the provisions of Section 8 of the New Gratuity Plan that the Old
Plan has been revoked or superseded. Thus:
SECTION 8
 INTEGRATION OF SOCIAL LEGISLATION,
CONTRACTS, ETC.

8.1 This Plan is not intended to duplicate or cause the double payment
of similar or analogous benefits provided for under existing labor and
social security laws. Accordingly, benefits under this Plan shall be
deemed integrated with and in lieu of (i) statutory benefits under the
New Labor Code and Social Security Laws, as now or hereafter
amended[;] and (ii) analogous benefits granted under present or future
collective bargaining agreements, and other employee benefit plans
providing analogous benefits which may be imposed by future
legislations. In the event the benefits due under the Plan are less than
those due and demandable under the provisions of the New Labor
Code and/or present or future Collective Bargaining Agreements
and/or future plans of similar nature imposed by law, the Fund shall
respond for the difference. 28TESICD

Globalbank's right to replace the Old Plan and the New Gratuity Plan is within
legal bounds as the terms thereof are in accordance with the provisions of
the Labor Code and complies with the minimum requirements
thereof. Contrary to the petitioners' claim, they had no vested right over the
benefits under the Old Plan considering that none of the events
contemplated thereunder occurred prior to the repeal thereof by the
adoption of the New Gratuity Plan. Such right accrues only upon their
separation from service for causes contemplated under the Old Plan and the
petitioners can only avail the benefits under the plan that is effective at the time
of their dismissal. In this case, when the merger and the redundancy program
were implemented, what was in effect were the New Gratuity Plan and the SSP;
the petitioners cannot, thus, insist on the provisions of the Old Plan which is no
longer existent.
The SSP did not revoke or supersede the New Gratuity Plan.
On the other hand, the issuance of the SSP did not result to the repeal of the New
Gratuity Plan. As the following provision of the SSP shows, the terms of the
New Gratuity Plan had been expressly incorporated in the SSP and should, thus,
be implemented alongside the SSP:
II. Separation Pay Package

Affected employees are entitled to the following tax free:

a. Gratuity Benefits which they are entitled to under the respective

retirement plans. The bank shall give a premium by rounding up the
 benefit to an equivalent of 1.5 months salary per every year of service
based on their salary as of separation date. 29 (emphasis supplied)

The SSP was not intended to supersede the New Gratuity Plan. On the contrary,
the SSP was issued to make the benefits under the New Gratuity Plan available
to employees whose positions had become redundant because of the merger
between Philbank and Globalbank, subject to compliance with certain
requirements such as age and length of service, and to improve such benefits by
increasing or rounding it up to an amount equivalent to the affected employees'
one and a half monthly salary for every year of service. In other words, the
benefits to which the redundated employees are entitled to, including the
petitioners, are the benefits under the New Gratuity Plan, albeit increased by the
SSP. EaIDAT

Considering that the New Gratuity Plan still stands and has not been revoked by
the SSP, does this mean that the petitioners can claim the benefits thereunder in
addition to or on top of what is required under the Article 283 of the Labor
Code?
For as long as the minimum requirements
of the Labor Code are met, it is within
the management prerogatives of
employers to come up with separation
packages that will be given in lieu of
what is provided under the Labor Code.
A direct reference to the New Gratuity Plan reveals the contrary. The
above-quoted Section 8 of the New Gratuity Plan expressly states that "the
benefits under this Plan shall be deemed integrated with and in lieu of (i)
statutory benefits under the New Labor Code and Social Security Laws, as now
or hereafter amended" and that "[t]his Plan is not intended to duplicate or cause
the double payment of similar or analogous benefits provided for under existing
labor and security laws."
Article 283 of the Labor Code 30 provides only the required minimum amount of
separation pay, which employees dismissed for any of the authorized causes are
entitled to receive. Employers, therefore, have the right to create plans,
providing for separation pay in an amount over and above what is imposed by
Article 283. There is nothing therein that prohibits employers and employees
from contracting on the terms of employment, or from entering into agreements
on employee benefits, so long as they do not violate the Labor Code or any other
law, and are not contrary to morals, good customs, public order, or public
policy. 31 As this Court held in a case:
 [E]ntitlement to benefits consequent thereto are not limited to those
provided by said provision of law. Otherwise, the provisions of
collective bargaining agreements, individual employment contracts,
and voluntary retirement plans of companies would be rendered
inutile if we were to limit the award of monetary benefits to an
employee only to those provided by statute. . . . . 32

Previously, the Court adopted the CA's ruling, upholding the validity of a similar
provision in a company's retirement plan: cEAaIS

[T]here is no further doubt that the payment of separation pay is a

requirement of the law, i.e.[,] the Labor Code, which is a social
legislation. The clear intent of Article XI, section 6 [of the Retirement
Plan] is to input the effects of social legislation in the circulation of
Retirement benefits due to retiring employees . . . . The Retirement
Plan itself clearly sets forth the intention of the parties to entitle
employees only to whatever is greater between the Retirement
Benefits then due and that which the law requires to be given by
way of separation pay. To give way to complainant's demands would
be to totally ignore the contractual obligations of the parties in the
Retirement Plan, and to distort the clear intent of the parties as
expressed in the terms and conditions contained in such
plan. . . . . 33 (emphasis supplied)

Consequently, if the petitioners were allowed to receive separation pay from

both the Labor Code, on the one hand, and the New Gratuity Plan and the SSP,
on the other, they would receive double compensation for the same cause (i.e.,
separation from the service due to redundancy) even if such is contrary to the
provisions of the New Gratuity Plan. The petitioners' claim of being
shortchanged is certainly unfounded. They have recognized the validity of the
SSP and the New Gratuity Plan as evidenced by the acceptance letters and
quitclaims they executed; and the benefits they received under the SSP and the
New Gratuity Plan are more than what is required by the Labor Code.
In the absence of proof that any of the
vices of consent are present, the petitioners'
acceptance letters and quitclaims are valid;
thus, barring them from claiming additional
separation pay.
The Court now comes to the issue on the validity of the acceptance letters and
quitclaims that the petitioners executed, which they claim do not preclude them
from asking for the benefits rightfully due them under the law. CTSAaH
It is true that quitclaims executed by employees are often frowned upon as
contrary to public policy. 34 Hence, deeds of release or quitclaims cannot bar
employees from demanding benefits to which they are legally entitled or from
contesting the legality of their dismissal. The acceptance of those benefits would
not amount to estoppel. 35
However, the Court, in other cases, has upheld quitclaims if found to comply
with the following requisites: (1) the employee executes a deed of quitclaim
voluntarily; (2) there is no fraud or deceit on the part of any of the parties; (3) the
consideration of the quitclaim is credible and reasonable; and (4) the contract is
not contrary to law, public order, public policy, morals or good customs or
prejudicial to a third person with a right recognized by law. 36
In this case, there is no allegation of fraud or deceit employed by the respondents
in making the petitioners sign the acceptance letters and quitclaims. Neither was
there any claim of force or duress exerted upon the petitioners to compel them to
sign the acceptance letters and quitclaims. Likewise, the consideration is
credible and reasonable since the petitioners are getting more than the amount
required under the law. Thus, the acceptance letters and quitclaims executed by
the petitioners are valid and binding.
Considering that the petitioners have already waived their right to file an action
for any of their claims in relation to their employment with Globalbank, the
question of whether Metrobank can be held liable for these claims is now
academic. However, in order to put to rest any doubt in the petitioners' minds as
to Metrobank's liabilities, we shall proceed to discuss this issue.
We hold that Metrobank cannot be held liable for the petitioners' claims.
As a rule, a corporation that purchases the assets of another will not be liable for
the debts of the selling corporation, provided the former acted in good faith and
paid adequate consideration for such assets, except when any of the following
circumstances is present: (1) where the purchaser expressly or impliedly agrees
to assume the debts; (2) where the transaction amounts to a consolidation or
merger of the corporations; (3) where the purchasing corporation is merely a
continuation of the selling corporation; and (4) where the selling corporation
fraudulently enters into the transaction to escape liability for those debts. 37 cAHIaE

Under the Deed of Assignments of Assets and Assumption of

Liabilities 38 between Globalbank and Metrobank, the latter accepted the
former's assets in exchange for assuming its liabilities. The liabilities that
Metrobank assumed, which were clearly set out in Annex "A" of the instrument,
are: deposit liabilities; interbank loans payable; bills payable; manager's checks
and demand drafts outstanding; accrued taxes, interest and other expenses; and
deferred credits and other liabilities. 39
Based on this enumeration, the liabilities that Metrobank assumed can be
characterized as those pertaining to Globalbank's banking operations. They do
not include Globalbank's liabilities to pay separation pay to its former employees.
This must be so because it is understood that the same liabilities ended when the
petitioners were paid the amounts embodied in their respective acceptance letters
and quitclaims. Hence, this obligation could not have been passed on to
Metrobank.
The petitioners insist that Metrobank is liable because it is the "parent" company
of Globalbank and that majority of the latter's board of directors are also
members of the former's board of directors.
While the petitioners' allegations are true, one fact cannot be ignored — that
Globalbank has a separate and distinct juridical personality. The petitioners' own
evidence — Global Business Holdings, Inc.'s General Information Sheet 40 filed
with the Securities and Exchange Commission — bears this out.
Even then, the petitioners would want this Court to pierce the veil of corporate
identity in order to hold Metrobank liable for their claims.
What the petitioners desire, the Court cannot do. This fiction of corporate entity
can only be disregarded in cases when it is used to defeat public convenience,
justify wrong, protect fraud, or defend crime. Moreover, to justify the disregard
of the separate juridical personality of a corporation, the wrongdoing must be
clearly and convincingly established. 41
In the instant case, none of these circumstances is present such as to warrant
piercing the veil of corporate fiction and treating Globalbank and Metrobank as
one.
Lastly, the petitioners' prayer for the award of damages must be denied for lack
of legal basis.
IEDHAT

In sum, the New Gratuity Plan and SSP are valid and must be given effect,
inasmuch as their provisions are not contrary to law; and, indeed, grant benefits
that meet the minimum amount required by the Labor Code. The petitioners
have voluntarily sought such benefits and upon their receipt thereof, executed
quitclaims in Globalbank's favor. The petitioners cannot, upon a mere change of
mind, seek to invalidate such quitclaims and renege on their undertaking
thereunder, which, to begin with, is supported by a substantial consideration and
which they had knowingly assumed and imposed upon themselves.
WHEREFORE, the foregoing premises considered, the petition is DENIED.
The assailed Resolutions dated November 7, 2007 and March 26, 2008,
respectively, of the Court of Appeals in CA-G.R. SP No. 101065
are AFFIRMED.
SO ORDERED.
(Jiao v. National Labor Relations Commission, G.R. No. 182331, [April 18,
|||

2012], 686 PHIL 171-191)

[G.R. No. 167291. January 12, 2011.]

PRINCE TRANSPORT, INC. and MR. RENATO
CLAROS, petitioners, vs. DIOSDADO GARCIA, LUISITO
GARCIA, RODANTE ROMERO, REX BARTOLOME,
FELICIANO GASCO, JR., DANILO ROJO, EDGAR
SANFUEGO, AMADO GALANTO, EUTIQUIO LUGTU,
JOEL GRAMATICA, MIEL CERVANTES, TERESITA
CABANES, ROE DELA CRUZ, RICHELO BALIDOY,
VILMA PORRAS, MIGUELITO SALCEDO, CRISTINA
GARCIA, MARIO NAZARENO, DINDO TORRES,
ESMAEL RAMBOYONG, ROBETO * MANO, ROGELIO
BAGAWISAN, ARIEL SANCHEZ, ESTAQULO
VILLAREAL, NELSON MONTERO, GLORIA ORANTE,
HARRY TOCA, PABLITO MACASAET and RONALD
GARCITA,respondents.

DECISION

PERALTA, J : p

Before the Court is a petition for review on certiorari under Rule 45

of the Rules of Court praying for the annulment of the Decision 1 and
Resolution 2 of the Court of Appeals (CA) dated December 20, 2004 and
February 24, 2005, respectively, in CA-G.R. SP No. 80953. The assailed
Decision reversed and set aside the Resolutions dated May 30, 2003 3 and
September 26, 2003 4 of the National Labor Relations Commission (NLRC)
in CA No. 029059-01, while the disputed Resolution denied petitioners'
Motion for Reconsideration.
 The present petition arose from various complaints filed by herein
respondents charging petitioners with illegal dismissal, unfair labor practice
and illegal deductions and praying for the award of premium pay for holiday
and rest day, holiday pay, service leave pay, 13th month pay, moral and
exemplary damages and attorney's fees.
Respondents alleged in their respective position papers and other
related pleadings that they were employees of Prince Transport, Inc. (PTI), a
company engaged in the business of transporting passengers by land;
respondents were hired either as drivers, conductors, mechanics or inspectors,
except for respondent Diosdado Garcia (Garcia), who was assigned as
Operations Manager; in addition to their regular monthly income,
respondents also received commissions equivalent to 8 to 10% of their wages;
sometime in October 1997, the said commissions were reduced to 7 to 9%;
this led respondents and other employees of PTI to hold a series of meetings
to discuss the protection of their interests as employees; these meetings led
petitioner Renato Claros, who is the president of PTI, to suspect that
respondents are about to form a union; he made known to Garcia his
objection to the formation of a union; in December 1997, PTI employees
requested for a cash advance, but the same was denied by management which
resulted in demoralization on the employees' ranks; later, PTI acceded to the
request of some, but not all, of the employees; the foregoing circumstances
led respondents to form a union for their mutual aid and protection; in order
to block the continued formation of the union, PTI caused the transfer of all
union members and sympathizers to one of its sub-companies, Lubas
Transport (Lubas); despite such transfer, the schedule of drivers and
conductors, as well as their company identification cards, were issued by PTI;
the daily time records, tickets and reports of the respondents were also filed
at the PTI office; and, all claims for salaries were transacted at the same
office; later, the business of Lubas deteriorated because of the refusal of PTI
to maintain and repair the units being used therein, which resulted in the
virtual stoppage of its operations and respondents' loss of employment.
Petitioners, on the other hand, denied the material allegations of the
complaints contending that herein respondents were no longer their
employees, since they all transferred to Lubas at their own request;
petitioners have nothing to do with the management and operations of Lubas
as well as the control and supervision of the latter's employees; petitioners
were not aware of the existence of any union in their company and came to
know of the same only in June 1998 when they were served a copy of the
summons in the petition for certification election filed by the union; that
before the union was registered on April 15, 1998, the complaint subject of
the present petition was already filed; that the real motive in the filing of the
complaints was because PTI asked respondents to vacate the bunkhouse
where they (respondents) and their respective families were staying because
PTI wanted to renovate the same.
Subsequently, the complaints filed by respondents were consolidated.
On October 25, 2000, the Labor Arbiter rendered a Decision, 5 the
dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered:

1. Dismissing the complaints for Unfair Labor Practice, non-payment

of holiday pay and holiday premium, service incentive leave pay and
13th month pay;

Dismissing the complaint of Edgardo Belda for refund of

boundary-hulog;

2. Dismissing the complaint for illegal dismissal against the

respondents Prince Transport, Inc. and/or Prince Transport Phils.
Corporation, Roberto Buenaventura, Rory Bayona, Ailee Avenue,
Nerissa Uy, Mario Feranil and Peter Buentiempo;

3. Declaring that the complainants named below are illegally

dismissed by Lubas Transport; ordering said Lubas Transport to pay
backwages and separation pay in lieu of reinstatement in the following
amount:

Complainants Backwages Separation Pay

(1) Diosdado Garcia P222,348.70 P79,456.00

(2) Feliciano Gasco, Jr. 203,350.00 54,600.00

(3) Pablito Macasaet 145,250.00 13,000.00

(4) Esmael Ramboyong 221,500.00 30,000.00

(5) Joel Gramatica 221,500.00 60,000.00

(6) Amado Galanto 130,725.00 29,250.00

(7) Miel Cervantes 265,800.00 60,000.00

(8) Roberto Mano 221,500.00 50,000.00

(9) Roe dela Cruz 265,800.00 60,000.00

(10) Richelo Balidoy 130,725.00 29,250.00

(11) Vilma Porras 221,500.00 70,000.00

(12) Miguelito Salcedo 265,800.00 60,000.00

(13) Cristina Garcia 130,725.00 35,100.00

(14) Luisito Garcia 145,250.00 19,500.00

(15) Rogelio Bagawisan 265,800.00 60,000.00

(16) Rodante H. Romero 221,500.00 60,000.00

(17) Dindo Torres 265,800.00 50,000.00

(18) Edgar Sanfuego 221,500.00 40,000.00

(19) Ronald Gacita 221,500.00 40,000.00

(20) Harry Toca 174,300.00 23,400.00

(21) Amado Galanto 130,725.00 17,550.00

(22) Teresita Cabañes 130,725.00 17,550.00

(23) Rex Bartolome 301,500.00 30,000.00

(24) Mario Nazareno 221,500.00 30,000.00

(25) Eustaquio Villareal 145,250.00 19,500.00

(26) Ariel Sanchez 265,800.00 60,000.00

(27) Gloria Orante 263,100.00 60,000.00

(28) Nelson Montero 264,600.00 60,000.00

(29) Rizal Beato 295,000.00 40,000.00

(30) Eutiquio Lugtu 354,000.00 48,000.00

(31) Warlito Dickensomn 295,000.00 40,000.00

(32) Edgardo Belda 354,000.00 84,000.00

(33) Tita Go 295,000.00 70,000.00

(34) Alex Lodor 295,000.00 50,000.00

(35) Glenda Arguilles 295,000.00 40,000.00

(36) Erwin Luces 354,000.00 48,000.00

(37) Jesse Celle 354,000.00 48,000.00

(38) Roy Adorable 295,000.00 40,000.00

(39) Marlon Bangcoro 295,000.00 40,000.00

(40) Edgardo Bangcoro 354,000.00 36,000.00

4. Ordering Lubas Transport to pay attorney's fees equivalent to ten

(10%) of the total monetary award; and

6. * Ordering the dismissal of the claim for moral and exemplary

damages for lack merit.
SO ORDERED. 6

The Labor Arbiter ruled that petitioners are not guilty of unfair labor
practice in the absence of evidence to show that they violated respondents'
right to self-organization. The Labor Arbiter also held that Lubas is the
respondents' employer and that it (Lubas) is an entity which is separate,
distinct and independent from PTI. Nonetheless, the Labor Arbiter found that
Lubas is guilty of illegally dismissing respondents from their employment.
Respondents filed a Partial Appeal with the NLRC praying, among
others, that PTI should also be held equally liable as Lubas.
In a Resolution dated May 30, 2003, the NLRC modified the Decision
of the Labor Arbiter and disposed as follows:
WHEREFORE, premises considered, the appeal is
hereby PARTIALLY GRANTED. Accordingly, the Decision
appealed from is SUSTAINED subject to the modification that
Complainant-Appellant Edgardo Belda deserves refund of his
boundary-hulog in the amount of P446,862.00; and that
Complainants-Appellants Danilo Rojo and Danilo Laurel should be
included in the computation of Complainants-Appellants claim as
follows:
Complainants Backwages Separation Pay

41. Danilo Rojo P355,560.00 P48,000.00

42. Danilo Laurel P357,960.00 P72,000.00

As regards all other aspects, the Decision appealed from

is SUSTAINED.

SO ORDERED. 7

Respondents filed a Motion for Reconsideration, but the NLRC

denied it in its Resolution 8 dated September 26, 2003.
 Respondents then filed a special civil action for certiorari with the
CA assailing the Decision and Resolution of the NLRC.
On December 20, 2004, the CA rendered the herein assailed Decision
which granted respondents' petition. The CA ruled that petitioners are guilty
of unfair labor practice; that Lubas is a mere instrumentality, agent conduit or
adjunct of PTI; and that petitioners' act of transferring respondents'
employment to Lubas is indicative of their intent to frustrate the efforts of
respondents to organize themselves into a union. Accordingly, the CA
disposed of the case as follows:
WHEREFORE, the Petition for Certiorari is hereby GRANTED.
Accordingly, the subject decision is hereby REVERSED and SET
ASIDE and another one ENTERED finding the respondents guilty of
unfair labor practice and ordering them to reinstate the petitioners to
their former positions without loss of seniority rights and with full
backwages.

With respect to the portion ordering the inclusion of Danilo Rojo and
Danilo Laurel in the computation of petitioner's claim for backwages
and with respect to the portion ordering the refund of Edgardo Belda's
boundary-hulog in the amount of P446,862.00, the NLRC decision is
affirmed and maintained.

SO ORDERED. 9

Petitioners filed a Motion for Reconsideration, but the CA denied

it via its Resolution 10 dated February 24, 2005.
Hence, the instant petition for review on certiorari based on the following
grounds:
A

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION IN GIVING DUE COURSE TO THE
RESPONDENTS' PETITION FOR CERTIORARI

1. THE COURT OF APPEALS SHOULD HAVE RESPECTED THE

FINDINGS OF THE LABOR ARBITER AND AFFIRMED BY THE
NLRC

2. ONLY ONE PETITIONER EXECUTED AND VERIFIED THE

PETITION

3. THE COURT OF APPEALS SHOULD NOT HAVE GIVEN DUE

COURSE TO THE PETITION WITH RESPECT TO
 RESPONDENTS REX BARTOLOME, FELICIANO GASCO,
DANILO ROJO, EUTIQUIO LUGTU, AND NELSON MONTERO
AS THEY FAILED TO FILE AN APPEAL TO THE NLRC

THE COURT OF APPEALS SERIOUSLY ERRED IN

DECLARING THAT PETITIONERS PRINCE TRANSPORT, INC.
AND MR. RENATO CLAROS AND LUBAS TRANSPORT ARE
ONE AND THE SAME CORPORATION AND THUS, LIABLE IN
SOLIDUM TO RESPONDENTS.

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION IN ORDERING THE REINSTATEMENT OF
RESPONDENTS TO THEIR PREVIOUS POSITION WHEN IT IS
NOT ONE OF THE ISSUES RAISED IN RESPONDENTS'
PETITION FOR CERTIORARI.11

Petitioners assert that factual findings of agencies exercising

quasi-judicial functions like the NLRC are accorded not only respect but
even finality; that the CA should have outrightly dismissed the petition filed
before it because in certiorari proceedings under Rule 65 of the Rules of
Court it is not within the province of the CA to evaluate the sufficiency of
evidence upon which the NLRC based its determination, the inquiry being
limited essentially to whether or not said tribunal has acted without or in
excess of its jurisdiction or with grave abuse of discretion. Petitioners assert
that the CA can only pass upon the factual findings of the NLRC if they are
not supported by evidence on record, or if the impugned judgment is based
on misapprehension of facts — which circumstances are not present in this
case. Petitioners also emphasize that the NLRC and the Labor Arbiter
concurred in their factual findings which were based on substantial evidence
and, therefore, should have been accorded great weight and respect by the
CA.
Respondents, on the other hand, aver that the CA neither exceeded its
jurisdiction nor committed error in re-evaluating the NLRC's factual findings
since such findings are not in accord with the evidence on record and the
applicable law or jurisprudence.
The Court agrees with respondents.
The power of the CA to review NLRC decisions via a petition
for certiorari under Rule 65 of the Rules of Court has been settled as early
as this Court's decision in St. Martin Funeral Homes v. NLRC. 12 In said case,
the Court held that the proper vehicle for such review is a special civil action
for certiorari under Rule 65 of the said Rules, and that the case should be
filed with the CA in strict observance of the doctrine of hierarchy of courts.
Moreover, it is already settled that under Section 9 of Batas Pambansa Blg.
129, as amended by Republic Act No. 7902, the CA — pursuant to the
exercise of its original jurisdiction over petitions for certiorari — is
specifically given the power to pass upon the evidence, if and when
necessary, to resolve factual issues. 13 Section 9 clearly states:
xxx xxx xxx

The Court of Appeals shall have the power to try cases and conduct
hearings, receive evidence and perform any and all acts necessary to
resolve factual issues raised in cases falling within its original and
appellate jurisdiction, including the power to grant and conduct new
trials or further proceedings. . . .

However, equally settled is the rule that factual findings of labor

officials, who are deemed to have acquired expertise in matters within their
jurisdiction, are generally accorded not only respect but even finality by the
courts when supported by substantial evidence, i.e., the amount of relevant
evidence which a reasonable mind might accept as adequate to justify a
conclusion. 14 But these findings are not infallible. When there is a showing
that they were arrived at arbitrarily or in disregard of the evidence on record,
they may be examined by the courts. 15 The CA can grant the petition
for certiorari if it finds that the NLRC, in its assailed decision or resolution,
made a factual finding not supported by substantial evidence. 16 It is within
the jurisdiction of the CA, whose jurisdiction over labor cases has been
expanded to review the findings of the NLRC. 17
In this case, the NLRC sustained the factual findings of the Labor
Arbiter. Thus, these findings are generally binding on the appellate court,
unless there was a showing that they were arrived at arbitrarily or in disregard
of the evidence on record. In respondents' petition for certiorari with the CA,
these factual findings were reexamined and reversed by the appellate court
on the ground that they were not in accord with credible evidence presented
in this case. To determine if the CA's reexamination of factual findings and
reversal of the NLRC decision are proper and with sufficient basis, it is
incumbent upon this Court to make its own evaluation of the evidence on
record. 18
After a thorough review of the records at hand, the Court finds that the
CA did not commit error in arriving at its own findings and conclusions for
reasons to be discussed hereunder.
 Firstly, petitioners posit that the petition filed with the CA is fatally
defective, because the attached verification and certificate against forum
shopping was signed only by respondent Garcia.
The Court does not agree.
While the general rule is that the certificate of non-forum shopping
must be signed by all the plaintiffs in a case and the signature of only one of
them is insufficient, the Court has stressed that the rules on forum shopping,
which were designed to promote and facilitate the orderly administration of
justice, should not be interpreted with such absolute literalness as to subvert
its own ultimate and legitimate objective. 19 Strict compliance with the
provision regarding the certificate of non-forum shopping underscores its
mandatory nature in that the certification cannot be altogether dispensed with
or its requirements completely disregarded. 20 It does not, however, prohibit
substantial compliance therewith under justifiable circumstances,
considering especially that although it is obligatory, it is not jurisdictional. 21
In a number of cases, the Court has consistently held that when all the
petitioners share a common interest and invoke a common cause of action or
defense, the signature of only one of them in the certification against forum
shopping substantially complies with the rules. 22 In the present case, there is
no question that respondents share a common interest and invoke a common
cause of action. Hence, the signature of respondent Garcia is a sufficient
compliance with the rule governing certificates of non-forum shopping. In
the first place, some of the respondents actually executed a Special Power of
Attorney authorizing Garcia as their attorney-in-fact in filing a petition
for certiorari with the CA. 23
The Court, likewise, does not agree with petitioners' argument that the
CA should not have given due course to the petition filed before it with
respect to some of the respondents, considering that these respondents did not
sign the verification attached to the Memorandum of Partial Appeal earlier
filed with the NLRC. Petitioners assert that the decision of the Labor Arbiter
has become final and executory with respect to these respondents and, as a
consequence, they are barred from filing a petition for certiorari with the
CA.
With respect to the absence of some of the workers' signatures in the
verification, the verification requirement is deemed substantially complied
with when some of the parties who undoubtedly have sufficient knowledge
and belief to swear to the truth of the allegations in the petition had signed the
same. Such verification is deemed a sufficient assurance that the matters
alleged in the petition have been made in good faith or are true and correct,
and not merely speculative. Moreover, respondents' Partial Appeal shows
that the appeal stipulated as complainants-appellants "Rizal Beato, et al.",
meaning that there were more than one appellant who were all workers of
petitioners.
In any case, the settled rule is that a pleading which is required by
the Rules of Court to be verified, may be given due course even without a
verification if the circumstances warrant the suspension of the rules in the
interest of justice. 24 Indeed, the absence of a verification is not jurisdictional,
but only a formal defect, which does not of itself justify a court in refusing to
allow and act on a case. 25 Hence, the failure of some of the respondents to
sign the verification attached to their Memorandum of Appeal filed with the
NLRC is not fatal to their cause of action.
Petitioners also contend that the CA erred in applying the doctrine of
piercing the corporate veil with respect to Lubas, because the said doctrine is
applicable only to corporations and Lubas is not a corporation but a single
proprietorship; that Lubas had been found by the Labor Arbiter and the
NLRC to have a personality which is separate and distinct from that of PTI;
that PTI had no hand in the management and operation as well as control and
supervision of the employees of Lubas.
The Court is not persuaded.
On the contrary, the Court agrees with the CA that Lubas is a mere
agent, conduit or adjunct of PTI. A settled formulation of the doctrine of
piercing the corporate veil is that when two business enterprises are owned,
conducted and controlled by the same parties, both law and equity will, when
necessary to protect the rights of third parties, disregard the legal fiction that
these two entities are distinct and treat them as identical or as one and the
same. 26 In the present case, it may be true that Lubas is a single
proprietorship and not a corporation. However, petitioners' attempt to isolate
themselves from and hide behind the supposed separate and distinct
personality of Lubas so as to evade their liabilities is precisely what the
classical doctrine of piercing the veil of corporate entity seeks to prevent and
remedy.
Thus, the Court agrees with the observations of the CA, to wit:
As correctly pointed out by petitioners, if Lubas were truly a separate
entity, how come that it was Prince Transport who made the decision
to transfer its employees to the former? Besides, Prince Transport
never regarded Lubas Transport as a separate entity. In the aforesaid
letter, it referred to said entity as "Lubas operations." Moreover, in
said letter, it did not transfer the employees; it "assigned" them. Lastly,
 the existing funds and 201 file of the employees were turned over not
to a new company but a "new management." 27

The Court also agrees with respondents that if Lubas is indeed an

entity separate and independent from PTI why is it that the latter decides
which employees shall work in the former?
What is telling is the fact that in a memorandum issued by PTI, dated
January 22, 1998, petitioner company admitted that Lubas is one of its
sub-companies. 28 In addition, PTI, in its letters to its employees who were
transferred to Lubas, referred to the latter as its "New City Operations
Bus." 29
Moreover, petitioners failed to refute the contention of respondents
that despite the latter's transfer to Lubas of their daily time records, reports,
daily income remittances of conductors, schedule of drivers and conductors
were all made, performed, filed and kept at the office of PTI. In fact,
respondents' identification cards bear the name of PTI.
It may not be amiss to point out at this juncture that in two separate
illegal dismissal cases involving different groups of employees transferred
by PTI to other companies, the Labor Arbiter handling the cases found that
these companies and PTI are one and the same entity; thus, making them
solidarily liable for the payment of backwages and other money claims
awarded to the complainants therein. 30
Petitioners likewise aver that the CA erred and committed grave abuse
of discretion when it ordered petitioners to reinstate respondents to their
former positions, considering that the issue of reinstatement was never
brought up before it and respondents never questioned the award of
separation pay to them.
The Court is not persuaded.
It is clear from the complaints filed by respondents that they are
seeking reinstatement. 31
In any case, Section 2 (c), Rule 7 of the Rules of Court provides that a
pleading shall specify the relief sought, but may add a general prayer for such
further or other reliefs as may be deemed just and equitable. Under this rule, a
court can grant the relief warranted by the allegation and the proof even if it is
not specifically sought by the injured party; the inclusion of a general prayer
may justify the grant of a remedy different from or together with the specific
remedy sought, if the facts alleged in the complaint and the evidence
introduced so warrant. 32
 Moreover, in BPI Family Bank v. Buenaventura, 33 this Court ruled
that the general prayer is broad enough "to justify extension of a remedy
different from or together with the specific remedy sought." Even without the
prayer for a specific remedy, proper relief may be granted by the court if the
facts alleged in the complaint and the evidence introduced so warrant. The
court shall grant relief warranted by the allegations and the proof even if no
such relief is prayed for. The prayer in the complaint for other reliefs
equitable and just in the premises justifies the grant of a relief not otherwise
specifically prayed for. 34 In the instant case, aside from their specific prayer
for reinstatement, respondents, in their separate complaints, prayed for such
reliefs which are deemed just and equitable.
As to whether petitioners are guilty of unfair labor practice, the Court
finds no cogent reason to depart from the findings of the CA that respondents'
transfer of work assignments to Lubas was designed by petitioners as a
subterfuge to foil the former's right to organize themselves into a union.
Under Article 248 (a) and (e) of the Labor Code,an employer is guilty of
unfair labor practice if it interferes with, restrains or coerces its employees in
the exercise of their right to self-organization or if it discriminates in regard
to wages, hours of work and other terms and conditions of employment in
order to encourage or discourage membership in any labor organization.
Indeed, evidence of petitioners' unfair labor practice is shown by the
established fact that, after respondents' transfer to Lubas, petitioners left
them high and dry insofar as the operations of Lubas was concerned. The
Court finds no error in the findings and conclusion of the CA that petitioners
"withheld the necessary financial and logistic support such as spare parts, and
repair and maintenance of the transferred buses until only two units remained
in running condition." This left respondents virtually jobless.
WHEREFORE, the instant petition is DENIED. The assailed
Decision and Resolution of the Court of Appeals, dated December 20, 2004
and February 24, 2005, respectively, in CA-G.R. SP No. 80953,
are AFFIRMED.
SO ORDERED.
(Prince Transport, Inc. v. Garcia, G.R. No. 167291, [January 12, 2011], 654
|||

PHIL 296-315)

[G.R. No. 171993. December 12, 2011.]

 MARC II MARKETING, INC. and LUCILA V.
JOSON, petitioners, vs. ALFREDO M. JOSON, respondent.

DECISION

PEREZ, J :p

In this Petition for Review on Certiorari under Rule 45 of the Rules

of Court, herein petitioners Marc II Marketing, Inc. and Lucila V. Joson
assailed the Decision 1 dated 20 June 2005 of the Court of Appeals in
CA-G.R. SP No. 76624 for reversing and setting aside the Resolution 2 of the
National Labor Relations Commission (NLRC) dated 15 October 2002,
thereby affirming the Labor Arbiter's Decision 3 dated 1 October 2001
finding herein respondent Alfredo M. Joson's dismissal from employment as
illegal. In the questioned Decision, the Court of Appeals upheld the Labor
Arbiter's jurisdiction over the case on the basis that respondent was not an
officer but a mere employee of petitioner Marc II Marketing, Inc., thus,
totally disregarding the latter's allegation of intra-corporate controversy.
Nonetheless, the Court of Appeals remanded the case to the NLRC for
further proceedings to determine the proper amount of monetary awards that
should be given to respondent.
Assailed as well is the Court of Appeals Resolution 4 dated 7 March
2006 denying their Motion for Reconsideration.
Petitioner Marc II Marketing, Inc. (petitioner corporation) is a
corporation duly organized and existing under and by virtue of the laws of the
Philippines. It is primarily engaged in buying, marketing, selling and
distributing in retail or wholesale for export or import household appliances
and products and other items. 5 It took over the business operations of Marc
Marketing, Inc. which was made non-operational following its incorporation
and registration with the Securities and Exchange Commission (SEC).
Petitioner Lucila V. Joson (Lucila) is the President and majority stockholder
of petitioner corporation. She was also the former President and majority
stockholder of the defunct Marc Marketing, Inc.
Respondent Alfredo M. Joson (Alfredo), on the other hand, was the
General Manager, incorporator, director and stockholder of petitioner
corporation. ECaSIT

The controversy of this case arose from the following factual milieu:
 Before petitioner corporation was officially
incorporated, 6 respondent has already been engaged by petitioner Lucila, in
her capacity as President of Marc Marketing, Inc., to work as the General
Manager of petitioner corporation. It was formalized through the execution
of a Management Contract 7 dated 16 January 1994 under the letterhead of
Marc Marketing, Inc. 8 as petitioner corporation is yet to be incorporated at
the time of its execution. It was explicitly provided therein that respondent
shall be entitled to 30% of its net income for his work as General Manager.
Respondent will also be granted 30% of its net profit to compensate for the
possible loss of opportunity to work overseas. 9
Pending incorporation of petitioner corporation, respondent was
designated as the General Manager of Marc Marketing, Inc., which was then
in the process of winding up its business. For occupying the said position,
respondent was among its corporate officers by the express provision of
Section 1, Article IV 10 of its by-laws. 11
On 15 August 1994, petitioner corporation was officially incorporated
and registered with the SEC. Accordingly, Marc Marketing, Inc. was made
non-operational. Respondent continued to discharge his duties as General
Manager but this time under petitioner corporation.
Pursuant to Section 1, Article IV 12 of petitioner corporation's
by-laws, 13 its corporate officers are as follows: Chairman, President, one or
more Vice-President(s), Treasurer and Secretary. Its Board of Directors,
however, may, from time to time, appoint such other officers as it may
determine to be necessary or proper.
Per an undated Secretary's Certificate, 14 petitioner corporation's
Board of Directors conducted a meeting on 29 August 1994 where
respondent was appointed as one of its corporate officers with the
designation or title of General Manager to function as a managing director
with other duties and responsibilities that the Board of Directors may provide
and authorized. 15
Nevertheless, on 30 June 1997, petitioner corporation decided to stop
and cease its operations, as evidenced by an Affidavit of
Non-Operation 16 dated 31 August 1998, due to poor sales collection
aggravated by the inefficient management of its affairs. On the same date, it
formally informed respondent of the cessation of its business operation.
Concomitantly, respondent was apprised of the termination of his services as
General Manager since his services as such would no longer be necessary for
the winding up of its affairs. 17
aATHIE
 Feeling aggrieved, respondent filed a Complaint for Reinstatement
and Money Claim against petitioners before the Labor Arbiter which was
docketed as NLRC NCR Case No. 00-03-04102-99.
In his complaint, respondent averred that petitioner Lucila dismissed
him from his employment with petitioner corporation due to the feeling of
hatred she harbored towards his family. The same was rooted in the filing by
petitioner Lucila's estranged husband, who happened to be respondent's
brother, of a Petition for Declaration of Nullity of their Marriage. 18
For the parties' failure to settle the case amicably, the Labor Arbiter
required them to submit their respective position papers. Respondent
complied but petitioners opted to file a Motion to Dismiss grounded on the
Labor Arbiter's lack of jurisdiction as the case involved an intra-corporate
controversy, which jurisdiction belongs to the SEC [now with the Regional
Trial Court (RTC)]. 19 Petitioners similarly raised therein the ground of
prescription of respondent's monetary claim.
On 5 September 2000, the Labor Arbiter issued an Order 20 deferring
the resolution of petitioners' Motion to Dismiss until the final determination
of the case. The Labor Arbiter also reiterated his directive for petitioners to
submit position paper. Still, petitioners did not comply. Insisting that the
Labor Arbiter has no jurisdiction over the case, they instead filed an Urgent
Motion to Resolve the Motion to Dismiss and the Motion to Suspend Filing
of Position Paper.
In an Order 21 dated 15 February 2001, the Labor Arbiter denied both
motions and declared final the Order dated 5 September 2000. The Labor
Arbiter then gave petitioners a period of five days from receipt thereof within
which to file position paper, otherwise, their Motion to Dismiss will be
treated as their position paper and the case will be considered submitted for
decision.
Petitioners, through counsel, moved for extension of time to submit
position paper. Despite the requested extension, petitioners still failed to
submit the same. Accordingly, the case was submitted for resolution.
On 1 October 2001, the Labor Arbiter rendered his Decision in favor
of respondent. Its decretal portion reads as follows:SIacTE

WHEREFORE, premises considered, judgment is hereby

rendered declaring [respondent's] dismissal from employment
illegal. Accordingly, [petitioners] are hereby ordered:
 1. To reinstate [respondent] to his former or equivalent
position without loss of seniority rights, benefits, and
privileges;

2. Jointly and severally liable to pay [respondent's]

unpaid wages in the amount of P450,000.00 per month
from [26 March 1996] up to time of dismissal in the
total amount of P6,300,000.00;

3. Jointly and severally liable to pay [respondent's] full

backwages in the amount of P450,000.00 per month
from date of dismissal until actual reinstatement which
at the time of promulgation amounted to
P21,600,000.00;

4. Jointly and severally liable to pay moral damages in

the amount of P100,000.00 and attorney's fees in the
amount of 5% of the total monetary
award. 22 [Emphasis supplied.]

In the aforesaid Decision, the Labor Arbiter initially resolved

petitioners' Motion to Dismiss by finding the ground of lack of jurisdiction to
be without merit. The Labor Arbiter elucidated that petitioners failed to
adduce evidence to prove that the present case involved an intra-corporate
controversy. Also, respondent's money claim did not arise from his being a
director or stockholder of petitioner corporation but from his position as
being its General Manager. The Labor Arbiter likewise held that respondent
was not a corporate officer under petitioner corporation's by-laws. As such,
respondent's complaint clearly arose from an employer-employee
relationship, thus, subject to the Labor Arbiter's jurisdiction.
The Labor Arbiter then declared respondent's dismissal from
employment as illegal. Respondent, being a regular employee of petitioner
corporation, may only be dismissed for a valid cause and upon proper
compliance with the requirements of due process. The records, though,
revealed that petitioners failed to present any evidence to justify respondent's
dismissal.
Aggrieved, petitioners appealed the aforesaid Labor Arbiter's
Decision to the NLRC.
In its Resolution dated 15 October 2002, the NLRC ruled in favor of
petitioners by giving credence to the Secretary's Certificate, which evidenced
petitioner corporation's Board of Directors' meeting in which a resolution
was approved appointing respondent as its corporate officer with designation
as General Manager. Therefrom, the NLRC reversed and set aside the Labor
Arbiter's Decision dated 1 October 2001 and dismissed respondent's
Complaint for want of jurisdiction. 23
The NLRC enunciated that the validity of respondent's appointment
and termination from the position of General Manager was made subject to
the approval of petitioner corporation's Board of Directors. Had respondent
been an ordinary employee, such board action would not have been required.
As such, it is clear that respondent was a corporate officer whose dismissal
involved a purely intra-corporate controversy. The NLRC went further by
stating that respondent's claim for 30% of the net profit of the corporation can
only emanate from his right of ownership therein as stockholder, director
and/or corporate officer. Dividends or profits are paid only to stockholders or
directors of a corporation and not to any ordinary employee in the absence of
any profit sharing scheme. In addition, the question of remuneration of a
person who is not a mere employee but a stockholder and officer of a
corporation is not a simple labor problem. Such matter comes within the
ambit of corporate affairs and management and is an intra-corporate
controversy in contemplation of the Corporation Code. 24 IEHScT

When respondent's Motion for Reconsideration was denied in another

Resolution 25 dated 23 January 2003, he filed a Petition for Certiorari with
the Court of Appeals ascribing grave abuse of discretion on the part of the
NLRC.
On 20 June 2005, the Court of Appeals rendered its now assailed
Decision declaring that the Labor Arbiter has jurisdiction over the present
controversy. It upheld the finding of the Labor Arbiter that respondent was a
mere employee of petitioner corporation, who has been illegally dismissed
from employment without valid cause and without due process. Nevertheless,
it ordered the records of the case remanded to the NLRC for the
determination of the appropriate amount of monetary awards to be given to
respondent. The Court of Appeals, thus, decreed:
WHEREFORE, the petition is by us PARTIALLY GRANTED. The
Labor Arbiter is DECLARED to have jurisdiction over the
controversy. The records are REMANDED to the NLRC for further
proceedings to determine the appropriate amount of monetary awards
to be adjudged in favor of [respondent]. Costs against the
[petitioners] in solidum. 26

Petitioners moved for its reconsideration but to no avail. 27

Petitioners are now before this Court with the following assignment of
errors:
 I.

THE COURT OF APPEALS ERRED AND COMMITTED GRAVE

ABUSE OF DISCRETION IN DECIDING THAT THE NLRC HAS
THE JURISDICTION IN RESOLVING A PURELY
INTRA-CORPORATE MATTER WHICH IS COGNIZABLE BY
THE SECURITIES AND EXCHANGE COMMISSION/REGIONAL
TRIAL COURT.

II.

ASSUMING, GRATIS ARGUENDO, THAT THE NLRC HAS

JURISDICTION OVER THE CASE, STILL THE COURT OF
APPEALS SERIOUSLY ERRED IN NOT RULING THAT THERE
IS NO EMPLOYER-EMPLOYEE RELATIONSHIP BETWEEN
[RESPONDENT] ALFREDO M. JOSON AND MARC II
MARKETING, INC. [PETITIONER CORPORATION]. CacISA

III.

ASSUMING GRATIS ARGUENDO THAT THE NLRC HAS

JURISDICTION OVER THE CASE, THE COURT OF APPEALS
ERRED IN NOT RULING THAT THE LABOR ARBITER
COMMITTED GRAVE ABUSE OF DISCRETION IN AWARDING
MULTI-MILLION PESOS IN COMPENSATION AND
BACKWAGES BASED ON THE PURPORTED GROSS INCOME
OF [PETITIONER CORPORATION].

IV.

THE COURT OF APPEALS SERIOUSLY ERRED AND

COMMITTED GRAVE ABUSE OF DISCRETION IN NOT
MAKING ANY FINDINGS AND RULING THAT [PETITIONER
LUCILA] SHOULD NOT BE HELD SOLIDARILY LIABLE IN
THE ABSENCE OF EVIDENCE OF MALICE AND BAD FAITH
ON HER PART. 28

Petitioners fault the Court of Appeals for having sustained the Labor
Arbiter's finding that respondent was not a corporate officer under petitioner
corporation's by-laws. They insist that there is no need to amend the
corporate by-laws to specify who its corporate officers are. The resolution
issued by petitioner corporation's Board of Directors appointing respondent
as General Manager, coupled with his assumption of the said position,
positively made him its corporate officer. More so, respondent's position,
being a creation of petitioner corporation's Board of Directors pursuant to its
by-laws, is a corporate office sanctioned by the Corporation Code and the
doctrines previously laid down by this Court. Thus, respondent's removal as
petitioner corporation's General Manager involved a purely intra-corporate
controversy over which the RTC has jurisdiction.
Petitioners further contend that respondent's claim for 30% of the net
profit of petitioner corporation was anchored on the purported Management
Contract dated 16 January 1994. It should be noted, however, that said
Management Contract was executed at the time petitioner corporation was
still nonexistent and had no juridical personality yet. Such being the case,
respondent cannot invoke any legal right therefrom as it has no legal and
binding effect on petitioner corporation. Moreover, it is clear from the
Articles of Incorporation of petitioner corporation that respondent was its
director and stockholder. Indubitably, respondent's claim for his share in the
profit of petitioner corporation was based on his capacity as such and not by
virtue of any employer-employee relationship.
Petitioners further avow that even if the present case does not pose an
intra-corporate controversy, still, the Labor Arbiter's multi-million peso
awards in favor of respondent were erroneous. The same was merely based
on the latter's self-serving computations without any supporting documents.
Finally, petitioners maintain that petitioner Lucila cannot be held
solidarily liable with petitioner corporation. There was neither allegation nor
iota of evidence presented to show that she acted with malice and bad faith in
her dealings with respondent. Moreover, the Labor Arbiter, in his Decision,
simply concluded that petitioner Lucila was jointly and severally liable with
petitioner corporation without making any findings thereon. It was, therefore,
an error for the Court of Appeals to hold petitioner Lucila solidarily liable
with petitioner corporation.EHIcaT

From the foregoing arguments, the initial question is which between

the Labor Arbiter or the RTC, has jurisdiction over respondent's dismissal as
General Manager of petitioner corporation. Its resolution necessarily entails
the determination of whether respondent as General Manager of petitioner
corporation is a corporate officer or a mere employee of the latter.
While Article 217 (a) 2 29of the Labor Code, as amended, provides
that it is the Labor Arbiter who has the original and exclusive jurisdiction
over cases involving termination or dismissal of workers when the person
dismissed or terminated is a corporate officer, the case automatically falls
within the province of the RTC. The dismissal of a corporate officer is
always regarded as a corporate act and/or an intra-corporate controversy. 30
 Under Section 5 31 of Presidential Decree No. 902-A, intra-corporate
controversies are those controversies arising out of intra-corporate or
partnership relations, between and among stockholders, members or
associates; between any or all of them and the corporation, partnership or
association of which they are stockholders, members or associates,
respectively; and between such corporation, partnership or association and
the State insofar as it concerns their individual franchise or right to exist as
such entity. It also includes controversies in the election or appointments
of directors, trustees, officers or managers of such corporations,
partnerships or associations. 32
Accordingly, in determining whether the SEC (now the RTC) has
jurisdiction over the controversy, the status or relationship of the parties and
the nature of the question that is the subject of their controversy must be
taken into consideration. 33
In Easycall Communications Phils., Inc. v. King, this Court held that
in the context of Presidential Decree No. 902-A, corporate officers are
those officers of a corporation who are given that character either by the
Corporation Code or by the corporation's by-laws. Section 25 34 of the
Corporation Code specifically enumerated who are these corporate officers,
to wit: (1) president; (2) secretary; (3) treasurer; and (4) such other officers
as may be provided for in the by-laws. 35
The aforesaid Section 25 of the Corporation Code, particularly the
phrase "such other officers as may be provided for in the by-laws,' has been
clarified and elaborated in this Court's recent pronouncement in Matling
Industrial and Commercial Corporation v. Coros, where it held, thus: DAaIEc

Conformably with Section 25, a position must be expressly

mentioned in the [b]y-[l]aws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or
under a [b]y-[l]aw enabling provision is not enough to make a
position a corporate office. [In] Guerrea v. Lezama [citation omitted]
the first ruling on the matter, held that the only officers of a
corporation were those given that character either by the
Corporation Code or by the [b]y-[l]aws; the rest of the corporate
officers could be considered only as employees or subordinate
officials. Thus, it was held in Easycall Communications Phils., Inc. v.
King [citation omitted]:

An "office" is created by the charter of the

corporation and the officer is elected by the directors
or stockholders. On the other hand, an employee
 occupies no office and generally is employed not by
the action of the directors or stockholders but by the
managing officer of the corporation who also
determines the compensation to be paid to such
employee.
xxx xxx xxx

This interpretation is the correct application of Section 25 of the

Corporation Code, which plainly states that the corporate officers are
the President, Secretary, Treasurer and such other officers as may be
provided for in the [b]y-[l]aws. Accordingly, the corporate officers
in the context of PD No. 902-A are exclusively those who are given
that character either by the Corporation Code or by the
corporation's [b]y[l]aws.

A different interpretation can easily leave the way open for the
Board of Directors to circumvent the constitutionally guaranteed
security of tenure of the employee by the expedient inclusion in
the [b]y-[l]aws of an enabling clause on the creation of just any
corporate officer position.

It is relevant to state in this connection that the SEC, the primary

agency administering the Corporation Code, adopted a similar
interpretation of Section 25 of the Corporation Code in its
Opinion dated November 25, 1993 [citation omitted], to wit: HAEIac

Thus, pursuant to the above provision (Section 25 of the

Corporation Code), whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of the
corporation and the Board has no power to create other
Offices without amending first the corporate [b]y-laws.
However, the Board may create appointive positions other
than the positions of corporate Officers, but the persons
occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the
Corporation Codeand are not empowered to exercise the
functions of the corporate Officers, except those functions
lawfully delegated to them. Their functions and duties are to be
determined by the Board of Directors/Trustees. 36 [Emphasis
supplied.]

A careful perusal of petitioner corporation's by-laws, particularly

paragraph 1, Section 1, Article IV, 37 would explicitly reveal that its
corporate officers are composed only of: (1) Chairman; (2) President; (3) one
or more Vice-President; (4) Treasurer; and (5) Secretary. 38 The position of
General Manager was not among those enumerated.
Paragraph 2, Section 1, Article IV of petitioner corporation's by-laws,
empowered its Board of Directors to appoint such other officers as it may
determine necessary or proper. 39 It is by virtue of this enabling provision
that petitioner corporation's Board of Directors allegedly approved a
resolution to make the position of General Manager a corporate office, and,
thereafter, appointed respondent thereto making him one of its corporate
officers. All of these acts were done without first amending its by-laws so as
to include the General Manager in its roster of corporate officers.
With the given circumstances and in conformity with Matling
Industrial and Commercial Corporation v. Coros, this Court rules that
respondent was not a corporate officer of petitioner corporation because his
position as General Manager was not specifically mentioned in the roster of
corporate officers in its corporate by-laws. The enabling clause in petitioner
corporation's by-laws empowering its Board of Directors to create additional
officers, i.e., General Manager, and the alleged subsequent passage of a
board resolution to that effect cannot make such position a corporate
office. Matling clearly enunciated that the board of directors has no power to
create other corporate offices without first amending the corporate by-laws
so as to include therein the newly created corporate office. Though the board
of directors may create appointive positions other than the positions of
corporate officers, the persons occupying such positions cannot be viewed as
corporate officers under Section 25 of the Corporation Code. 40 In view
thereof, this Court holds that unless and until petitioner corporation's by-laws
is amended for the inclusion of General Manager in the list of its corporate
officers, such position cannot be considered as a corporate office within the
realm of Section 25 of the Corporation Code. THaAEC

This Court considers that the interpretation of Section 25 of the

Corporation Code laid down inMatling safeguards the constitutionally
enshrined right of every employee to security of tenure. To allow the creation
of a corporate officer position by a simple inclusion in the corporate by-laws
of an enabling clause empowering the board of directors to do so can result in
the circumvention of that constitutionally well-protected right. 41
It is also of no moment that respondent, being petitioner corporation's
General Manager, was given the functions of a managing director by its
Board of Directors. As held in Matling, the only officers of a corporation are
those given that character either by the Corporation Code or by the corporate
by-laws. It follows then that the corporate officers enumerated in the by-laws
are the exclusive officers of the corporation while the rest could only be
regarded as mere employees or subordinate officials. 42 Respondent, in this
case, though occupying a high ranking and vital position in petitioner
corporation but which position was not specifically enumerated or mentioned
in the latter's by-laws, can only be regarded as its employee or subordinate
official. Noticeably, respondent's compensation as petitioner corporation's
General Manager was set, fixed and determined not by the latter's Board of
Directors but simply by its President, petitioner Lucila. The same was not
subject to the approval of petitioner corporation's Board of Directors. This is
an indication that respondent was an employee and not a corporate officer.
To prove that respondent was petitioner corporation's corporate
officer, petitioners presented before the NLRC an undated Secretary's
Certificate showing that corporation's Board of Directors approved a
resolution making respondent's position of General Manager a corporate
office. The submission, however, of the said undated Secretary's Certificate
will not change the fact that respondent was an employee. The certification
does not amount to an amendment of the by-laws which is needed to make
the position of General Manager a corporate office.
Moreover, as has been aptly observed by the Court of Appeals, the
board resolution mentioned in that undated Secretary's Certificate and the
latter itself were obvious fabrications, a mere afterthought. Here we quote
with conformity the Court of Appeals findings on this matter stated in this
wise:
The board resolution is an obvious fabrication. Firstly, if it had been in
existence since [29 August 1994], why did not [herein petitioners]
attach it to their [M]otion to [D]ismiss filed on [26 August 1999],
when it could have been the best evidence that [herein respondent]
was a corporate officer? Secondly, why did they report the
[respondent] instead as [herein petitioner corporation's] employee to
the Social Security System [(SSS)] on [11 October 1994] or a later
date than their [29 August 1994] board resolution? Thirdly, why is
there no indication that the [respondent], the person concerned himself,
and the [SEC] were furnished with copies of said board resolution?
And, lastly, why is the corporate [S]ecretary's [C]ertificate not
notarized in keeping with the customary procedure? That is why we
called it manipulative evidence as it was a shameless sham meant to be
thrown in as a wild card to muddle up the [D]ecision of the Labor
Arbiter to the end that it be overturned as the latter had firmly pointed
out that [respondent] is not a corporate officer under [petitioner
corporation's by-laws]. Regrettably, the [NLRC] swallowed the bait
hook-line-and sinker. It failed to see through its nature as a belatedly
 manufactured evidence. And even on the assumption that it were
an authentic board resolution, it did not make [respondent] a
corporate officer as the board did not first and properly create
the position of a [G]eneral [M]anager by amending its by-laws. IAcDET

(2) The scope of the term "officer' in the phrase "and such
other officers as may be provided for in the by-laws["] (Sec. 25,
par. 1), would naturally depend much on the provisions of the
by-laws of the corporation. (SEC Opinion, [4 December
1991.]) If the by-laws enumerate the officers to be elected by
the board, the provision is conclusive, and the board is
without power to create new offices without amending the
by-laws. (SEC Opinion, [19 October 1971.])

(3) If, for example, the general manager of a corporation is not

listed as an officer, he is to be classified as an employee
although he has always been considered as one of the principal
officers of a corporation [citing De Leon, H. S., The
Corporation Code of the Philippines Annotated, 1993 Ed., p.
215.] 43 [Emphasis supplied.]

That respondent was also a director and a stockholder of petitioner

corporation will not automatically make the case fall within the ambit of
intra-corporate controversy and be subjected to RTC's jurisdiction. To
reiterate, not all conflicts between the stockholders and the corporation are
classified as intra-corporate. Other factors such as the status or relationship of
the parties and the nature of the question that is the subject of the
controversy 44 must be considered in determining whether the dispute
involves corporate matters so as to regard them as intra-corporate
controversies. 45 As previously discussed, respondent was not a corporate
officer of petitioner corporation but a mere employee thereof so there was no
intra-corporate relationship between them. With regard to the subject of the
controversy or issue involved herein, i.e., respondent's dismissal as petitioner
corporation's General Manager, the same did not present or relate to an
intra-corporate dispute. To note, there was no evidence submitted to show
that respondent's removal as petitioner corporation's General Manager
carried with it his removal as its director and stockholder. Also, petitioners'
allegation that respondent's claim of 30% share of petitioner corporation's net
profit was by reason of his being its director and stockholder was without
basis, thus, self-serving. Such an allegation was tantamount to a mere
speculation for petitioners' failure to substantiate the same. ATSIED
 In addition, it was not shown by petitioners that the position of
General Manager was offered to respondent on account of his being
petitioner corporation's director and stockholder. Also, in contrast to NLRC's
findings, neither petitioner corporation's by-laws nor the Management
Contract stated that respondent's appointment and termination from the
position of General Manager was subject to the approval of petitioner
corporation's Board of Directors. If, indeed, respondent was a corporate
officer whose termination was subject to the approval of its Board of
Directors, why is it that his termination was effected only by petitioner Lucila,
President of petitioner corporation? The records are bereft of any evidence to
show that respondent's dismissal was done with the conformity of petitioner
corporation's Board of Directors or that the latter had a hand on respondent's
dismissal. No board resolution whatsoever was ever presented to that effect.
With all the foregoing, this Court is fully convinced that, indeed,
respondent, though occupying the General Manager position, was not a
corporate officer of petitioner corporation rather he was merely its employee
occupying a high-ranking position.
Accordingly, respondent's dismissal as petitioner corporation's
General Manager did not amount to an intra-corporate controversy.
Jurisdiction therefor properly belongs with the Labor Arbiter and not with the
RTC.
Having established that respondent was not petitioner corporation's
corporate officer but merely its employee, and that, consequently,
jurisdiction belongs to the Labor Arbiter, this Court will now determine if
respondent's dismissal from employment is illegal.
It was not disputed that respondent worked as petitioner corporation's
General Manager from its incorporation on 15 August 1994 until he was
dismissed on 30 June 1997. The cause of his dismissal was petitioner
corporation's cessation of business operations due to poor sales collection
aggravated by the inefficient management of its affairs.
In termination cases, the burden of proving just and valid cause for
dismissing an employee from his employment rests upon the employer. The
latter's failure to discharge that burden would necessarily result in a finding
that the dismissal is unjustified. 46
DcCHTa

Under Article 283 of the Labor Code, as amended, one of the

authorized causes in terminating the employment of an employee is the
closing or cessation of operation of the establishment or undertaking.
Article 283 of the Labor Code, as amended, reads, thus:
 ART. 283. Closure of establishment and reduction of personnel.
— The employer may also terminate the employment of any employee
due to the installation of labor saving-devices, redundancy,
retrenchment to prevent losses or the closing or cessation of
operation of the establishment or undertaking unless the closing is
for the purpose of circumventing the provisions of this Title, by
serving a written notice on the workers and the Department of Labor
and Employment at least one (1) month before the intended date
thereof. . . . In case of retrenchment to prevent losses and in cases of
closures or cessation of operations of establishment or
undertaking not due to serious business losses or financial
reverses, the separation pay shall be equivalent to one (1) month
pay or to at least one-half (1/2) month pay for every year of
service, whichever is higher. A fraction of at least six (6) months
shall be considered one (1) whole year. [Emphasis supplied.]

From the afore-quoted provision, the closure or cessation of

operations of establishment or undertaking may either be due to serious
business losses or financial reverses or otherwise. If the closure or
cessation was due to serious business losses or financial reverses, it is
incumbent upon the employer to sufficiently and convincingly prove the
same. If it is otherwise, the employer can lawfully close shop anytime as long
as it was bona fide in character and not impelled by a motive to defeat or
circumvent the tenurial rights of employees and as long as the terminated
employees were paid in the amount corresponding to their length of
service. 47
Accordingly, under Article 283 of the Labor Code, as amended, there
are three requisites for a valid cessation of business operations: (a)
service of a written notice to the employees and to the Department of
Labor and Employment (DOLE) at least one month before the intended
date thereof; (b) the cessation of business must be bona fide in character;
and (c) payment to the employees of termination pay amounting to one
month pay or at least one-half month pay for every year of service, whichever
is higher.SHCaDA

In this case, it is obvious that petitioner corporation's cessation of

business operations was not due to serious business losses. Mere poor sales
collection, coupled with mismanagement of its affairs does not amount to
serious business losses. Nonetheless, petitioner corporation can still validly
cease or close its business operations because such right is legally allowed, so
long as it was not done for the purpose of circumventing the provisions on
termination of employment embodied in theLabor Code. 48 As has been
stressed by this Court in Industrial Timber Corporation v. Ababon, thus:
Just as no law forces anyone to go into business, no law can compel
anybody to continue the same. It would be stretching the intent and
spirit of the law if a court interferes with management's prerogative to
close or cease its business operations just because the business is not
suffering from any loss or because of the desire to provide the workers
continued employment. 49

A careful perusal of the records revealed that, indeed, petitioner

corporation has stopped and ceased business operations beginning 30 June
1997. This was evidenced by a notarized Affidavit of Non-Operation dated
31 August 1998. There was also no showing that the cessation of its business
operations was done in bad faith or to circumvent the Labor Code.
Nevertheless, in doing so, petitioner corporation failed to comply with the
one-month prior written notice rule. The records disclosed that respondent,
being petitioner corporation's employee, and the DOLE were not given a
written notice at least one month before petitioner corporation ceased its
business operations. Moreover, the records clearly show that respondent's
dismissal was effected on the same date that petitioner corporation decided to
stop and cease its operation. Similarly, respondent was not paid separation
pay upon termination of his employment.
As respondent's dismissal was not due to serious business losses,
respondent is entitled to payment of separation pay equivalent to one month
pay or at least one-half month pay for every year of service, whichever is
higher. The rationale for this was laid down in Reahs Corporation v.
National Labor Relations Commission, 50 thus: SEIcHa

The grant of separation pay, as an incidence of termination of

employment under Article 283, is a statutory obligation on the
part of the employer and a demandable right on the part of the
employee, except only where the closure or cessation of operations
was due to serious business losses or financial reverses and there is
sufficient proof of this fact or condition. In the absence of such proof
of serious business losses or financial reverses, the employer
closing his business is obligated to pay his employees and workers
their separation pay.

The rule, therefore, is that in all cases of business closure or

cessation of operation or undertaking of the employer, the
affected employee is entitled to separation pay. This is consistent
with the state policy of treating labor as a primary social
 economic force, affording full protection to its rights as well as its
welfare. The exception is when the closure of business or cessation of
operations is due to serious business losses or financial reverses duly
proved, in which case, the right of affected employees to separation
pay is lost for obvious reasons. 51 [Emphasis supplied.]

As previously discussed, respondent's dismissal was due to an

authorized cause, however, petitioner corporation failed to observe
procedural due process in effecting such dismissal. In Culili v. Eastern
Telecommunications Philippines, Inc., 52 this Court made the following
pronouncements, thus:
. . . there are two aspects which characterize the concept of due
process under the Labor Code: one is substantive — whether the
termination of employment was based on the provision of the Labor
Code or in accordance with the prevailing jurisprudence; the other
is procedural — the manner in which the dismissal was effected.

Section 2(d), Rule I, Book VI of the Rules Implementing the Labor

Code provides:

(d) In all cases of termination of employment, the

following standards of due process shall be
substantially observed: DCcTHa

xxx xxx xxx

For termination of employment as defined in Article 283 of the

Labor Code,the requirement of due process shall be
deemed complied with upon service of a written notice to
the employee and the appropriate Regional Office of the
Department of Labor and Employment at least thirty days
before effectivity of the termination, specifying the ground
or grounds for termination.

In Mayon Hotel & Restaurant v. Adana, [citation omitted] we

observed:

The requirement of law mandating the giving of notices was

intended not only to enable the employees to look for another
employment and therefore ease the impact of the loss of their
jobs and the corresponding income, but more importantly, to
give the Department of Labor and Employment (DOLE) the
opportunity to ascertain the verity of the alleged authorized
cause of termination. 53 [Emphasis supplied].
 The records of this case disclosed that there was absolutely no written
notice given by petitioner corporation to the respondent and to the DOLE
prior to the cessation of its business operations. This is evident from the fact
that petitioner corporation effected respondent's dismissal on the same date
that it decided to stop and cease its business operations. The necessary
consequence of such failure to comply with the one-month prior written
notice rule, which constitutes a violation of an employee's right to statutory
due process, is the payment of indemnity in the form of nominal
damages. 54 In Culili v. Eastern Telecommunications Philippines, Inc., this
Court further held:
In Serrano v. National Labor Relations Commission [citation omitted],
we noted that "a job is more than the salary that it carries." There is a
psychological effect or a stigma in immediately finding one's self laid
off from work. This is exactly why our labor laws have provided for
mandating procedural due process clauses. Our laws, while
recognizing the right of employers to terminate employees it
cannot sustain, also recognize the employee's right to be properly
informed of the impending severance of his ties with the company
he is working for. . . . .
TAcDHS

. . . Over the years, this Court has had the opportunity to reexamine the
sanctions imposed upon employers who fail to comply with the
procedural due process requirements in terminating its employees.
In Agabon v. National Labor Relations Commission [citation omitted],
this Court reverted back to the doctrine in Wenphil Corporation v.
National Labor Relations Commission [citation omitted] and held
that where the dismissal is due to a just or authorized cause, but
without observance of the due process requirements, the dismissal
may be upheld but the employer must pay an indemnity to the
employee. The sanctions to be imposed however, must be stiffer than
those imposed in Wenphil to achieve a result fair to both the
employers and the employees.

In Jaka Food Processing Corporation v. Pacot [citation omitted], this

Court, taking a cue from Agabon, held that since there is a clear-cut
distinction between a dismissal due to a just cause and a dismissal due
to an authorized cause, the legal implications for employers who fail
to comply with the notice requirements must also be treated
differently:

Accordingly, it is wise to hold that: (1) if the dismissal is based

on a just cause under Article 282 but the employer failed to
 comply with the notice requirement, the sanction to be
imposed upon him should be tempered because the dismissal
process was, in effect, initiated by an act imputable to the
employee; and (2) if the dismissal is based on an authorized
cause under Article 283 but the employer failed to comply
with the notice requirement, the sanction should be stiffer
because the dismissal process was initiated by the employer's
exercise of his management prerogative. 55 [Emphasis
supplied.]

Thus, in addition to separation pay, respondent is also entitled to an

award of nominal damages. In conformity with this Court's ruling in Culili v.
Eastern Telecommunications Philippines, Inc. and Shimizu Phils.
Contractors, Inc. v. Callanta, both citing Jaka Food Processing Corporation
v. Pacot, 56 this Court fixed the amount of nominal damages to P50,000.00.
With respect to petitioners' contention that the Management Contract
executed between respondent and petitioner Lucila has no binding effect on
petitioner corporation for having been executed way before its incorporation,
this Court finds the same meritorious. cDCaHA

Section 19 of the Corporation Code expressly provides:

Sec. 19. Commencement of corporate existence. — A private
corporation formed or organized under this Code commences to have
corporate existence and juridical personality and is deemed
incorporated from the date the Securities and Exchange
Commission issues a certificate of incorporation under its official
seal; and thereupon the incorporators, stockholders/members and their
successors shall constitute a body politic and corporate under the
name stated in the articles of incorporation for the period of time
mentioned therein, unless said period is extended or the corporation is
sooner dissolved in accordance with law. [Emphasis supplied.]

Logically, there is no corporation to speak of prior to an entity's

incorporation. And no contract entered into before incorporation can bind the
corporation.
As can be gleaned from the records, the Management Contract dated
16 January 1994 was executed between respondent and petitioner Lucila
months before petitioner corporation's incorporation on 15 August 1994.
Similarly, it was done when petitioner Lucila was still the President of Marc
Marketing, Inc. Undeniably, it cannot have any binding and legal effect on
petitioner corporation. Also, there was no evidence presented to prove that
petitioner corporation adopted, ratified or confirmed the Management
Contract. It is for the same reason that petitioner corporation cannot be
considered estopped from questioning its binding effect now that respondent
was invoking the same against it. In no way, then, can it be enforced against
petitioner corporation, much less, its provisions fixing respondent's
compensation as General Manager to 30% of petitioner corporation's net
profit. Consequently, such percentage cannot be the basis for the
computation of respondent's separation pay. This finding, however, will not
affect the undisputed fact that respondent was, indeed, the General Manager
of petitioner corporation from its incorporation up to the time of his
dismissal.
Accordingly, this Court finds it necessary to still remand the present
case to the Labor Arbiter to conduct further proceedings for the sole purpose
of determining the compensation that respondent was actually receiving
during the period that he was the General Manager of petitioner corporation,
this, for the proper computation of his separation pay. EHSTcC

As regards petitioner Lucila's solidary liability, this Court affirms the

same.
As a rule, corporation has a personality separate and distinct from its
officers, stockholders and members such that corporate officers are not
personally liable for their official acts unless it is shown that they have
exceeded their authority. However, this corporate veil can be pierced when
the notion of the legal entity is used as a means to perpetrate fraud, an illegal
act, as a vehicle for the evasion of an existing obligation, and to confuse
legitimate issues. Under the Labor Code, for instance, when a corporation
violates a provision declared to be penal in nature, the penalty shall be
imposed upon the guilty officer or officers of the corporation. 57
Based on the prevailing circumstances in this case, petitioner Lucila,
being the President of petitioner corporation, acted in bad faith and with
malice in effecting respondent's dismissal from employment. Although
petitioner corporation has a valid cause for dismissing respondent due to
cessation of business operations, however, the latter's dismissal therefrom
was done abruptly by its President, petitioner Lucila. Respondent was not
given the required one-month prior written notice that petitioner corporation
will already cease its business operations. As can be gleaned from the records,
respondent was dismissed outright by petitioner Lucila on the same day that
petitioner corporation decided to stop and cease its business operations.
Worse, respondent was not given separation pay considering that petitioner
corporation's cessation of business was not due to business losses or financial
reverses.
 WHEREFORE, premises considered, the Decision and Resolution
dated 20 June 2005 and 7 March 2006, respectively, of the Court of Appeals
in CA-G.R. SP No. 76624 are hereby AFFIRMED with
the MODIFICATION finding respondent's dismissal from employment
legal but without proper observance of due process. Accordingly, petitioner
corporation, jointly and solidarily liable with petitioner Lucila, is hereby
ordered to pay respondent the following; (1) separation pay equivalent to one
month pay or at least one-half month pay for every year of service, whichever
is higher, to be computed from the commencement of employment until
termination; and (2) nominal damages in the amount of P50,000.00.
This Court, however, finds it proper to still remand the records to the
Labor Arbiter to conduct further proceedings for the sole purpose of
determining the compensation that respondent was actually receiving during
the period that he was the General Manager of petitioner corporation for the
proper computation of his separation pay.
Costs against petitioners. cAISTC

SO ORDERED.
(Marc II Marketing, Inc. v. Joson, G.R. No. 171993, [December 12, 2011], 678
|||

PHIL 232-265)

G.R. No. 182729. September 29, 2010.]

KUKAN INTERNATIONAL
CORPORATION, petitioner, vs. HON. AMOR REYES, in
her capacity as Presiding Judge of the Regional Trial Court
of Manila, Branch 21, and ROMEO M. MORALES, doing
business under the name and style "RM Morales Trophies
and Plaques," respondents.

DECISION

VELASCO, JR., J : p

The Case
This Petition for Review on Certiorari under Rule 45 seeks to nullify
and reverse the January 23, 2008 Decision 1 and the April 16, 2008
Resolution 2 rendered by the Court of Appeals (CA) in CA-G.R. SP No.
100152. DETcAH

The assailed CA decision affirmed the March 12, 2007 3 and June 7,
2007 4 Orders of the Regional Trial Court (RTC) of Manila, Branch 21, in
Civil Case No. 99-93173, entitled Romeo M. Morales, doing business under
the name and style RM Morales Trophies and Plaques v. Kukan, Inc. In the
said orders, the RTC disregarded the separate corporate identities of Kukan,
Inc. and Kukan International Corporation and declared them to be one and
the same entity. Accordingly, the RTC held Kukan International Corporation,
albeit not impleaded in the underlying complaint of Romeo M. Morales,
liable for the judgment award decreed in a Decision dated November 28,
2002 5 in favor of Morales and against Kukan, Inc.
The Facts
Sometime in March 1998, Kukan, Inc. conducted a bidding for the
supply and installation of signages in a building being constructed in Makati
City. Morales tendered the winning bid and was awarded the PhP5 million
contract. Some of the items in the project award were later excluded resulting
in the corresponding reduction of the contract price to PhP3,388,502. Despite
his compliance with his contractual undertakings, Morales was only paid the
amount of PhP1,976,371.07, leaving a balance of PhP1,412,130.93, which
Kukan, Inc. refused to pay despite demands. Shortchanged, Morales filed a
Complaint 6 with the RTC against Kukan, Inc. for a sum of money, the case
docketed as Civil Case No. 99-93173 and eventually raffled to Branch 17 of
the court.
Following the joinder of issues after Kukan, Inc. filed an answer with
counterclaim, trial ensued. However, starting November 2000, Kukan, Inc.
no longer appeared and participated in the proceedings before the trial court,
prompting the RTC to declare Kukan, Inc. in default and paving the way for
Morales to present his evidence ex parte.
On November 28, 2002, the RTC rendered a Decision finding for
Morales and against Kukan, Inc., disposing as follows:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules
of Civil Procedure, and by preponderance of evidence, judgment is
hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:

1. to pay the sum of ONE MILLION TWO HUNDRED ONE

THOUSAND SEVEN HUNDRED TWENTY FOUR PESOS
(P1,201,724.00) with legal interest at 12% per annum from
February 17, 1999 until full payment;
 2. to pay the sum of FIFTY THOUSAND PESOS (P50,000.00)
as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS

(P20,000.00) as reasonable attorney's fees; and

4. to pay the sum of SEVEN THOUSAND NINE HUNDRED

SIXTY PESOS and SIX CENTAVOS (P7,960.06) as
litigation expenses.

For lack of factual foundation, the counterclaim is DISMISSED.

IT IS SO ORDERED. 7

After the above decision became final and executory, Morales moved
for and secured a writ of execution 8 against Kukan, Inc. The sheriff then
levied upon various personal properties found at what was supposed to be
Kukan, Inc.'s office at Unit 2205, 88 Corporate Center, Salcedo Village,
Makati City. Alleging that it owned the properties thus levied and that it was
a different corporation from Kukan, Inc., Kukan International Corporation
(KIC) filed an Affidavit of Third-Party Claim. Notably, KIC was
incorporated in August 2000, or shortly after Kukan, Inc. had stopped
participating in Civil Case No. 99-93173.
In reaction to the third party claim, Morales interposed an Omnibus
Motion dated April 30, 2003. In it, Morales prayed, applying the principle of
piercing the veil of corporate fiction, that an order be issued for the
satisfaction of the judgment debt of Kukan, Inc. with the properties under the
name or in the possession of KIC, it being alleged that both corporations are
but one and the same entity. KIC opposed Morales' motion. By Order of May
29, 2003 9 as reiterated in a subsequent order, the court denied the omnibus
motion.
In a bid to establish the link between KIC and Kukan, Inc., and thus
determine the true relationship between the two, Morales filed a Motion for
Examination of Judgment Debtors dated May 4, 2005. In this motion
Morales sought that subpoena be issued against the primary stockholders of
Kukan, Inc., among them Michael Chan, a.k.a. Chan Kai Kit. This too was
denied by the trial court in an Order dated May 24, 2005. 10
Morales then sought the inhibition of the presiding judge, Eduardo B.
Peralta, Jr., who eventually granted the motion. The case was re-raffled to
Branch 21, presided by public respondent Judge Amor Reyes. AEITDH

Before the Manila RTC, Branch 21, Morales filed a Motion to Pierce
the Veil of Corporate Fiction to declare KIC as having no existence separate
from Kukan, Inc. This time around, the RTC, by Order dated March 12, 2007,
granted the motion, the dispositive portion of which reads:
WHEREFORE, premises considered, the motion is hereby
GRANTED. The Court hereby declares as follows:

1. defendant Kukan, Inc. and newly created Kukan

International Corp. as one and the same corporation;

2. the levy made on the properties of Kukan

International Corp. is hereby valid;

3. Kukan International Corp. and Michael Chan are

jointly and severally liable to pay the amount awarded
to plaintiff pursuant to the decision of November [28],
2002 which has long been final and executory.

SO ORDERED.

From the above order, KIC moved but was denied reconsideration in
another Order dated June 7, 2007.
KIC went to the CA on a petition for certiorari to nullify the aforesaid
March 12 and June 7, 2007 RTC Orders.
On January 23, 2008, the CA rendered the assailed decision, the
dispositive portion of which states:
WHEREFORE, premises considered, the petition is hereby DENIED
and the assailed Orders dated March 12, 2007 and June 7, 2007 of the
court a quo are both AFFIRMED. No costs.

SO ORDERED. 11

The CA later denied KIC's motion for reconsideration in the assailed

resolution.
Hence, the instant petition for review, with the following issues KIC
raises for the Court's consideration:
1. There is no legal basis for the [CA] to resolve and declare
that petitioner's Constitutional Right to Due Process was not
violated by the public respondent in rendering the Orders dated
March 12, 2007 and June 7, 2007 and in declaring petitioner to
be liable for the judgment obligations of the corporation
"Kukan, Inc." to private respondent — as petitioner is a
stranger to the case and was never made a party in the case
before the trial court nor was it ever served a summons and a
copy of the complaint.
 2. There is no legal basis for the [CA] to resolve and declare
that the Orders dated March 12, 2007 and June 7, 2007
rendered by public respondent declaring the petitioner liable to
the judgment obligations of the corporation "Kukan, Inc." to
private respondent are valid as said orders of the public
respondent modify and/or amend the trial court's final and
executory decision rendered on November 28, 2002.

3. There is no legal basis for the [CA] to resolve and declare

that the Orders dated March 12, 2007 and June 7, 2007
rendered by public respondent declaring the petitioner [KIC]
and the corporation "Kukan, Inc." as one and the same, and,
therefore, the Veil of Corporate Fiction between them be
pierced — as the procedure undertaken by public respondent
which the [CA] upheld is not sanctioned by the Rules of Court
and/or established jurisprudence enunciated by this Honorable
Supreme Court. 12

In gist, the issues to be resolved boil down to the question

of, first, whether the trial court can, after the judgment against Kukan, Inc.
has attained finality, execute it against the property of KIC; second, whether
the trial court acquired jurisdiction over KIC; and third, whether the trial and
appellate courts correctly applied, under the premises, the principle of
piercing the veil of corporate fiction.
The Ruling of the Court
The petition is meritorious.
First Issue: Against Whom Can a Final and
Executory Judgment Be Executed
The preliminary question that must be answered is whether or not the
trial court can, after adjudging Kukan, Inc. liable for a sum of money in a
final and executory judgment, execute such judgment debt against the
property of KIC.
The poser must be answered in the negative.
In Carpio v. Doroja, 13 the Court ruled that the deciding court has
supervisory control over the execution of its judgment:
A case in which an execution has been issued is regarded as still
pending so that all proceedings on the execution are proceedings in the
suit. There is no question that the court which rendered the judgment
has a general supervisory control over its process of execution, and
 this power carries with it the right to determine every question of fact
and law which may be involved in the execution. EaISTD

We reiterated the above holding in Javier v. Court of Appeals 14 in

this wise: "The said branch has a general supervisory control over its
processes in the execution of its judgment with a right to determine every
question of fact and law which may be involved in the execution."
The court's supervisory control does not, however, extend as to
authorize the alteration or amendment of a final and executory decision, save
for certain recognized exceptions, among which is the correction of clerical
errors. Else, the court violates the principle of finality of judgment and its
immutability, concepts which the Court, in Tan v. Timbal, 15 defined:
As we held in Industrial Management International Development
Corporation vs. NLRC:

It is an elementary principle of procedure that the resolution of

the court in a given issue as embodied in the dispositive part of
a decision or order is the controlling factor as to settlement of
rights of the parties. Once a decision or order becomes final
and executory, it is removed from the power or
jurisdiction of the court which rendered it to further alter
or amend it. It thereby becomes immutable and
unalterable and any amendment or alteration which
substantially affects a final and executory judgment is null
and void for lack of jurisdiction, including the entire
proceedings held for that purpose. An order of execution
which varies the tenor of the judgment or exceeds the
terms thereof is a nullity. (Emphasis supplied.)

Republic v. Tango 16 expounded on the same principle and its

exceptions:
Deeply ingrained in our jurisprudence is the principle that a decision
that has acquired finality becomes immutable and unalterable. As
such, it may no longer be modified in any respect even if the
modification is meant to correct erroneous conclusions of fact or law
and whether it will be made by the court that rendered it or by the
highest court of the land. . . .

The doctrine of finality of judgment is grounded on the fundamental

principle of public policy and sound practice that, at the risk of
occasional error, the judgment of courts and the award of
quasi-judicial agencies must become final on some definite date fixed
 by law. The only exceptions to the general rule are the correction of
clerical errors, the so-called nunc pro tunc entries which cause no
prejudice to any party, void judgments, and whenever circumstances
transpire after the finality of the decision which render its execution
unjust and inequitable. None of the exceptions obtains here to merit
the review sought. (Emphasis added.)

So, did the RTC, in breach of the doctrine of immutability and

inalterability of judgment, order the execution of its final decision in a
manner as would amount to its prohibited alteration or modification?
We repair to the dispositive portion of the final and executory RTC
decision. Pertinently, it provides:
WHEREFORE, consistent with Section 5, Rule 18 of the 1997 Rules
of Civil Procedure, and by preponderance of evidence, judgment is
hereby rendered in favor of the plaintiff, ordering Kukan, Inc.:

1. to pay the sum of ONE MILLION TWO

HUNDRED ONE THOUSAND SEVEN HUNDRED
TWENTY FOUR PESOS (P1,201,724.00) with legal
interest at 12% per annum from February 17, 1999
until full payment;

2. to pay the sum of FIFTY THOUSAND PESOS

(P50,000.00) as moral damages;

3. to pay the sum of TWENTY THOUSAND PESOS

(P20,000.00) as reasonable attorney's fees; and

4. to pay the sum of SEVEN THOUSAND NINE

HUNDRED SIXTY PESOS and SIX CENTAVOS
(P7,960.06) as litigation expenses.

xxx xxx xxx (Emphasis supplied.)

As may be noted, the above decision, in unequivocal terms, directed

Kukan, Inc. to pay the aforementioned awards to Morales. Thus, making KIC,
thru the medium of a writ of execution, answerable for the above judgment
liability is a clear case of altering a decision, an instance of granting relief not
contemplated in the decision sought to be executed. And the change does not
fall under any of the recognized exceptions to the doctrine of finality and
immutability of judgment. It is a settled rule that a writ of execution must
conform to the fallo of the judgment; as an inevitable corollary, a writ
beyond the terms of the judgment is a nullity. 17
 Thus, on this ground alone, the instant petition can already be granted.
Nonetheless, an examination of the other issues raised by KIC would be
proper. HSAcaE

Second Issue: Propriety of the RTC

Assuming Jurisdiction over KIC
The next issue turns on the validity of the execution the trial court
authorized against KIC and its property, given that it was neither made a
party nor impleaded in Civil Case No. 99-93173, let alone served with
summons. In other words, did the trial court acquire jurisdiction over KIC?
In the assailed decision, the appellate court deemed KIC to have
voluntarily submitted itself to the jurisdiction of the trial court owing to its
filing of four (4) pleadings adverted to earlier, namely: (a) the Affidavit of
Third-Party Claim; 18 (b) the Comment and Opposition to Plaintiff's
Omnibus Motion; 19 (c) the Motion for Reconsideration of the RTC Order
dated March 12, 2007; 20 and (d) the Motion for Leave to Admit
Reply. 21 The CA, citing Section 20, Rule 14 of the Rules of Court, stated
that "the procedural rule on service of summons can be waived by voluntary
submission to the court's jurisdiction through any form of appearance by the
party or its counsel." 22
We cannot give imprimatur to the appellate court's appreciation of the
thrust of Sec. 20, Rule 14 of the Rules in concluding that the trial court
acquired jurisdiction over KIC.
Orion Security Corporation v. Kalfam Enterprises, Inc. 23 explains
how courts acquire jurisdiction over the parties in a civil case:
Courts acquire jurisdiction over the plaintiffs upon the filing of the
complaint. On the other hand, jurisdiction over the defendants in
a civil case is acquired either through the service of summons
upon them or through their voluntary appearance in court and
their submission to its authority. (Emphasis supplied.)

In the fairly recent Palma v. Galvez, 24 the Court reiterated its holding
in Orion Security Corporation, stating: "[I]n civil cases, the trial court
acquires jurisdiction over the person of the defendant either by the service of
summons or by the latter's voluntary appearance and submission to the
authority of the former."
The court's jurisdiction over a party-defendant resulting from his
voluntary submission to its authority is provided under Sec. 20, Rule 14 of
the Rules, which states:
 Section 20. Voluntary appearance. — The defendant's voluntary
appearance in the actions shall be equivalent to service of summons.
The inclusion in a motion to dismiss of other grounds aside from lack
of jurisdiction over the person of the defendant shall not be deemed a
voluntary appearance.

To be sure, the CA's ruling that any form of appearance by the party or
its counsel is deemed as voluntary appearance finds support in the
kindred Republic v. Ker & Co., Ltd. 25 and De Midgely v. Ferandos. 26
Republic and De Midgely, however, have already been modified if not
altogether superseded 27 by La Naval Drug Corporation v. Court of
Appeals, 28 wherein the Court essentially ruled and elucidated on the current
view in our jurisdiction, to wit: "[A] special appearance before the court —
challenging its jurisdiction over the person through a motion to dismiss even
if the movant invokes other grounds — is not tantamount to estoppel or a
waiver by the movant of his objection to jurisdiction over his person; and
such is not constitutive of a voluntary submission to the jurisdiction of the
court." 29
In the instant case, KIC was not made a party-defendant in Civil Case
No. 99-93173. Even if it is conceded that it raised affirmative defenses
through its aforementioned pleadings, KIC never abandoned its challenge,
however implicit, to the RTC's jurisdiction over its person. The challenge
was subsumed in KIC's primary assertion that it was not the same entity as
Kukan, Inc. Pertinently, in its Comment and Opposition to Plaintiff's
Omnibus Motion dated May 20, 2003, KIC entered its "special but not
voluntary appearance" alleging therein that it was a different entity and has
a separate legal personality from Kukan, Inc. And KIC would consistently
reiterate this assertion in all its pleadings, thus effectively resisting all along
the RTC's jurisdiction of its person. It cannot be overemphasized that KIC
could not file before the RTC a motion to dismiss and its attachments in Civil
Case No. 99-93173, precisely because KIC was neither impleaded nor served
with summons. Consequently, KIC could only assert and claim through its
affidavits, comments, and motions filed by special appearance before the
RTC that it is separate and distinct from Kukan, Inc.
Following La Naval Drug Corporation, 30 KIC cannot be deemed to
have waived its objection to the court's lack of jurisdiction over its person. It
would defy logic to say that KIC unequivocally submitted itself to the
jurisdiction of the RTC when it strongly asserted that it and Kukan, Inc. are
different entities. In the scheme of things obtaining, KIC had no other option
but to insist on its separate identity and plead for relief consistent with that
position.
Third Issue: Piercing the
Veil of Corporate Fiction
The third and main issue in this case is whether or not the trial and
appellate courts correctly applied the principle of piercing the veil of
corporate entity — called also as disregarding the fiction of a separate
juridical personality of a corporation — to support a conclusion that Kukan,
Inc. and KIC are but one and the same corporation with respect to the
contract award referred to at the outset. This principle finds its context on the
postulate that a corporation is an artificial being invested with a personality
separate and distinct from those of the stockholders and from other
corporations to which it may be connected or related. 31
In Pantranco Employees Association (PEA-PTGWO) v. National
Labor Relations Commission, 32 the Court revisited the subject principle of
piercing the veil of corporate fiction and wrote:
Under the doctrine of "piercing the veil of corporate fiction," the court
looks at the corporation as a mere collection of individuals or an
aggregation of persons undertaking business as a group, disregarding
the separate juridical personality of the corporation unifying the
group. Another formulation of this doctrine is that when two
business enterprises are owned, conducted and controlled by the
same parties, both law and equity will, when necessary to protect
the rights of third parties, disregard the legal fiction that two
corporations are distinct entities and treat them as identical or as
one and the same.

Whether the separate personality of the corporation should be

pierced hinges on obtaining facts appropriately pleaded or
proved. However, any piercing of the corporate veil has to be done
with caution, albeit the Court will not hesitate to disregard the
corporate veil when it is misused or when necessary in the interest of
justice. . . . (Emphasis supplied.)

The same principle was the subject and discussed in Rivera v. United
Laboratories, Inc.:
While a corporation may exist for any lawful purpose, the law will
regard it as an association of persons or, in case of two corporations,
merge them into one, when its corporate legal entity is used as a
cloak for fraud or illegality. This is the doctrine of piercing the
 veil of corporate fiction. The doctrine applies only when such
corporate fiction is used to defeat public convenience, justify
wrong, protect fraud, or defend crime, or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the
mere alter ego or business conduit of a person, or where the
corporation is so organized and controlled and its affairs are so
conducted as to make it merely an instrumentality, agency, conduit or
adjunct of another corporation.

To disregard the separate juridical personality of a corporation,

the wrongdoing must be established clearly and convincingly. It
cannot be presumed. 33 (Emphasis supplied.)

Now, as before the appellate court, petitioner KIC maintains that the
RTC violated its right to due process when, in the execution of its November
28, 2002 Decision, the court authorized the issuance of the writ against KIC
for Kukan, Inc.'s judgment debt, albeit KIC has never been a party to the
underlying suit. As a counterpoint, Morales argues that KIC's specific
concern on due process and on the validity of the writ to execute the RTC's
November 28, 2002 Decision would be mooted if it were established that
KIC and Kukan, Inc. are indeed one and the same corporation. HDCAaS

Morales' contention is untenable.

The principle of piercing the veil of corporate fiction, and the resulting
treatment of two related corporations as one and the same juridical person
with respect to a given transaction, is basically applied only to determine
established liability; 34 it is not available to confer on the court a jurisdiction
it has not acquired, in the first place, over a party not impleaded in a case.
Elsewise put, a corporation not impleaded in a suit cannot be subject to the
court's process of piercing the veil of its corporate fiction. In that situation,
the court has not acquired jurisdiction over the corporation and, hence, any
proceedings taken against that corporation and its property would infringe on
its right to due process. Aguedo Agbayani, a recognized authority on
Commercial Law, stated as much:
23. Piercing the veil of corporate entity applies to determination of
liability not of jurisdiction. . . .

This is so because the doctrine of piercing the veil of corporate

fiction comes to play only during the trial of the case after the
court has already acquired jurisdiction over the corporation.
Hence, before this doctrine can be applied, based on the evidence
presented, it is imperative that the court must first have jurisdiction
over the corporation. 35 . . . (Emphasis supplied.)
 The implication of the above comment is twofold: (1) the court must
first acquire jurisdiction over the corporation or corporations involved before
its or their separate personalities are disregarded; and (2) the doctrine of
piercing the veil of corporate entity can only be raised during a full-blown
trial over a cause of action duly commenced involving parties duly brought
under the authority of the court by way of service of summons or what passes
as such service.
The issue of jurisdiction or the lack of it over KIC has already been
discussed. Anent the matter of the time and manner of raising the principle in
question, it is undisputed that no full-blown trial involving KIC was had
when the RTC disregarded the corporate veil of KIC. The reason for this
actuality is simple and undisputed: KIC was not impleaded in Civil Case No.
99-93173 and that the RTC did not acquire jurisdiction over it. It was
dragged to the case after it reacted to the improper execution of its properties
and veritably hauled to court, not thru the usual process of service of
summons, but by mere motion of a party with whom it has no privity of
contract and after the decision in the main case had already become final and
executory. As to the propriety of a plea for the application of the principle by
mere motion, the following excerpts are instructive:
Generally, a motion is appropriate only in the absence of
remedies by regular pleadings, and is not available to settle
important questions of law, or to dispose of the merits of the case.
A motion is usually a proceeding incidental to an action, but it may
be a wholly distinct or independent proceeding. A motion in this sense
is not within this discussion even though the relief demanded is
denominated an "order."

A motion generally relates to procedure and is often resorted to in

order to correct errors which have crept in along the line of the
principal action's progress. Generally, where there is a procedural
defect in a proceeding and no method under statute or rule of court by
which it may be called to the attention of the court, a motion is an
appropriate remedy. In many jurisdictions, the motion has replaced the
common-law pleas testing the sufficiency of the pleadings, and
various common-law writs, such as writ of error coram
nobis and audita querela. In some cases, a motion may be one of
several remedies available. For example, in some jurisdictions, a
motion to vacate an order is a remedy alternative to an appeal
therefrom.
 Statutes governing motions are given a liberal
construction. 36 (Emphasis supplied.)

The bottom line issue of whether Morales can proceed against KIC for
the judgment debt of Kukan, Inc. — assuming hypothetically that he can,
applying the piercing the corporate veil principle — resolves itself into the
question of whether a mere motion is the appropriate vehicle for such
purpose.
Verily, Morales espouses the application of the principle of piercing
the corporate veil to hold KIC liable on theory that Kukan, Inc. was out to
defraud him through the use of the separate and distinct personality of
another corporation, KIC. In net effect, Morales' adverted motion to pierce
the veil of corporate fiction dated January 3, 2007 stated a new cause of
action, i.e., for the liability of judgment debtor Kukan, Inc. to be borne by
KIC on the alleged identity of the two corporations. This new cause of action
should be properly ventilated in another complaint and subsequent trial
where the doctrine of piercing the corporate veil can, if appropriate, be
applied, based on the evidence adduced. Establishing the claim of Morales
and the corresponding liability of KIC for Kukan, Inc.'s indebtedness could
hardly be the subject, under the premises, of a mere motion interposed after
the principal action against Kukan, Inc. alone had peremptorily been
terminated. After all, a complaint is one where the plaintiff alleges causes of
action.TaEIcS

In any event, the principle of piercing the veil of corporate fiction

finds no application to the instant case.
As a general rule, courts should be wary of lifting the corporate veil
between corporations, however related. Philippine National Bank v.
Andrada Electric Engineering Company 37 explains why:
A corporation is an artificial being created by operation of law. . . . It
has a personality separate and distinct from the persons composing it,
as well as from any other legal entity to which it may be related. This
is basic.

Equally well-settled is the principle that the corporate mask may be

removed or the corporate veil pierced when the corporation is just an
alter ego of a person or of another corporation. For reasons of public
policy and in the interest of justice, the corporate veil will justifiably
be impaled only when it becomes a shield for fraud, illegality or
inequity committed against third persons.
 Hence, any application of the doctrine of piercing the corporate
veil should be done with caution. A court should be mindful of the
milieu where it is to be applied. It must be certain that the
corporate fiction was misused to such an extent that injustice,
fraud, or crime was committed against another, in disregard of its
rights. The wrongdoing must be clearly and convincingly
established; it cannot be presumed. Otherwise, an injustice that
was never unintended may result from an erroneous application.

This Court has pierced the corporate veil to ward off a judgment credit,
to avoid inclusion of corporate assets as part of the estate of the
decedent, to escape liability arising from a debt, or to perpetuate fraud
and/or confuse legitimate issues either to promote or to shield unfair
objectives or to cover up an otherwise blatant violation of the
prohibition against forum-shopping. Only in these and similar
instances may the veil be pierced and disregarded. (Emphasis
supplied.)

In fine, to justify the piercing of the veil of corporate fiction, it must be

shown by clear and convincing proof that the separate and distinct
personality of the corporation was purposefully employed to evade a
legitimate and binding commitment and perpetuate a fraud or like
wrongdoings. To be sure, the Court has, on numerous occasions, 38 applied
the principle where a corporation is dissolved and its assets are transferred to
another to avoid a financial liability of the first corporation with the result
that the second corporation should be considered a continuation and
successor of the first entity.
In those instances when the Court pierced the veil of corporate fiction
of two corporations, there was a confluence of the following factors:
1. A first corporation is dissolved;
2. The assets of the first corporation is transferred to a
second corporation to avoid a financial liability of the first
corporation; and
3. Both corporations are owned and controlled by the
same persons such that the second corporation should be
considered as a continuation and successor of the first
corporation.
In the instant case, however, the second and third factors are
conspicuously absent. There is, therefore, no compelling justification for
disregarding the fiction of corporate entity separating Kukan, Inc. from KIC.
In applying the principle, both the RTC and the CA miserably failed to
identify the presence of the abovementioned factors. Consider:
The RTC disregarded the separate corporate personalities of Kukan,
Inc. and KIC based on the following premises and arguments:
While it is true that a corporation has a separate and distinct
personality from its stockholder, director and officers, the law
expressly provides for an exception. When Michael Chan, the
Managing Director of defendant Kukan, Inc. (majority stockholder of
the newly formed corporation [KIC]) confirmed the award to plaintiff
to supply and install interior signages in the Enterprise Center he
(Michael Chan, Managing Director of defendant Kukan, Inc.) knew
that there was no sufficient corporate funds to pay its
obligation/account, thus implying bad faith on his part and fraud in
contracting the obligation. Michael Chan neither returned the interior
signages nor tendered payment to the plaintiff. This circumstance may
warrant the piercing of the veil of corporation fiction. Having been
guilty of bad faith in the management of corporate matters the
corporate trustee, director or officer may be held personally
liable. . . .

Since fraud is a state of mind, it need not be proved by direct evidence

but may be inferred from the circumstances of the case. . . . [A]nd the
circumstances are: the signature of Michael Chan, Managing Director
of Kukan, Inc. appearing in the confirmation of the award sent to the
plaintiff; signature of Chan Kai Kit, a British National appearing in the
Articles of Incorporation and signature of Michael Chan also a British
National appearing in the Articles of Incorporation [of] Kukan
International Corp. give the impression that they are one and the same
person, that Michael Chan and Chan Kai Kit are both majority
stockholders of Kukan International Corp. and Kukan, Inc. holding 40%
of the stocks; that Kukan International Corp. is practically doing the
same kind of business as that of Kukan, Inc. 39 (Emphasis supplied.)

As is apparent from its disquisition, the RTC brushed aside the

separate corporate existence of Kukan, Inc. and KIC on the main argument
that Michael Chan owns 40% of the common shares of both corporations,
obviously oblivious that overlapping stock ownership is a common business
phenomenon. It must be remembered, however, that KIC's properties were
the ones seized upon levy on execution and not that of Kukan, Inc. or of
Michael Chan for that matter. Mere ownership by a single stockholder or by
another corporation of a substantial block of shares of a corporation does not,
standing alone, provide sufficient justification for disregarding the separate
corporate personality. 40 For this ground to hold sway in this case, there must
be proof that Chan had control or complete dominion of Kukan and KIC's
finances, policies, and business practices; he used such control to commit
fraud; and the control was the proximate cause of the financial loss
complained of by Morales. The absence of any of the elements prevents the
piercing of the corporate veil. 41 And indeed, the records do not show the
presence of these elements.
On the other hand, the CA held:
In the present case, the facts disclose that Kukan, Inc. entered into a
contractual obligation . . . worth more than three million pesos
although it had only Php5,000.00 paid-up capital; [KIC] was
incorporated shortly before Kukan, Inc. suddenly ceased to appear and
participate in the trial; [KIC's] purpose is related and somewhat akin to
that of Kukan, Inc.; and in [KIC] Michael Chan, a.k.a. Chan Kai Kit,
holds forty percent of the outstanding stocks, while he formerly held
the same amount of stocks in Kukan, Inc. These would lead to the
inescapable conclusion that Kukan, Inc. committed fraudulent
representation by awarding to the private respondent the
contract with full knowledge that it was not in a position to
comply with the obligation it had assumed because of inadequate
paid-up capital. It bears stressing that shareholders should in good
faith put at the risk of the business, unencumbered capital reasonably
adequate for its prospective liabilities. The capital should not be
illusory or trifling compared with the business to be done and the risk
of loss.HIETAc

Further, it is clear that [KIC] is a continuation and successor of Kukan,

Inc. Michael Chan, a.k.a. Chan Kai Kit has the largest block of shares
in both business enterprises. The emergence of the former was
cleverly timed with the hasty withdrawal of the latter during the trial to
avoid the financial liability that was eventually suffered by the latter.
The two companies have a related business purpose. Considering
these circumstances, the obvious conclusion is that the creation of
Kukan International Corporation served as a device to evade the
obligation incurred by Kukan, Inc. and yet profit from the
goodwill attained by the name "Kukan" by continuing to engage
in the same line of business with the same list of
clients. 42 (Emphasis supplied.)
 Evidently, the CA found the meager paid-up capitalization of Kukan,
Inc. and the similarity of the business activities in which both corporations
are engaged as a jumping board to its conclusion that the creation of KIC
"served as a device to evade the obligation incurred by Kukan, Inc." The
appellate court, however, left a gaping hole by failing to demonstrate that
Kukan, Inc. and its stockholders defrauded Morales. In fine, there is no
showing that the incorporation, and the separate and distinct personality, of
KIC was used to defeat Morales' right to recover from Kukan, Inc. Judging
from the records, no serious attempt was made to levy on the properties of
Kukan, Inc. Morales could not, thus, validly argue that Kukan, Inc. tried to
avoid liability or had no property against which to proceed.
Morales further contends that Kukan, Inc.'s closure is evidenced by its
failure to file its 2001 General Information Sheet (GIS) with the Securities
and Exchange Commission. However, such fact does not necessarily mean
that Kukan, Inc. had altogether ceased operations, as Morales would have
this Court believe, for it is stated on the face of the GIS that it is only upon a
failure to file the corporate GIS for five (5) consecutive years that
non-operation shall be presumed.
The fact that Kukan, Inc. entered into a PhP3.3 million contract when
it only had a paid-up capital of PhP5,000 is not an indication of the intent on
the part of its management to defraud creditors. Paid-up capital is merely
seed money to start a corporation or a business entity. As in this case, it
merely represented the capitalization upon incorporation in 1997 of Kukan,
Inc. Paid-up capitalization of PhP5,000 is not and should not be taken as a
reflection of the firm's capacity to meet its recurrent and long-term
obligations. It must be borne in mind that the equity portion cannot be
equated to the viability of a business concern, for the best test is the working
capital which consists of the liquid assets of a given business relating to the
nature of the business concern.
Neither should the level of paid-up capital of Kukan, Inc. upon its
incorporation be viewed as a badge of fraud, for it is in compliance with Sec.
13 of the Corporation Code, 43 which only requires a minimum paid-up
capital of PhP5,000.
The suggestion that KIC is but a continuation and successor of Kukan,
Inc., owned and controlled as they are by the same stockholders, stands
without factual basis. It is true that Michael Chan, a.k.a. Chan Kai Kit, owns
40% of the outstanding capital stock of both corporations. But such
circumstance, standing alone, is insufficient to establish identity. There must
be at least a substantial identity of stockholders for both corporations in order
to consider this factor to be constitutive of corporate identity.
 It would not avail Morales any to rely 44 on General Credit
Corporation v. Alsons Development and Investment Corporation. 45 General
Credit Corporation is factually not on all fours with the instant case. There,
the common stockholders of the corporations represented 90% of the
outstanding capital stock of the companies, unlike here where Michael Chan
merely represents 40% of the outstanding capital stock of both KIC and
Kukan, Inc., not even a majority of it. In that case, moreover, evidence was
adduced to support the finding that the funds of the second corporation came
from the first. Finally, there was proof in General Credit Corporation of
complete control, such that one corporation was a mere dummy or alter ego
of the other, which is absent in the instant case.
Evidently, the aforementioned case relied upon by Morales cannot
justify the application of the principle of piercing the veil of corporate fiction
to the instant case. As shown by the records, the name Michael Chan, the
similarity of business activities engaged in, and incidentally the word
"Kukan" appearing in the corporate names provide the nexus between Kukan,
Inc. and KIC. As illustrated, these circumstances are insufficient to establish
the identity of KIC as the alter ego or successor of Kukan, Inc.
It bears reiterating that piercing the veil of corporate fiction is frowned
upon. Accordingly, those who seek to pierce the veil must clearly establish
that the separate and distinct personalities of the corporations are set up to
justify a wrong, protect fraud, or perpetrate a deception. In the concrete and
on the assumption that the RTC has validly acquired jurisdiction over the
party concerned, Morales ought to have proved by convincing evidence that
Kukan, Inc. was collapsed and thereafter KIC purposely formed and operated
to defraud him. Morales has not to us discharged his burden. SICDAa

WHEREFORE, the petition is hereby GRANTED. The CA's

January 23, 2008 Decision and April 16, 2008 Resolution in CA-G.R. SP No.
100152 are hereby REVERSED and SET ASIDE. The levy placed upon the
personal properties of Kukan International Corporation is hereby ordered
lifted and the personal properties ordered returned to Kukan International
Corporation. The RTC of Manila, Branch 21 is hereby directed to execute the
RTC Decision dated November 28, 2002 against Kukan, Inc. with reasonable
dispatch.
No costs.
SO ORDERED.
(Kukan International Corporation v. Reyes, G.R. No. 182729, [September 29,
|||

2010], 646 PHIL 210-243)

 [G.R. No. 171660. October 17, 2011.]
CONTINENTAL CEMENT CORPORATION, petitioner, vs.
ASEA BROWN BOVERI, INC., BBC BROWN BOVERI,
CORP., AND TORD B. ERIKSON, ** respondents.

DECISION

DEL CASTILLO, J : p

"Except as provided by law or by stipulation, one is entitled to an adequate

compensation only for such pecuniary loss suffered by him as he has duly proved.
Such compensation is referred to as actual or compensatory damages." 1 SHCaDA

This Petition for Review on Certiorari 2 under Rule 45 of the Rules of

Court assails the Decision 3 dated August 25, 2005 and the Resolution 4 dated
February 16, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 58551.
Factual Antecedents
Sometime in July 1990, petitioner Continental Cement Corporation (CCC), a
corporation engaged in the business of producing cement, 5 obtained the services
of respondents 6 Asea Brown Boveri, Inc. (ABB) and BBC Brown Boveri, Corp.
to repair its 160 KW Kiln DC Drive Motor (Kiln Drive Motor). 7
On October 23, 1991, due to the repeated failure of respondents to repair the Kiln
Drive Motor, petitioner filed with Branch 101 of the Regional Trial Court (RTC)
of Quezon City a Complaint 8 for sum of money and damages, docketed as Civil
Case No. Q-91-10419, against respondent corporations and respondent Tord B.
Eriksson (Eriksson), Vice-President of the Service Division of the respondent
ABB. 9 Petitioner alleged that:
4. On July 11, 1990, the plaintiff delivered the 160 KW Kiln DC Drive
Motor to the defendants to be repaired under PO No. 17136-17137, . . .

The defendant, Tord B. Eriksson, was personally directing the repair

of the said Kiln Drive Motor. He has direction and control of the
business of the defendant corporations. Apparently, the defendant
Asea Brown Boveri, Inc. has no separate personality because of the
4,000 shares of stock, 3996 shares were subscribed by Honorio
 Poblador, Jr. The four other stockholders subscribed for one share of
stock each only.

5. After the first repair by the defendants, the 160 KW Kiln Drive
Motor was installed for testing on October 3, 1990. On October 4,
1990 the test failed. The plaintiff removed the DC Drive Motor and
replaced it with its old motor. It was only on October 9, 1990 that the
plaintiff resumed operation. The plaintiff lost 1,040 MTD per day
from October 5 to October 9, 1990.

6. On November 14, 1990, after the defendants had undertaken the

second repair of the motor in question, it was installed in the kiln. The
test failed again. The plaintiff resumed operation with its old motor on
November 19, 1990. The plaintiff suffered production losses for five
days at the rate of 1,040 MTD daily.

7. The defendants were given a third chance to repair the 160 KW Kiln
DC Drive Motor. On March 13, 1991, the motor was installed and
tested. Again, the test failed. The plaintiff resumed operation on
March 15, 1991. The plaintiff sustained production losses at the rate of
1,040 MTD for two days.

8. As a consequence of the failure of the defendants to comply with

their contractual obligation to repair the 160 KW Kiln DC Drive
Motor, the plaintiff sustained the following losses:

(a) Production and opportunity losses - P10,600,000.00

This amount represents only about 25% of the production losses at the rate of P72.00
per bag of cement.

(b) Labor Cost and Rental of Crane - 26,965.78

(c) Penalties (at P987.25 a day) for

failure to deliver the motor from

Aug. 29, 1990 to July 31, 1991. - 331,716.00

(d) Cost of money interest of the

 P987.25 a day from July 18, 1990

to April 5, 1991 at 34% for 261 days - 24,335.59

––––––––––––

Total Damages 10,983,017.42

==========

9. The plaintiff has made several demands on the defendants for the
payment of the above-enumerated damages, but the latter refused to
do so without valid justification.

10. The plaintiff was constrained to file this action and has undertaken
to pay its counsel Twenty Percentum (20%) of the amount sought to
be recovered as attorney's fees. 10cCAIES

Respondents, however, claimed that under Clause 7 of the General

Conditions, 11 attached to the letter of offer 12 dated July 4, 1990 issued by
respondent ABB to petitioner, the liability of respondent ABB "does not extend
to consequential damages either direct or indirect." 13 Moreover, as to
respondent Eriksson, there is no lawful and tenable reason for petitioner to sue
him in his personal capacity because he did not personally direct the repair of the
Kiln Drive Motor. 14
Ruling of the Regional Trial Court
On August 30, 1995, the RTC rendered a Decision 15 in favor of petitioner. The
RTC rejected the defense of limited liability interposed by respondents since
they failed to prove that petitioner received a copy of the General
Conditions. 16 Consequently, the RTC granted petitioner's claims for production
loss, labor cost and rental of crane, and attorney's fees. 17 Thus:
WHEREFORE, premises above considered, finding the complaint
substantiated by plaintiff, judgment is hereby rendered in favor of
plaintiff and against defendants, hereby ordering the latter to pay
jointly and severally the former, the following sums:

P10,600,00.00 for loss of production;

P26,965.78 labor cost and rental of crane;

P100,000.00 attorney's fees and cost.

SO ORDERED. 18

Ruling of the Court of Appeals

On appeal, the CA reversed the ruling of the RTC. The CA applied the
exculpatory clause in the General Conditions and ruled that there is no implied
warranty on repair work; thus, the repairman cannot be made to pay for loss of
production as a result of the unsuccessful repair. 19 The fallo of the CA
Decision 20 reads:
WHEREFORE, premises considered, the assailed August 30, 1995
Decision of the Regional Trial Court of Quezon City, Branch 101 is
hereby REVERSED and SET ASIDE. The October 23, 1991
Complaint is hereby DISMISSED.

SO ORDERED. 21

Petitioner moved for reconsideration 22 but the CA denied the same in its
Resolution 23 dated February 16, 2006.
Issues
Hence, the present recourse where petitioner interposes the following issues:
1. Whether . . . the [CA] gravely erred in applying the terms of
the "General Conditions" of Purchase Orders Nos. 17136 and
17137 to exculpate the respondents . . . from liability in this
case.

2. Whether . . . the [CA] seriously erred in applying the

concepts of 'implied warranty' and 'warranty against hidden
defects' of the New Civil Code in order to exculpate the
respondents . . . from its contractual obligation. 24

Petitioner's Arguments
Petitioner reiterates that the General Conditions cannot exculpate respondents
because petitioner never agreed to be bound by it nor did petitioner receive a
copy of it. 25 Petitioner also imputes error on the part of the CA in applying the
concepts of warranty against hidden defects and implied warranty. 26 Petitioner
contends that these concepts are not applicable because the instant case does not
involve a contract of sale. 27 What applies are Articles 1170 and 2201 of the
Civil Code.28 cCAIDS

Respondents' Arguments
Conversely, respondents insist that petitioner is bound by the General
Conditions. 29 By issuing Purchase Order Nos. 17136-37, petitioner in effect
accepted the General Conditions appended to respondent ABB's letter of
offer. 30 Respondents likewise defend the ruling of the CA that there could be no
implied warranty on the repair made by respondent ABB as the warranty of the
fitness of the equipment should be enforced directly against the manufacturer of
the Kiln Drive Motor. 31 Respondents also deny liability for damages claiming
that they performed their obligation in good faith. 32
Our Ruling
The petition has merit.
Petitioner and respondent ABB entered into a contract for the repair of
petitioner's Kiln Drive Motor, evidenced by Purchase Order Nos.
17136-37, 33 with the following terms and conditions:
a) Total Price: P197,450.00

b) Delivery Date: August 29, 1990 or six (6) weeks from

receipt of order and down payment 34

c) Penalty: One half of one percent of the total cost or Nine

Hundred Eighty Seven Pesos and Twenty five centavos
(P987.25) per day of delay.

Respondent ABB, however, not only incurred delay in performing its obligation
but likewise failed to repair the Kiln Drive Motor; thus, prompting petitioner to
sue for damages.
Clause 7 of the General Conditions is
not binding on petitioner
Respondents contend that under Clause 7 of the General Conditions their
liability "does not extend to consequential damages either direct or
indirect." 35 This contention, however, is unavailing because respondents failed
to show that petitioner was duly furnished with a copy of said General
Conditions. Hence, it is not binding on petitioner.
Having breached the contract it entered with petitioner, respondent ABB is liable
for damages pursuant to Articles 1167, 1170, and 2201 of the Civil Code, which
state:
Art. 1167. If a person obliged to do something fails to do it, the same
shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the

tenor of the obligation. Furthermore, it may be decreed that what has
been poorly done be undone.

Art. 1170. Those who in the performance of their obligations are

guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
 Art. 2201. In contracts and quasi-contracts, the damages for which the
obligor who acted in good faith is liable shall be those that are the
natural and probable consequences of the breach of the obligation, and
which the parties have foreseen or could have reasonably foreseen at
the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall
be responsible for all damages which may be reasonably attributed to
the non-performance of the obligation.

Based on the foregoing, a repairman who fails to perform his obligation is liable
to pay for the cost of the execution of the obligation plus damages. Though
entitled, petitioner in this case is not claiming reimbursement for the repair
allegedly done by Newton Contractor, 36 but is instead asking for damages for
the delay caused by respondent ABB. aHIEcS

Petitioner is entitled to penalties under

Purchase Order Nos. 17136-37
As per Purchase Order Nos. 17136-37, petitioner is entitled to penalties in the
amount of P987.25 per day from the time of delay, August 30, 1990, up to the
time the Kiln Drive Motor was finally returned to petitioner. Records show that
although the testing of Kiln Drive Motor was done on March 13, 1991, the said
motor was actually delivered to petitioner as early as January 7, 1991. 37The
installation and testing was done only on March 13, 1991 upon the request of
petitioner because the Kiln was under repair at the time the motor was delivered;
hence, the load testing had to be postponed. 38
Under Article 1226 39 of the Civil Code, the penalty clause takes the place of
indemnity for damages and the payment of interests in case of non-compliance
with the obligation, unless there is a stipulation to the contrary. In this case, since
there is no stipulation to the contrary, the penalty in the amount of P987.25 per
day of delay covers all other damages (i.e., production loss, labor cost, and rental
of the crane) claimed by petitioner.
Petitioner is not entitled to recover
production loss, labor cost and the
rental of crane
Article 1226 of the Civil Code further provides that if the obligor refuses to pay
the penalty, such as in the instant case, 40 damages and interests may still be
recovered on top of the penalty. Damages claimed must be the natural and
probable consequences of the breach, which the parties have foreseen or could
have reasonably foreseen at the time the obligation was constituted. 41
Thus, in addition to the penalties, petitioner seeks to recover as damages
production loss, labor cost and the rental of the crane.
Petitioner avers that every time the Kiln Drive Motor is tested, petitioner had to
rent a crane and pay for labor to install the motor. 42 But except for the Summary
of Claims for Damages, 43 no other evidence was presented by petitioner to show
that it had indeed rented a crane or that it incurred labor cost to install the motor.
Petitioner likewise claims that as a result of the delay in the repair of the Kiln
Drive Motor, its production from August 29, 1990 to March 15, 1991 decreased
since it had to use its old motor which was not able to produce cement as much as
the one under repair; 44 and that every time the said motor was installed and
tested, petitioner had to stop its operations; thereby, incurring more production
losses. 45 To support its claim, petitioner presented its monthly production
reports 46 for the months of April to June 1990 showing that on the average it
was able to produce 1040 MT of cement per day. However, the production
reports for the months of August 1990 to March 1991 were not presented.
Without these production reports, it cannot be determined with reasonable
certainty whether petitioner indeed incurred production losses during the said
period. It may not be amiss to say that competent proof and a reasonable degree
of certainty are needed to justify a grant of actual or compensatory damages;
speculations, conjectures, assertions or guesswork are not sufficient. 47
Besides, consequential damages, such as loss of profits on account of delay or
failure of delivery, may be recovered only if such damages were reasonably
foreseen or have been brought within the contemplation of the parties as the
probable result of a breach at the time of or prior to contracting. 48 Considering
the nature of the obligation in the instant case, respondent ABB, at the time it
agreed to repair petitioner's Kiln Drive Motor, could not have reasonably
foreseen that it would be made liable for production loss, labor cost and rental of
the crane in case it fails to repair the motor or incurs delay in delivering the same,
especially since the motor under repair was a spare motor. 49
For the foregoing reasons, petitioner is not entitled to recover production loss,
labor cost and the rental of the crane.
Petitioner is not entitled to attorney's
fees
Neither is petitioner entitled to the award of attorney's fees. Jurisprudence
requires that the factual basis for the award of attorney's fees must be set forth in
the body of the decision and not in the dispositive portion only. 50 In this case, no
explanation was given by the RTC in awarding attorney's fees in favor of
petitioner. In fact, the award of attorney's fees was mentioned only in the
dispositive portion of the decision.
Respondent Eriksson cannot be made
jointly and severally liable for the
penalties
Respondent Eriksson, however, cannot be made jointly and severally liable for
the penalties. There is no showing that respondent Eriksson directed or
participated in the repair of the Kiln Drive Motor or that he is guilty of bad faith
or gross negligence in directing the affairs of respondent ABB. It is a basic
principle that a corporation has a personality separate and distinct from the
persons composing or representing it; hence, personal liability attaches only in
exceptional cases, such as when the director, trustee, or officer is guilty of bad
faith or gross negligence in directing the affairs of the corporation. 51
In sum, we find petitioner entitled to penalties in the amount of P987.25 per day
from August 30, 1990 up to January 7, 1991 (131 days) or a total amount of
P129,329.75 for the delay caused by respondent ABB. Finally, we impose
interest at the rate of six percent (6%) on the total amount due from the date of
filing of the complaint until finality of this Decision. However, from the finality
of judgment until full payment of the total award, the interest rate of twelve
percent (12%) shall apply. 52
WHEREFORE, the petition is hereby GRANTED. The assailed Decision
dated August 25, 2005 and the Resolution dated February 16, 2006 of the Court
of Appeals in CA-G.R. CV No. 58551 are hereby REVERSED and SET
ASIDE. Respondent ABB is ORDERED to pay petitioner the amount of
P129,329.75, with interest at 6% per annum to be computed from the date of the
filing of the complaint until finality of this Decision and 12% per annum
thereafter until full payment.ADSTCI

SO ORDERED.
(Continental Cement Corp. v. Asea Brown Boveri, Inc., G.R. No. 171660,
|||

[October 17, 2011], 675 PHIL 169-182)

[G.R. No. 185814. October 13, 2010.]

SHS PERFORATED MATERIALS, INC., WINFRIED
HARTMANNSHENN, and HINRICH JOHANN
SCHUMACHER,petitioners, vs. MANUEL F.
DIAZ, respondent.
 DECISION

MENDOZA, J : p

Petitioners, by way of this petition for review on certiorari under Rule 45, seek
to annul and set aside the December 23, 2008 Decision 1 of the Court of
Appeals (CA) in CA-G.R. SP No. 100015, which reversed and set aside the
December 29, 2006 Resolution 2 of the National Labor Relations
Commission (NLRC). The NLRC Resolution, in turn, reversed and set aside the
June 15, 2006 Decision 3 of the Labor Arbiter (LA). 4
THE FACTS
Petitioner SHS Perforated Materials, Inc. (SHS) is a start-up corporation
organized and existing under the laws of the Republic of the Philippines and
registered with the Philippine Economic Zone Authority. Petitioner Winfried
Hartmannshenn (Hartmannshenn), a German national, is its president, in which
capacity he determines the administration and direction of the day-to-day
business affairs of SHS. Petitioner Hinrich Johann Schumacher (Schumacher),
also a German national, is the treasurer and one of the board directors. As such,
he is authorized to pay all bills, payrolls, and other just debts of SHS of whatever
nature upon maturity. Schumacher is also the Executive Vice-President of the
European Chamber of Commerce of the Philippines (ECCP) which is a separate
entity from SHS. Both entities have an arrangement where ECCP handles the
payroll requirements of SHS to simplify business operations and minimize
operational expenses. Thus, the wages of SHS employees are paid out by ECCP,
through its Accounting Services Department headed by Juliet
Taguiang (Taguiang).
Manuel F. Diaz (respondent) was hired by petitioner SHS as Manager for
Business Development on probationary status from July 18, 2005 to January 18,
2006, with a monthly salary of P100,000.00. Respondent's duties,
responsibilities, and work hours were described in the Contract of Probationary
Employment, 5 as reproduced below: ASDCaI

NAME : Jose Manuel F. Diaz

TITLE/STATUS : Manager for Business
Development
LOCATION : Lot C3-2A, Phase I, Camelray
Industrial Park II, Calamba, Laguna
REPORTS TO : Direct to Mr. Winfried
Hartmannshenn
 Normal Working Hours : 8:00 a.m. to 5:00
p.m.
subject to requirements of the job
OVERTIME : ____________________
JOB DESCRIPTION AND RESPONSIBILITIES:

DAILY/GENERAL DUTIES:

(a) Represent the company in any event organized by PEZA;

(b) Perform sales/marketing functions;

(c) Monitor/follow-up customer's inquiry on EMPLOYER's

services;

(d) Monitor on-going job orders/projects;

(e) Submit requirements as needed in application/renewal of

necessary permits;

(f) Liaise closely with the other commercial and technical staff
of the company;

(g) Accomplish PEZA documents/requirements for every

sales made; with legal assistance where necessary at
EMPLOYER's expense; and

(h) Perform other related duties and responsibilities.

OTHER RESPONSIBILITIES:

(a) abide by and perform to the best of his abilities all

functions, duties and responsibilities to be assigned by the
EMPLOYER in due course;

(b) comply with the orders and instructions given from time to
time by the EMPLOYER, INC. through its authorized
representatives;

(c) will not disclose any confidential information in respect of

the affairs of the EMPLOYER to any unauthorized person;

(d) perform any other administrative or non-administrative

duties, as assigned by any of the EMPLOYER's representative
from time to time either through direct written order or by
verbal assignment. The EMPLOYER may take into account
EMPLOYEE's training and expertise when assigning
additional tasks.
 AGREED:

(sgd. Manuel Diaz).

In addition to the above-mentioned responsibilities, respondent was also

instructed by Hartmannshenn to report to the SHS office and plant at least two (2)
days every work week to observe technical processes involved in the
manufacturing of perforated materials, and to learn about the products of the
company, which respondent was hired to market and sell.
During respondent's employment, Hartmannshenn was often abroad and,
because of business exigencies, his instructions to respondent were either sent by
electronic mail or relayed through telephone or mobile phone. When he would
be in the Philippines, he and the respondent held meetings. As to respondent's
work, there was no close supervision by him.
During meetings with the respondent, Hartmannshenn expressed his
dissatisfaction over respondent's poor performance. Respondent allegedly failed
to make any concrete business proposal or implement any specific measure to
improve the productivity of the SHS office and plant or deliver sales except for a
meagre P2,500.00 for a sample product. In numerous electronic mail messages,
respondent acknowledged his poor performance and offered to resign from the
company. cTCaEA

Respondent, however, denied sending such messages but admitted that he had
reported to the SHS office and plant only eight (8) times from July 18, 2005 to
November 30, 2005.
On November 16, 2005, in preparation for his trip to the Philippines,
Hartmannshenn tried to call respondent on his mobile phone, but the latter failed
to answer. On November 18, 2005, Hartmannshenn arrived in the Philippines
from Germany, and on November 22 and 24, 2005, notified respondent of his
arrival through electronic mail messages and advised him to get in touch with
him. Respondent claimed that he never received the messages.
On November 29, 2005, Hartmannshenn instructed Taguiang not to release
respondent's salary. Later that afternoon, respondent called and inquired about
his salary. Taguiang informed him that it was being withheld and that he had to
immediately communicate with Hartmannshenn. Again, respondent denied
having received such directive.
The next day, on November 30, 2005, respondent served on SHS a demand letter
and a resignation letter. The resignation letter reads:
This is to tender my irrevocable resignation from SHS Perforated
Materials, Inc., Philippines, effective immediately upon receipt of my
 due and demandable salary for the period covering November 16 to 30,
2005, which has yet been unpaid and is still currently being
withheld albeit illegally. This covers and amounts to the sum of
Php50,000.00 pesos net of all taxes. As my employment contract
clearly shows I receive a monthly salary of Php100,000.00 net of all
taxes.

It is precisely because of illegal and unfair labor practices such as

these that I offer my resignation with neither regret nor remorse. 6

In the evening of the same day, November 30, 2005, respondent met with
Hartmannshenn in Alabang. The latter told him that he was extremely
disappointed for the following reasons: his poor work performance; his
unauthorized leave and malingering from November 16 to November 30, 2005;
and failure to immediately meet Hartmannshenn upon his arrival from Germany.
Petitioners averred that respondent was unable to give a proper explanation for
his behavior. Hartmannshenn then accepted respondent's resignation and
informed him that his salary would be released upon explanation of his failure to
report to work, and proof that he did, in fact, work for the period in question. He
demanded that respondent surrender all company property and information in his
possession. Respondent agreed to these "exit" conditions through electronic mail.
Instead of complying with the said conditions, however, respondent sent another
electronic mail message to Hartmannshenn and Schumacher on December 1,
2005, appealing for the release of his salary.
Respondent, on the other hand, claimed that the meeting with Hartmannshenn
took place in the evening of December 1, 2005, at which meeting the latter
insulted him and rudely demanded that he accept P25,000.00 instead of his
accrued wage and stop working for SHS, which demands he refused. Later that
same night, he sent Hartmannshenn and Schumacher an electronic mail message
appealing for the release of his salary. Another demand letter for respondent's
accrued salary for November 16 to November 30, 2005, 13th month pay, moral
and exemplary damages, and attorney's fees was sent on December 2, 2005. SIcCEA

To settle the issue amicably, petitioners' counsel advised respondent's counsel by

telephone that a check had been prepared in the amount of P50,000.00, and was
ready for pick-up on December 5, 2005. On the same date, a copy of the formal
reply letter relating to the prepared payment was sent to the respondent's counsel
by facsimile transmission. Despite being informed of this, respondent never
picked up the check.
Respondent countered that his counsel received petitioners' formal reply letter
only on December 20, 2005, stating that his salary would be released subsequent
to the turn-over of all materials owned by the company in his possession.
Respondent claimed that the only thing in his possession was a sample panels
folder which he had already returned and which was duly received by Taguiang
on November 30, 2005.
On December 9, 2005, respondent filed a Complaint 7 against the petitioners for
illegal dismissal; non-payment of salaries/wages and 13th month pay with prayer
for reinstatement and full backwages; exemplary damages, and attorney's fees,
costs of suit, and legal interest.
THE RULING OF THE LABOR ARBITER
On June 15, 2006, the LA rendered his decision, the dispositive portion of which
states:
WHEREFORE, premises considered, judgment is hereby rendered
declaring complainant as having been illegally dismissed and further
ordering his immediate reinstatement without loss of seniority rights
and benefits. It is also ordered that complainant be deemed as a regular
employee. Accordingly, respondents are hereby ordered to jointly and
severally pay complainant the following:

1. P704,166.67 (P100,000.00 x 6.5 + (P100,000.00 x 6.5/12)

as backwages;

2. P50,000.00 as unpaid wages;

3. P37,083.33 as unpaid 13th month pay;

4. P200,000.00 as moral and exemplary damages;

5. P99,125.00 as attorney's fees.

SO ORDERED. 8 IcESaA

The LA found that respondent was constructively dismissed because the

withholding of his salary was contrary to Article 116 of the Labor Code as it was
not one of the exceptions for allowable wage deduction by the employer under
Article 113 of the Labor Code. He had no other alternative but to resign because
he could not be expected to continue working for an employer who withheld
wages without valid cause. The LA also held that respondent's probationary
employment was deemed regularized because petitioners failed to conduct a
prior evaluation of his performance and to give notice two days prior to his
termination as required by the Probationary Contract of Employment and Article
281 of the Labor Code. Petitioners' contention that they lost trust and confidence
in respondent as a managerial employee was not given credence for lack of
notice to explain the supposed loss of trust and confidence and absence of an
evaluation of respondent's performance.
The LA believed that the respondent complied with the obligations in his
contract as evidenced by his electronic mail messages to petitioners. He ruled
that petitioners are jointly and severally liable to respondent for backwages
including 13th month pay as there was no showing in the salary vouchers
presented that such was integrated in the salary; for moral and exemplary
damages for having in bad faith harassed respondent into resigning; and for
attorney's fees.
THE RULING OF THE NLRC
On appeal, the NLRC reversed the decision of the LA in its December 29, 2006
Resolution, the dispositive portion of which reads:
WHEREFORE, premises considered, the appeal is hereby
GRANTED.

The Decision dated June 15, 2006 is hereby REVERSED and SET
ASIDE and a new one is hereby entered:

(1) dismissing the complaint for illegal dismissal for

want of merit;

(2) dismissing the claims for 13th month pay, moral

and exemplary damages and attorney's fees for lack of
factual and legal basis; and

(3) ordering respondents to pay the complainant's

unpaid salary for the period covering November 16-30,
2005 in the amount of FIFTY THOUSAND PESOS
(Php50,000.00).

SO ORDERED. 9 caSDCA

The NLRC explained that the withholding of respondent's salary was a valid
exercise of management prerogative. The act was deemed justified as it was
reasonable to demand an explanation for failure to report to work and to account
for his work accomplishments. The NLRC held that the respondent voluntarily
resigned as evidenced by the language used in his resignation letter and demand
letters. Given his professional and educational background, the letters showed
respondent's resolve to sever the employer-employee relationship, and his
understanding of the import of his words and their consequences. Consequently,
respondent could not have been regularized having voluntarily resigned prior to
the completion of the probationary period. The NLRC further noted that
respondent's 13th month pay was already integrated in his salary in accordance
with his Probationary Contract of Employment and, therefore, no additional
amount should be due him.
On January 25, 2007, respondent filed a motion for reconsideration but the
NLRC subsequently denied it for lack of merit in its May 23, 2007 Resolution.
THE RULING OF THE COURT OF APPEALS
The CA reversed the NLRC resolutions in its December 23, 2008 Decision, the
dispositive portion of said decision reads:
WHEREFORE, premises considered, the herein petition is
GRANTED and the 29 December 2006 Resolution of the NLRC in
NLRC CN RAB-IV-12-21758-05-L, and the 23 May 2007 Resolution
denying petitioner's Motion for Reconsideration, are REVERSED and
SET ASIDE. Accordingly, a new judgment is hereby entered in that
petitioner is hereby awarded separation pay equivalent to at least one
month pay, and his full backwages, other privileges and benefits, or
their monetary equivalent during the period of his dismissal up to his
supposed actual reinstatement by the Labor Arbiter on 15 June 2006.

SO ORDERED. 10

Contrary to the NLRC ruling, the CA held that withholding respondent's salary
was not a valid exercise of management prerogative as there is no such thing as a
management prerogative to withhold wages temporarily. Petitioners' averments
of respondent's failure to report to work were found to be unsubstantiated
allegations not corroborated by any other evidence, insufficient to justify said
withholding and lacking in probative value. The malicious withholding of
respondent's salary made it impossible or unacceptable for respondent to
continue working, thus, compelling him to resign. The respondent's immediate
filing of a complaint for illegal dismissal could only mean that his resignation
was not voluntary. As a probationary employee entitled to security of tenure,
respondent was illegally dismissed. The CA ruled out actual reinstatement,
however, reasoning out that antagonism had caused a severe strain in their
relationship. It was of the view that separation pay equivalent to at least one
month pay would be a more equitable disposition. EISCaD

THE ISSUES
Aggrieved, the petitioners come to this Court praying for the reversal and setting
aside of the subject CA decision presenting the following:
ISSUES
I
THE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR IN NOT AFFIRMING THE DECISION
OF THE NLRC, WHICH WAS BASED ON SUBSTANTIAL
EVIDENCE.

II

THE COURT OF APPEALS COMMITTED SERIOUS AND

REVERSIBLE ERROR IN NOT AFFIRMING THE NLRC'S
HOLDING THAT PETITIONERS' WITHHOLDING OF
RESPONDENT'S SALARY FOR THE PAYROLL PERIOD
NOVEMBER 16-30, 2005 IN VIEW OF RESPONDENT'S
FAILURE TO RENDER ACTUAL WORK FOR SAID
PAYROLL PERIOD WAS A VALID EXERCISE OF
MANAGEMENT PREROGATIVE.

III

THE COURT OF APPEALS COMMITTED SERIOUS AND

REVERSIBLE ERROR IN AFFIRMING THE LABOR
ARBITER'S FINDING THAT RESPONDENT HAD BEEN
CONSTRUCTIVELY DISMISSED.

IV

THE COURT OF APPEALS COMMITTED SERIOUS AND

REVERSIBLE ERROR IN AWARDING RESPONDENT
SEPARATION PAY EQUIVALENT TO AT LEAST ONE
MONTH PAY IN LIEU OF REINSTATEMENT, FULL
BACKWAGES, AND OTHER PRIVILEGES AND BENEFITS,
OR THEIR MONETARY EQUIVALENT IN VIEW OF THE
FACT THAT RESPONDENT VOLUNTARILY RESIGNED
FROM PETITIONER SHS AND WAS NOT ILLEGALLY
DISMISSED.

THE COURT OF APPEALS COMMITTED SERIOUS AND

REVERSIBLE ERROR IN NOT HOLDING THAT
INDIVIDUAL PETITIONERS HARTMANNSHENN AND
SCHUMACHER MAY NOT BE HELD SOLIDARILY AND
PERSONALLY LIABLE WITH PETITIONER SHS FOR THE
PAYMENT OF THE MONETARY AWARD TO
RESPONDENT. IECcaA
The resolution of these issues is dependent on whether or not respondent was
constructively dismissed by petitioners, which determination is, in turn, hinged
on finding out (i) whether or not the temporary withholding of respondent's
salary/wages by petitioners was a valid exercise of management prerogative; and
(ii) whether or not respondent voluntarily resigned.
THE COURT'S RULING
As a rule, the factual findings of the courts below are conclusive in a petition for
review on certiorari where only errors of law should be reviewed. The case,
however, is an exception because the factual findings of the CA and the LA are
contradictory to that of the NLRC. Thus, a review of the records is necessary to
resolve the factual issues involved and render substantial justice to the parties. 11
Petitioners contend that withholding respondent's salary from November 16 to
November 30, 2005, was justified because respondent was absent and did not
show up for work during that period. He also failed to account for his
whereabouts and work accomplishments during said period. When there is an
issue as to whether an employee has, in fact, worked and is entitled to his salary,
it is within management prerogative to temporarily withhold an employee's
salary/wages pending determination of whether or not such employee did indeed
work.
We disagree with petitioners.
Management prerogative refers "to the right of an employer to regulate all
aspects of employment, such as the freedom to prescribe work assignments,
working methods, processes to be followed, regulation regarding transfer of
employees, supervision of their work, lay-off and discipline, and dismissal and
recall of work." 12 Although management prerogative refers to "the right to
regulate all aspects of employment," it cannot be understood to include the right
to temporarily withhold salary/wages without the consent of the employee. To
sanction such an interpretation would be contrary to Article 116 of the Labor
Code, which provides:
ART. 116. Withholding of wages and kickbacks prohibited. — It shall
be unlawful for any person, directly or indirectly, to withhold any
amount from the wages of a worker or induce him to give up any part
of his wages by force, stealth, intimidation, threat or by any other
means whatsoever without the worker's consent.

Any withholding of an employee's wages by an employer may only be allowed

in the form of wage deductions under the circumstances provided in Article 113
of the Labor Code, as set forth below:
 ART. 113. Wage Deduction. — No employer, in his own behalf or in
behalf of any person, shall make any deduction from the wages of his
employees, except: ADEaHT

(a) In cases where the worker is insured with his

consent by the employer, and the deduction is to
recompense the employer for the amount paid by him
as premium on the insurance;

(b) For union dues, in cases where the right of the

worker or his union to check-off has been recognized
by the employer or authorized in writing by the
individual worker concerned; and

(c) In cases where the employer is authorized by law or

regulations issued by the Secretary of Labor.

As correctly pointed out by the LA, "absent a showing that the withholding of
complainant's wages falls under the exceptions provided in Article 113, the
withholding thereof is thus unlawful." 13
Petitioners argue that Article 116 of the Labor Code only applies if it is
established that an employee is entitled to his salary/wages and, hence, does not
apply in cases where there is an issue or uncertainty as to whether an employee
has worked and is entitled to his salary/wages, in consonance with the principle
of "a fair day's wage for a fair day's work." Petitioners contend that in this case
there was precisely an issue as to whether respondent was entitled to his salary
because he failed to report to work and to account for his whereabouts and work
accomplishments during the period in question.
To substantiate their claim, petitioners presented hard copies of the electronic
mail messages 14 sent to respondent on November 22 and 24, 2005, directing the
latter to contact Hartmannshenn; the Affidavit 15 of Taguiang stating that she
advised respondent on or about November 29, 2005 to immediately
communicate with Mr. Hartmannshenn at the SHS office; Hartmannshenn's
Counter-Affidavit 16 stating that he exerted earnest efforts to contact respondent
through mobile phone; Schumacher's Counter-Affidavit 17 stating that
respondent had not filed any request for official leave; and respondent's
admission in his Position Paper 18 that he found it absurd to report to the SHS
plant when only security guards and machinists were present.
Respondent, on the other hand, presented reports 19 prepared by him and
submitted to Hartmannshenn on November 18 and 25, 2005; a receipt 20 issued
to him by Taguiang for a client's payment during the subject period; and eight
notarized letters 21 of prospective clients vouching for meetings they had with
the respondent during the subject period.
The Court finds petitioners' evidence insufficient to prove that respondent did
not work from November 16 to November 30, 2005. As can be gleaned from
respondent's Contract of Probationary Employment and the exchanges of
electronic mail messages 22 between Hartmannshenn and respondent, the latter's
duties as manager for business development entailed cultivating business ties,
connections, and clients in order to make sales. Such duties called for meetings
with prospective clients outside the office rather than reporting for work on a
regular schedule. In other words, the nature of respondent's job did not allow
close supervision and monitoring by petitioners. Neither was there any
prescribed daily monitoring procedure established by petitioners to ensure that
respondent was doing his job. Therefore, granting that respondent failed to
answer Hartmannshenn's mobile calls and to reply to two electronic mail
messages and given the fact that he admittedly failed to report to work at the SHS
plant twice each week during the subject period, such cannot be taken to signify
that he did not work from November 16 to November 30, 2005.
Furthermore, the electronic mail reports sent to Hartmannshenn and the receipt
presented by respondent as evidence of his having worked during the subject
period were not controverted by petitioners. The eight notarized letters of
prospective clients vouching for meetings they had with respondent during the
subject period may also be given credence. Although respondent only presented
such letters in support of his Motion for Reconsideration filed with the NLRC,
they may be considered by this Court in light of Section 10, Rule VII, of the 2005
New Rules of Procedure of the NLRC, which provides in part that "the rules of
procedure and evidence prevailing in courts of law and equity shall not be
controlling and the Commission shall use every and all reasonable means to
ascertain the facts in each case speedily and objectively, without regard to
technicalities of law or procedure, all in the interest of due process." While
administrative tribunals exercising quasi-judicial functions are free from the
rigidity of certain procedural requirements, they are bound by law and practice to
observe the fundamental and essential requirements of due process in justiciable
cases presented before them. 23 In this case, due process was afforded petitioners
as respondent filed with the NLRC a Motion to Set Case for Reception of
Additional Evidence as regards the said letters, which petitioners had the
opportunity to, and did, oppose.
Although it cannot be determined with certainty whether respondent worked for
the entire period from November 16 to November 30, 2005, the consistent rule is
that if doubt exists between the evidence presented by the employer and that by
the employee, the scales of justice must be tilted in favor of the latter 24 in line
with the policy mandated by Articles 2 and 3 of the Labor Code to afford
protection to labor and construe doubts in favor of labor. For petitioners' failure
to satisfy their burden of proof, respondent is presumed to have worked during
the period in question and is, accordingly, entitled to his salary. Therefore, the
withholding of respondent's salary by petitioners is contrary to Article 116 of the
Labor Code and, thus, unlawful. CSAaDE

Petitioners contend that respondent could not have been constructively

dismissed because he voluntarily resigned as evidenced by his resignation letter.
They assert that respondent was not forced to draft the letter and his intention to
resign is clear from the contents and terms used, and that given respondent's
professional and educational background, he was fully aware of the import and
consequences of the said letter. They maintain that respondent resigned to 'save
face' and avoid disciplinary measures due to his allegedly dismal work
performance and failure to report to work.
The Court, however, agrees with the LA and the CA that respondent was forced
to resign and was, thus, constructively dismissed. In Duldulao v. Court of
Appeals, it was written:
There is constructive dismissal if an act of clear discrimination,
insensibility, or disdain by an employer becomes so unbearable on the
part of the employee that it would foreclose any choice by him except
to forego his continued employment. It exists where there is cessation
of work because continued employment is rendered impossible,
unreasonable or unlikely, as an offer involving a demotion in rank and
a diminution in pay. 25SECcAI

What made it impossible, unreasonable or unlikely for respondent to continue

working for SHS was the unlawful withholding of his salary. For said reason, he
was forced to resign. It is of no moment that he served his resignation letter on
November 30, 2005, the last day of the payroll period and a non-working holiday,
since his salary was already due him on November 29, 2005, being the last
working day of said period. In fact, he was then informed that the wages of all
the other SHS employees were already released, and only his was being withheld.
What is significant is that the respondent prepared and served his resignation
letter right after he was informed that his salary was being withheld. It would be
absurd to require respondent to tolerate the unlawful withholding of his salary
for a longer period before his employment can be considered as so impossible,
unreasonable or unlikely as to constitute constructive dismissal. Even granting
that the withholding of respondent's salary on November 30, 2005, would not
constitute an unlawful act, the continued refusal to release his salary after the
payroll period was clearly unlawful. The petitioners' claim that they prepared the
check ready for pick-up cannot undo the unlawful withholding.
It is worthy to note that in his resignation letter, respondent cited petitioners'
"illegal and unfair labor practice" 26 as his cause for resignation. As correctly
noted by the CA, respondent lost no time in submitting his resignation letter and
eventually filing a complaint for illegal dismissal just a few days after his salary
was withheld. These circumstances are inconsistent with voluntary resignation
and bolster the finding of constructive dismissal.
Petitioners cite the case of Solas v. Power & Telephone Supply Phils., Inc. 27 to
support their contention that the mere withholding of an employee's salary does
not by itself constitute constructive dismissal. Petitioners are mistaken in
anchoring their argument on said case, where the withholding of the salary was
deemed lawful. In the above-cited case, the employee's salary was withheld for a
valid reason — it was applied as partial payment of a debt due to the employer,
for withholding taxes on his income and for his absence without leave. The
partial payment of a debt due to the employer and the withholding of taxes on
income were valid deductions under Article 113 paragraph (c) of the Labor Code.
The deduction from an employee's salary for a due and demandable debt to an
employer was likewise sanctioned under Article 1706 of the Civil Code. As to
the withholding for income tax purposes, it was prescribed by the National
Internal Revenue Code. Moreover, the employee therein was indeed absent
without leave.
In this case, the withholding of respondent's salary does not fall under any of the
circumstances provided under Article 113. Neither was it established with
certainty that respondent did not work from November 16 to November 30, 2005.
Hence, the Court agrees with the LA and the CA that the unlawful withholding
of respondent's salary amounts to constructive dismissal.
Respondent was constructively dismissed and, therefore, illegally dismissed.
Although respondent was a probationary employee, he was still entitled to
security of tenure. Section 3 (2) Article 13 of the Constitution guarantees the
right of all workers to security of tenure. In using the expression "all workers,"
the Constitution puts no distinction between a probationary and a permanent or
regular employee. This means that probationary employees cannot be dismissed
except for cause or for failure to qualify as regular employees. 28 IEHScT

This Court has held that probationary employees who are unjustly dismissed
during the probationary period are entitled to reinstatement and payment of full
backwages and other benefits and privileges from the time they were dismissed
up to their actual reinstatement. 29 Respondent is, thus, entitled to reinstatement
without loss of seniority rights and other privileges as well as to full backwages,
inclusive of allowances, and other benefits or their monetary equivalent
computed from the time his compensation was withheld up to the time of actual
reinstatement. Respondent, however, is not entitled to the additional amount for
13th month pay, as it is clearly provided in respondent's Probationary Contract of
Employment that such is deemed included in his salary. Thus:
EMPLOYEE will be paid a net salary of One Hundred Thousand
(Php100,000.00) Pesos per month payable every 15th day and end of
the month.

The compensation package defined in this paragraph shall represent

all that is due and demandable under this Contract and includes all
benefits required by law such as the 13th month pay. No other benefits,
bonus or allowance shall be due the employee. 30 (emphasis supplied)

Respondent's reinstatement, however, is no longer feasible as antagonism has

caused a severe strain in their working relationship. Under the doctrine of
strained relations, the payment of separation pay is considered an acceptable
alternative to reinstatement when the latter option is no longer desirable or viable.
Payment liberates the employee from what could be a highly oppressive work
environment, and at the same time releases the employer from the obligation of
keeping in its employ a worker it no longer trusts. Therefore, a more equitable
disposition would be an award of separation pay equivalent to at least one month
pay, in addition to his full backwages, allowances and other benefits. 31
With respect to the personal liability of Hartmannshenn and Schumacher, this
Court has held that corporate directors and officers are only solidarily liable with
the corporation for termination of employment of corporate employees if
effected with malice or in bad faith. 32 Bad faith does not connote bad judgment
or negligence; it imports dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of unknown duty through some
motive or interest or ill will; it partakes of the nature of fraud. 33 To sustain such
a finding, there should be evidence on record that an officer or director acted
maliciously or in bad faith in terminating the employee. 34 TEaADS

Petitioners withheld respondent's salary in the sincere belief that respondent did
not work for the period in question and was, therefore, not entitled to it. There
was no dishonest purpose or ill will involved as they believed there was a
justifiable reason to withhold his salary. Thus, although they unlawfully
withheld respondent's salary, it cannot be concluded that such was made in bad
faith. Accordingly, corporate officers, Hartmannshenn and Schumacher, cannot
be held personally liable for the corporate obligations of SHS.
WHEREFORE, the assailed December 23, 2008 Decision of the Court of
Appeals in CA-G.R. SP No. 100015 is
hereby AFFIRMEDwith MODIFICATION. The additional amount for 13th
month pay is deleted. Petitioners Winfried Hartmannshenn and Hinrich Johann
Schumacher are not solidarily liable with petitioner SHS Perforated Materials,
Inc.
SO ORDERED.
(SHS Perforated Materials, Inc. v. Diaz, G.R. No. 185814, [October 13, 2010],
|||

647 PHIL 580-602)

[G.R. No. 172727. September 8, 2010.]

QUEENSLAND-TOKYO COMMODITIES, INC., ROMEO
Y. LAU, and CHARLIE COLLADO, petitioners, vs.
THOMAS GEORGE, respondent.

RESOLUTION

NACHURA, J : p

At bar is a petition for review on certiorari under Rule 45 of the Rules

of Court filed by Queensland-Tokyo Commodities, Inc. (QTCI), Romeo Y.
Lau (Lau), and Charlie Collado (Collado), challenging the September 30,
2005 Decision 1 and the January 20, 2006 Resolution 2 of the Court of
Appeals (CA) in CA-G.R. SP No. 58741.
QTCI is a duly licensed broker engaged in the trading of commodity
futures. In 1995, Guillermo Mendoza, Jr. (Mendoza) and Oniler Lontoc
(Lontoc) of QTCI met with respondent Thomas George (respondent),
encouraging the latter to invest with QTCI. On July 7, 1995, upon Mendoza's
prodding, respondent finally invested with QTCI. On the same day, Collado,
in behalf of QTCI, and respondent signed the Customer's
Agreement. 3 Forming part of the agreement was the Special Power of
Attorney 4executed by respondent, appointing Mendoza as his
attorney-in-fact with full authority to trade and manage his account.
On June 20, 1996, the Securities and Exchange Commission (SEC)
issued a Cease-and-Desist Order (CDO) against QTCI. Alarmed by the
issuance of the CDO, respondent demanded from QTCI the return of his
investment, but it was not heeded. He then sought legal assistance, and
discovered that Mendoza and Lontoc were not licensed commodity futures
salesmen.
On February 4, 1998, respondent filed a complaint for Recovery of
Investment with Damages 5 with the SEC against QTCI, Lau, and Collado
(petitioners), and against the unlicensed salesmen, Mendoza and Lontoc. The
case was docketed as SEC Case No. 02-98-5886, and was raffled to SEC
Hearing Officer Julieto F. Fabrero.
Only petitioners answered the complaint, as Mendoza and Lontoc had
since vanished into thin air. Traversing the complaint, petitioners denied the
material allegations in the complaint and alleged lack of cause of action, as a
defense. Petitioners averred that QTCI only assigned duly qualified persons
to handle the accounts of its clients; and denied allowing unlicensed brokers
or agents to handle respondent's account. They claimed that they were not
aware of, nor were they privy to, any arrangement which resulted in the
account of respondent being handled by unlicensed brokers. They added that
even assuming that the subject account was handled by an unlicensed broker,
respondent is now estopped from raising it as a ground for the return of his
investment. They pointed out that respondent transacted business with QTCI
for almost a year, without questioning the license or the authority of the
traders handling his account. It was only after it became apparent that QTCI
could no longer resume its business transactions by reason of the CDO that
respondent raised the alleged lack of authority of the brokers or traders
handling his account. The losses suffered by respondent were due to
circumstances beyond petitioners' control and could not be attributed to them.
Respondent's remedy, they added, should be against the unlicensed brokers
who handled the account. Thus, petitioners prayed for the dismissal of the
complaint. 6 cCaEDA

After due proceedings, the SEC Hearing Officer rendered a

decision 7 in favor of respondent, decreeing that:
WHEREFORE, premises considered, [petitioners] Queensland Tokyo
[C]ommodities, Inc., Romeo Y. Lau (aka "Lau Chin-Yee") and
Charlie F. Collado are hereby ordered to jointly and severally pay the
[respondent] the following:

1. The amount of P138,164.00, Philippine currency, representing

the . . . return of his [respondent's] peso investment, plus legal rate of
interest from February 1998 until fully paid;

2. The amount of $19,820.00, American dollars, or its peso equivalent

at the time of payment representing the [respondent's] return of his
 dollar investments, plus legal rate of interest from February 1998 until
fully paid;

3. The amount of P100,000.00 as (sic) by way of moral damages;

4. The amount of P50,000.00 as and (sic) by way of exemplary

damages;

5. The amount of P10,000.00 as and for attorney's fees; and

6. The amount of P2,877.00 as cost of suit.

SO ORDERED. 8

Petitioners appealed to the Commission en banc, but the appeal was

dismissed because the Notice of Appeal and the Memorandum on Appeal
were not verified. 9
Petitioners then went to the CA via a petition for review 10 under Rule
43, faulting the Commission en banc for dismissing their appeal on purely
technical ground. They insisted that they did not violate the rules on
commodity futures trading. Thus, they faulted the SEC Hearing Officer for
nullifying the Customer's Agreement and for holding them liable for
respondent's claims.
On September 30, 2005, the CA rendered the now challenged
Decision. 11 It declared the dismissal of petitioners' appeal by the
Commission en banc improper. Nevertheless, it did not order a remand of the
case to the Commission en banc because jurisdiction over petitioners' appeal
had already been transferred to the Regional Trial Court (RTC) by virtue
of Republic Act No. 8799 or the Securities Regulation Code. The CA thus
proceeded to decide the merits of the case, affirming in toto the decision of
the SEC Hearing Officer. The appellate court failed to see any reason to
disturb the SEC Hearing Officer's finding of liability on the part of
petitioners. It sustained the finding that petitioners violated the Revised Rules
and Regulations on Commodity Futures Trading when they allowed an
unlicensed salesman, like Mendoza, to handle respondent's account. The CA
also upheld the nullification of the Customer's Agreement, and the award of
moral and exemplary damages, as well attorney's fees, in favor of respondent.
The CA disposed, thus:
WHEREFORE, premises considered, the petition
is DISMISSED for lack of merit. The assailed decision dated
February 7, 2000 is hereby AFFIRMED in toto.

SO ORDERED. 12
 Petitioners filed a motion for reconsideration, 13 but the CA denied it
on January 20, 2006. 14
Hence, this recourse by petitioners arguing that:
A.

THE HONORABLE COURT OF APPEALS ERRED IN

CONCLUDING THAT PETITIONERS KNOWINGLY
PERMITTED AN UNLICENSED TRADER TO SOLICIT AND
HANDLE RESPONDENT'S ACCOUNT, AND THAT
PETITIONERS ARE GUILTY OF FRAUD AND
MISREPRESENTATION. ADCEcI

B.

THE HONORABLE COURT OF APPEALS ERRED IN FINDING

INDIVIDUAL PETITIONERS SOLIDARILY LIABLE FOR THE
DAMAGES AND AWARDS DUE [THE] RESPONDENT. 15

Petitioners insist that they did not violate the Revised Rules and
Regulations on Commodity Futures Trading. They claim that it has been
QTCI's policy and practice to appoint only licensed traders to trade the
client's account. They denied any participation in the designation of Mendoza
as respondent's attorney-in-fact; taking exception to the findings that they
permitted Mendoza to trade respondent's account. Petitioners also assailed
the weight given by the SEC Hearing Officer and by the CA to respondent's
evidence.
It is evident that the issue raised in this petition is the correctness of
the factual findings of the SEC Hearing Officer, as affirmed by the CA. It is
well-settled that factual findings of administrative agencies are generally
held to be binding and final so long as they are supported by substantial
evidence in the records of the case. It is not the function of this Court to
analyze or weigh all over again the evidence and the credibility of witnesses
presented before the lower court, tribunal, or office, as we are not a trier of
facts. Our jurisdiction is limited to reviewing and revising errors of law
imputed to the lower court, the latter's findings of fact being conclusive and
not reviewable by this Court. 16
We sustain the finding of the SEC Hearing Officer and the CA that
petitioners allowed unlicensed individuals to engage in, solicit or accept
orders in futures contracts, and thus, transgressed the Revised Rules and
Regulations on Commodity Futures Trading. 17
 We are not persuaded by petitioners' assertion that they had no hand in
Mendoza's designation as respondent's attorney-in-fact. As pointed out by
the CA, the Special Power of Attorney formed part of respondent's agreement
with QTCI, and under the Customer's Agreement, 18 only a licensed or
registered dealer or investment consultant may be appointed as
attorney-in-fact. Thus:
2. If I so desire, I shall appoint you as my agent pursuant to a Special
Power of Attorney which I shall execute for this purpose and which
form part of this Agreement.

xxx xxx xxx

18.I hereby confer, pursuant to the Special Power of Attorney

herewith attached, full authority to your licensed/registered
dealer/investment in charge of my account/s and your Senior Officer,
who must also be a licensed/registered dealer/investment consultant,
to sign all order slips on futures trading. 19

Inexplicably, petitioners did not object to, and in fact recognized, Mendoza's
appointment as respondent's attorney-in-fact. Collado, in behalf of QTCI,
concluded the Customer's Agreement despite the fact that the appointed
attorney-in-fact was not a licensed dealer. Worse, petitioners permitted
Mendoza to handle respondent's account.
Indubitably, petitioners violated the Revised Rules and Regulations on
Commodity Futures Trading prohibiting any unlicensed person to engage in,
solicit or accept orders in futures contract. Consequently, the SEC Hearing
Officer and the CA cannot be faulted for declaring the contract between
QTCI and respondent void.
Batas Pambansa Bilang (B.P. Blg.) 178 or the Revised Securities
Act explicitly provided:
SEC. 53. Validity of Contracts. — . . . .

(b) Every contract executed in violation of any provision of this Act,

or any rule or regulation thereunder, and every contract, including any
contract for listing a security on an exchange heretofore or hereafter
made, the performance of which involves the violation of, or the
continuance of any relationship or practice in violation of, any
provision of this Act, or any rule and regulation thereunder, shall be
void.

Likewise, Paragraph 29 20 of the Customer's Agreement provides:

 29. Contracts entered into by unlicensed Account Executives (A/E) or
Investment consultants are deemed void and of no legal effect.

Clearly, the CA merely adhered to the clear provision of B.P. Blg. 178 and to
the stipulation in the parties' agreement when it declared as void
the Customer's Agreement between QTCI and respondent.
It is settled that a void contract is equivalent to nothing; it produces no
civil effect. It does not create, modify, or extinguish a juridical relation.
Parties to a void agreement cannot expect the aid of the law; the courts leave
them as they are, because they are deemed in pari delicto or in equal
fault. 21 This rule, however, is not absolute. Article 1412 of the Civil Code
provides an exception, and permits the return of that which may have been
given under a void contract. Thus:
Art. 1412. If the act in which the unlawful or forbidden cause consists
does not constitute a criminal offense, the following rules shall be
observed:

(1) When the fault is on the part of both contracting parties,

neither may recover what he has given by virtue of the contract,
or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he

cannot recover what he has given by reason of the contract, or
ask for the fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he
has given without any obligation to comply with his promise.

The evidence on record established that petitioners indeed permitted

an unlicensed trader and salesman, like Mendoza, to handle respondent's
account. On the other hand, the record is bereft of proof that respondent had
knowledge that the person handling his account was not a licensed trader.
Respondent can, therefore, recover the amount he had given under the
contract. The SEC Hearing Officer and the CA, therefore, committed no
reversible error in holding that respondent is entitled to a full recovery of his
investments.
Petitioners Collado and Lau next fault the CA in making them
solidarily liable for the payment of respondent's claim. TaIHEA

Doctrine dictates that a corporation is invested by law with a

personality separate and distinct from those of the persons composing it, such
that, save for certain exceptions, corporate officers who entered into
contracts in behalf of the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate director, trustee, or
officer, along (although not necessarily) with the corporation, may validly
attach, as a rule, only when — (1) he assents to a patently unlawful act of the
corporation, or when he is guilty of bad faith or gross negligence in directing
its affairs, or when there is a conflict of interest resulting in damages to the
corporation, its stockholders, or other persons; (2) he consents to the issuance
of watered down stocks or who, having knowledge thereof, does not
forthwith file with the corporate secretary his written objection thereto; (3) he
agrees to hold himself personally and solidarily liable with the corporation;
or (4) he is made by a specific provision of law personally answerable for his
corporate action. 22
In holding Lau and Collado jointly and severally liable with QTCI for
respondent's claim, the SEC Hearing Officer explained in this wise:
Anent the issue of who among the individual [petitioners] are jointly
liable with QTCI in the payment of the awards, the Commission took
into consideration, among others, that audit report on the trading
activities submitted by the Brokers and Exchange Department (BED)
of this Commission (Exhibit "J"). The findings contained in the report
include the presence of seven (7) unlicensed investment consultants in
QTCI, and the company practice of changing deeds of Special Power
of Attorney bearing those who are licensed (exhibits "J-1" and "J-2").

The Commission also took into consideration the fact that [petitioner]
Collado, who is not a licensed commodity salesman, himself violated
the aforequoted provisions of the Revised Rules and Regulations on
Commodity Futures Trading when he admitted having participated in
the execution of the customers orders (p. 7, TSN dated January 21,
1999) without giving any exception thereto, which presumably
includes his participation in the execution of customers orders of the
[respondent].

Such being the case, [Mendoza's] participation in the trading of

[respondent's] account is within the knowledge of [petitioner]
Collado.

The presence of seven (7) unlicensed investment consultants within

QTCI apart from . . . Mendoza, and [petitioner] Collado's participation
in the unlawful execution of orders under the [respondent's] account
clearly established the fact that the management of QTCI failed to
implement the rules and regulations against the hiring of, and
associating with, unlicensed consultants or traders. How these
unlicensed personnel been able to pursue their unlawful activities is a
reflection of how negligent [the] management was.
 [Petitioner] Romeo Lau, as president of [petitioner] QTCI, cannot
feign innocence on the existence of these unlawful activities within
the company, especially so that Collado, himself a ranking officer of
QTCI, is involved in the unlawful execution of customers orders.
[Petitioner] Lau, being the chief operating officer, cannot escape the
fact that had he exercised a modicum of care and discretion in
supervising the operations of QTCI, he could have detected and
prevented the unlawful acts of [petitioner] Collado and Mendoza.

It is therefore safe to conclude that although Lau may not have

participated nor been aware of the unlawful acts, he is however
deemed to have been grossly negligence in directing the affairs of
QTCI.

In all, it having been established by substantial evidence that

[petitioner] Collado assented to the unlawful act of QTCI, and that
[petitioner] Lau is grossly negligent in directing the affairs of QTCI,
and pursuant to Section 31 of the Corporation Code, they are therefore,
jointly and severally liable with QTCI for all the damages and awards
due to the [respondent]. 23

We find no compelling reason to depart from the conclusion of the

SEC Hearing Officer, which was affirmed by the CA. We are in full accord
with his reasons for holding Lau and Collado jointly and severally liable with
QTCI for the payment of respondent's claim.
Finally we sustain the awards for moral and exemplary damages in
favor of respondent. Moral damages are meant to compensate the claimant
for any physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation,
and similar injuries unjustly caused. Although incapable of pecuniary
estimation, the amount must somehow be proportional to and in
approximation of the suffering inflicted. Moral damages are not punitive in
nature and were never intended to enrich the claimant at the expense of the
defendant. 24 ATHCDa

Likewise, exemplary damages are properly exigible of QTCI. Article

2229 25 of the Civil Code provides that such damages may be imposed by
way of example or correction for the public good. While exemplary damages
cannot be recovered as a matter of right, they need not be proved, although
plaintiff must show that he is entitled to moral, temperate, or compensatory
damages before the court may consider the question of whether or not
exemplary damages should be awarded. Exemplary damages are imposed not
 to enrich one party or impoverish another, but to serve as a deterrent against
or as a negative incentive to curb socially deleterious actions. 26
However, the same statutory and jurisprudential standards dictate
reduction of the amounts of moral and exemplary damages fixed by the SEC.
Certainly, there is no hard-and-fast rule in determining what would be a fair
and reasonable amount of moral and exemplary damages, since each case
must be governed by its own peculiar facts. 27 Courts are given discretion in
determining the amount, with the limitation that it should not be palpably and
scandalously excessive. Indeed, it must be commensurate to the loss or injury
suffered. 28
In this case, we find a need to modify, by reducing the awards for
moral damages from P100,000.00 to P50,000.00; and for exemplary
damages from P50,000.00 to P30,000.00.
In fine, except for the modification of the awards for moral and
exemplary damages, there is no justification to overturn the findings of the
SEC Hearing Officer, as affirmed by the CA.
We reiterate that the findings of facts and conclusions of law of the
SEC are controlling on the reviewing authority. Indeed, the rule is that the
findings of fact of administrative bodies, if based on substantial evidence, are
controlling on the reviewing authority. It has been held that it is not for the
appellate court to substitute its own judgment for that of the administrative
agency on the sufficiency of the evidence and the credibility of the witnesses.
The Hearing Officer had the optimum opportunity to review the pieces of
evidence presented before him and to observe the demeanor of the witnesses.
Administrative decisions on matters within his jurisdiction are entitled to
respect and can only be set aside on proof of grave abuse of discretion, fraud,
or error of law, 29 which has not been shown by petitioner in this case.
WHEREFORE, the challenged Decision and Resolution of the Court
of Appeals in CA-G.R. SP No. 58741
are AFFIRMED with MODIFICATION that the awards for moral and
exemplary damages are reduced to P50,000.00 and P30,000.00,
respectively.
SO ORDERED.
(Queensland-Tokyo Commodities, Inc. v. George, G.R. No. 172727
|||

(Resolution), [September 8, 2010], 644 PHIL 574-588)

 [G.R. No. 185122. August 16, 2010.]
WENSHA SPA CENTER, INC. and/or XU ZHI
JIE, petitioners, vs. LORETA T. YUNG, respondent.

DECISION

MENDOZA, J : p

This is a petition for review on certiorari under Rule 45 of the Rules

of Court filed by an employer who was charged before the National Labor
Relations Commission (NLRC) for dismissing an employee upon the advice
of a Feng Shui master. In this action, the petitioners assail the May 28, 2008
Decision 1 and October 23, 2008 Resolution 2 of the Court of
Appeals (CA) in CA-G.R. SP No. 98855 entitled Loreta T. Yung v. National
Labor Relations Commission, Wensha Spa Center, Inc. and/or Xu Zhi Jie.
THE FACTS:
Wensha Spa Center, Inc. (Wensha) in Quezon City is in the business
of sauna bath and massage services. Xu Zhi Jie a.k.a. Pobby Co (Xu) is its
president, 3 respondent Loreta T. Yung (Loreta) was its administrative
manager at the time of her termination from employment.
In her position paper, 4 Loreta stated that she used to be employed by
Manmen Services Co., Ltd. (Manmen) where Xu was a client. Xu was
apparently impressed by Loreta's performance. After he established Wensha,
he convinced Loreta to transfer and work at Wensha. Loreta was initially
reluctant to accept Xu's offer because her job at Manmen was stable and she
had been with Manmen for seven years. But Xu was persistent and offered
her a higher pay. Enticed, Loreta resigned from Manmen and transferred to
Wensha. She started working on April 21, 2004 as Xu's personal assistant
and interpreter at a monthly salary of P12,000.00.
Loreta introduced positive changes to Wensha which resulted in
increased business. This pleased Xu so that on May 18, 2004, she was
promoted to the position of Administrative Manager. 5
Loreta recounted that on August 10, 2004, she was asked to leave her
office because Xu and a Feng Shui master were exploring the premises. Later
that day, Xu asked Loreta to go on leave with pay for one month. She did so
and returned on September 10, 2004. Upon her return, Xu and his wife asked
her to resign from Wensha because, according to the Feng Shui master, her
aura did not match that of Xu. Loreta refused but was informed that she could
no longer continue working at Wensha. That same afternoon, Loreta went to
the NLRC and filed a case for illegal dismissal against Xu and Wensha. SaITHC

Wensha and Xu denied illegally terminating Loreta's employment.

They claimed that two months after Loreta was hired, they received various
complaints against her from the employees so that on August 10, 2004, they
advised her to take a leave of absence for one month while they conducted an
investigation on the matter. Based on the results of the investigation, they
terminated Loreta's employment on August 31, 2004 for loss of trust and
confidence. 6
The Labor Arbiter (LA) Francisco Robles dismissed Loreta's
complaint for lack of merit. He found it more probable that Loreta was
dismissed from her employment due to Wensha's loss of trust and confidence
in her. The LA's decision 7 partly reads:
However, this office has found it dubious and hard to believe the
contentions made by the complainant that she was dismissed by the
respondents on the sole ground that she is a "mismatch" in
respondents' business as advised by an alleged Feng Shui Master. The
complainant herself alleged in her position paper that she has done
several improvements in respondents' business such as uplifting the
morale and efficiency of its employees and increasing respondents'
clientele, and that respondent Co was very much pleased with the
improvements made by the complainant that she was offered twice a
promotion but she nevertheless declined. It would be against human
experience and contrary to business acumen to let go of someone, who
was an asset and has done so much for the company merely on the
ground that she is a "mismatch" to the business. Absent any proof
submitted by the complainant, this office finds it more probable that
the complainant was dismissed due to loss of trust and confidence. 8

This ruling was affirmed by the NLRC in its December 29, 2006
Resolution, 9 citing its observation that Wensha was still considering the
proper action to take on the day Loreta left Wensha and filed her complaint.
The NLRC added that this finding was bolstered by Wensha's September 10,
2004 letter to Loreta asking her to come back to personally clarify some
matters, but she declined because she had already filed a case.
Loreta moved for a reconsideration of the NLRC's ruling but her
motion was denied. Loreta then went to the CA on a petition
for certiorari. The CA reversed the ruling of the NLRC on the ground that it
gravely abused its discretion in appreciating the factual bases that led to
Loreta's dismissal. The CA noted that there were irregularities and
inconsistencies in Wensha's position. The CA stated the following:
We, thus, peruse the affidavits and documentary evidence of the
Private Respondents and find the following: First, on the affidavits of
their witnesses, it must be noted that the same were mere photocopies.
It was held that [T]he purpose of the rule in requiring the production
of the best evidence is the prevention of fraud, because if a party is in
possession of such evidence and withholds it, and seeks to substitute
inferior evidence in its place, the presumption naturally arise[s] that
the better evidence is withheld for fraudulent purposes which its
production would expose and defeat. Moreover, the affidavits were
not executed under oath. The rule is that an affiant must sign the
document in the presence of and take his oath before a notary public as
evidence that the affidavit was properly made. Guided by these
principles, the affidavits cannot be assigned any weighty probative
value and are mere scraps of paper the contents of which are
hearsay. Second, on the sales report and order slips, which allegedly
prove that Yung had been charging her food and drinks to Wensha, the
said pieces of evidence do not, however, bear Yung's name thereon or
even her signature. In fact, it does not state anyone's name, except that
of Wensha. Hence, it would simply be capricious to pinpoint, or
impute, on Yung as the author in charging such expenses to Wensha
on the basis of hearsay evidence. Third, while the affidavit of
Wensha's Operations Manager, Princess delos Reyes (delos Reyes),
may have been duly executed under oath, she did not, however,
specify the alleged infractions that Yung committed. If at all, delos
Reyes only made general statements on the alleged complaints against
Yung that were not even substantiated by any other piece of
evidence. Finally, the daily time records (DTRs) of Yung, which
supposedly prove her habitual tardiness, were mere photocopies that
are not even signed by Wensha's authorized representative, thus
suspect, if not violative of the best evidence rule and, therefore,
incompetent evidence. . . . [Emphases appear in the original] HacADE

xxx xxx xxx.

Finally, after the Private Respondents filed their position paper, they
alleged mistake on the part of their former counsel in stating that Yung
was dismissed on August 31, 2004. Thus, they subsequently moved
for the admission of their rejoinder. Notably, however, the said
rejoinder was dated October 4, 2004, earlier than the date when their
position paper was filed, which was on November 3, 2004. It is also
 puzzling that their position paper was dated November 25, 2004,
much later than its date of filing. The irregularities are simply too
glaring to be ignored. Nevertheless, the Private Respondents'
admission of Yung's termination on August 31, 2004 cannot be
retracted. They cannot use the mistake of their counsel as an
excuse considering that the position paper was verified by their
Operations Manager, delos Reyes, who attested to the truth of the
contents therein. 10 [Emphasis supplied]

Hence, the fallo of the CA decision reads:

WHEREFORE, the instant petition is GRANTED. Wensha Spa
Center, Inc. and Xu Zhi Jie are ORDERED to, jointly and severally,
pay Loreta T. Yung her full backwages, other privileges, and benefits,
or their monetary equivalent, corresponding to the period of her
dismissal from September 1, 2004 up to the finality of this decision,
and damages in the amounts of fifty thousand pesos (Php50,000.00) as
moral damages, twenty five thousand pesos (Php25,000.00) as
exemplary damages, and twenty thousand pesos (Php20,000.00) as
attorney's fees. No costs.

SO ORDERED. 11

Wensha and Xu now assail this ruling of the CA in this petition

presenting the following:
V. GROUNDS FOR THE ALLOWANCE OF THE
PETITION

5.1 The following are the reasons and arguments, which are purely
questions of law and some questions of facts, which justify the appeal
by certiorari under Rule 45 of the 1997 Revised Rules of Civil
Procedure, as amended, to this Honorable SUPREME COURT of the
assailed Decision and Resolution, to wit:

5.1.1 The Honorable COURT OF APPEALS gravely

erred in reversing that factual findings of the
Honorable Labor Arbiter and the Honorable NLRC
(Third Division) notwithstanding recognized and
established rule in our jurisdiction that findings of facts
of quasi-judicial agencies who have gained expertise
on their respective subject matters are given respect
and finality;

5.1.2 The Honorable COURT OF APPEALS

committed grave abuse of discretion and serious errors
 when it ruled that findings of facts of the Honorable
Labor Arbiter and the Honorable NLRC are not
supported by substantial evidence despite the fact that
the records clearly show that petitioner therein was not
dismissed but is under investigation, and that she is
guilty of serious infractions that warranted her
termination; AScHCD

5.1.3 The Honorable COURT OF APPEALS grave[ly]

erred when it ordered herein petitioner to pay herein
respondent her separation pay, in lieu of reinstatement,
and full backwages, as well as damages and attorney's
fees;

5.1.4 The Honorable COURT OF APPEALS

committed grave abuse of discretion and serious errors
when it held that petitioner XU ZHI JIE to be solidarily
liable with WENSHA, assuming that respondent was
illegally dismissed;

5.2The same need to be corrected as they would work injustice to the

herein petitioner, grave and irreparable damage will be done to him,
and would pose dangerous precedent. 12

THE COURT'S RULING:

Loreta's security of tenure is guaranteed by the Constitution and the
Labor Code. The 1987 Philippine Constitution provides in Section 18,
Article II that the State shall protect the rights of workers and promote their
welfare. Section 3, Article XIII also provides that all workers shall be entitled
to security of tenure. Along that line, Article 3 of the Labor Code mandates
that the State shall assure the rights of workers to security of tenure.
Under the security of tenure guarantee, a worker can only be
terminated from his employment for cause and after due process. For a valid
termination by the employer: (1) the dismissal must be for a valid cause as
provided in Article 282, or for any of the authorized causes under Articles
283 and 284 of the Labor Code; and (2) the employee must be afforded an
opportunity to be heard and to defend himself. A just and valid cause for an
employee's dismissal must be supported by substantial evidence, and before
the employee can be dismissed, he must be given notice and an adequate
opportunity to be heard. 13 In the process, the employer bears the burden of
proving that the dismissal of an employee was for a valid cause. Its failure to
discharge this burden renders the dismissal unjustified and, therefore,
illegal. 14
 As a rule, the factual findings of the court below are conclusive on Us
in a petition for review on certiorari where We review only errors of law.
This case, however, is an exception because the CA's factual findings are not
congruent with those of the NLRC and the LA.
According to Wensha in its position paper, 15 it dismissed Loreta on
August 31, 2004 after investigating the complaints against her. Wensha
asserted that her dismissal was a valid exercise of an employer's right to
terminate a managerial employee for loss of trust and confidence. It claimed
that she caused the resignation of an employee because of gossips initiated by
her. It was the reason she was asked to take a leave of absence with pay for
one month starting August 10, 2004. 16
Wensha also alleged that Loreta was "sowing intrigues in the
company" which was inimical to Wensha. She was also accused of
dishonesty, serious breach of trust reposed in her, tardiness, and abuse of
authority. 17
In its Rejoinder, Wensha changed its position claiming that it did not
terminate Loreta's employment on August 31, 2004. It even sent her a notice
requesting her to report back to work. She, however, declined because she
had already filed her complaint. 18
As correctly found by the CA, the cause of Loreta's dismissal is
questionable. Loss of trust and confidence to be a valid ground for dismissal
must have basis and must be founded on clearly established facts. 19 cDCaTH

The Court finds the LA ruling that states, "[a]bsent any proof
submitted by the complainant, this office finds it more probable that the
complainant was dismissed due to loss of trust and confidence," 20 to be
utterly erroneous as it is contrary to the applicable rules and pertinent
jurisprudence. The onus of proving a valid dismissal rests on the employer,
not on the employee. 21 It is the employer who bears the burden of proving
that its dismissal of the employee is for a valid or authorized cause supported
by substantial evidence. 22
According to the NLRC, "[p]erusal of the entire records show that
complainant left the respondents' premises when she was confronted with the
infractions imputed against her." 23 This information was taken from the
affidavit 24 of Princess Delos Reyes (Delos Reyes) which was dated March
21, 2005, not in Wensha's earlier position paper or pleadings submitted to the
LA. The affidavits 25 of employees attached to Delos Reyes' affidavit were
all dated November 19, 2004 indicating that they were not yet executed when
the complaints against Loreta were supposedly being investigated in August
2004.
 It is also noteworthy that Wensha's position paper related that because
of the gossips perpetrated by Loreta, a certain Oliva
Gonzalo (Gonzalo) resigned from Wensha. Because of the incident, Gonzalo,
whose father was a policeman, "reportedly got angry with complainant and
of the management telling her friends at respondent company that she would
retaliate thus creating fear among those concerned." 26 As a result, Loreta
was advised to take a paid leave of absence for one month while Wensha
conducted an investigation.
According to Loreta, however, the reason for her termination was her
aura did not match that of Xu and the work environment at Wensha. Loreta
narrated:
On August 10, 2004 however, complainant was called by respondent
Xu and told her to wait at the lounge area while the latter and a Feng
Shui Master were doing some analysis of the office. After several
hours of waiting, respondent Xu then told complainant that according
to the Feng Shui master her Chinese Zodiac sign is a "mismatch" with
that of the respondents; that complainant should not enter the
administrative office for a month while an altar was to be placed on
the left side where complainant has her table to allegedly correct the
"mismatch" and that it is necessary that offerings and prayers have to
be made and said for about a month to correct the alleged "jinx."
Respondent Xu instructed complainant not to report to the office for a
month with assurance of continued and regular salary. She was
ordered not to seek employment elsewhere and was told to come back
on the 10th of September 2004. 27

Although she was a little confused, Loreta did as she was instructed
and did not report for work for a month. She returned to work on September
10, 2004. This is how Loreta recounted the events of that day:
On September 10, 2004, in the morning, complainant reported to the
office of respondents. As usual, she punched-in her time card and
signed in the logbook of the security guard. When she entered the
administrative office, some of its employees immediately contacted
respondent Xu. Respondent Xu then contacted complainant thru her
mobile phone and told her to leave the administrative office
immediately and instead to wait for him in the dining area.aICHEc

xxx xxx xxx

Complainant waited for respondent Xu in the dining area. After

waiting for about two (2) hours, respondent Xu was nowhere. Instead,
it was Jiang Xue Qin a.k.a Annie Co, the Chinese wife of respondent
 Xu, who arrived and after a short conversation between them, the
former frankly told complainant that she has to resign allegedly she is
a mismatch to respondent Xu according to the Feng Shui master and
therefore she does not fit to work (sic) with the respondents. Surprised
and shocked, complainant demanded of Jiang Xue Qin to issue a letter
of termination if it were the reason therefor.

Instead of a termination letter issued, Jiang Xue Qin insisted for the
complainant's resignation. But when complainant stood her ground,
Jian Xue Qin shouted invectives at her and told to leave the office
immediately.

Respondent Xu did not show up but talked to the complainant over the
mobile phone and convinced her likewise to resign from the company
since there is no way to retain her because her aura unbalanced the
area of employment according to the Feng Shui, the Chinese spiritual
art of placement. Hearing this from no less than respondent Xu,
complainant left the office and went straight to this Office and filed
the present case on September 10, 2004. . . . 28

Loreta also alleged that in the afternoon of that day, September 10,
2004, a notice was posted on the Wensha bulletin board that reads:
TO ALL EMPLOYEES OF WENSHA SPA CENTER

WE WOULD LIKE TO INFORM YOU THAT MS. LORIE TSE

YUNG, FORMER ADMINISTRATIVE OFFICER OF WENSHA
SPA CENTER IS NO LONGER CONNECTED TO THIS
COMPANY STARTING TODAY SEPTEMBER 10, 2004.

ANY TRANSACTION MADE BY HER IS NO LONGER A

LIABILITY OF THE COMPANY.

(SGD.) THE MANAGEMENT [Italics were in red letters.] 29

The Court finds Loreta's complaint credible. There is consistency in

her pleadings and evidence. In contrast, Wensha's pleadings and evidence,
taken as a whole, suffer from inconsistency. Moreover, the affidavits of the
employees only pertain to petty matters that, to the Court's mind, are not
sufficient to support Wensha's alleged loss of trust and confidence. To be a
valid cause for termination of employment, the act or acts constituting breach
of trust must have been done intentionally, knowingly, and purposely; and
they must be founded on clearly established facts.
The CA decision is supported by evidence and logically flows from a
review of the records. Loreta's narration of the events surrounding her
termination from employment was simple and straightforward. Her claims
are more credible than the affidavits which were clearly prepared as an
afterthought. IcaHCS

More importantly, the records are bereft of evidence that Loreta was
duly informed of the charges against her and that she was given the
opportunity to respond to those charges prior to her dismissal. If there were
indeed charges against Loreta that Wensha had to investigate, then it should
have informed her of those charges and required her to explain her side.
Wensha should also have kept records of the investigation conducted while
Loreta was on leave. The law requires that two notices be given to an
employee prior to a valid termination: the first notice is to inform the
employee of the charges against her with a warning that she may be
terminated from her employment and giving her reasonable opportunity
within which to explain her side, and the second notice is the notice to the
employee that upon due consideration of all the circumstances, she is being
terminated from her employment. 30 This is a requirement of due process and
clearly, Loreta did not receive any of those required notices.
We are in accord with the pronouncement of the CA that the
reinstatement of Loreta to her former position is no longer feasible in the
light of the strained relations between the parties. Reinstatement, under the
circumstances, would no longer be practical as it would not be in the interest
of both parties. Under the law and jurisprudence, an illegally dismissed
employee is entitled to two reliefs — backwages and reinstatement, which
are separate and distinct. If reinstatement would only exacerbate the tension
and further ruin the relations of the employer and the employee, or if their
relationship has been unduly strained due to irreconcilable differences,
particularly where the illegally dismissed employee held a managerial or key
position in the company, it would be prudent to order payment of separation
pay instead of reinstatement. 31 In the case of Golden Ace Builders v.
Talde, 32 We wrote:
Under the doctrine of strained relations, the payment of separation pay
has been considered an acceptable alternative to reinstatement when
the latter option is no longer desirable or viable. On the one hand, such
payment liberates the employee from what could be a highly
oppressive work environment. On the other, the payment releases the
employer from the grossly unpalatable obligation of maintaining in its
employ a worker it could no longer trust.

In the case at bench, the CA, upon its own assessment, pronounced
that the relations between petitioners and the respondent have become
strained because of her dismissal anchored on dubious charges. The
respondent has not contested the finding. As she is not insisting on being
reinstated, she should be paid separation pay equivalent to one (1) month
salary for every year of service. 33 The CA, however, failed to decree such
award in the dispositive portion. This should be rectified.
Nevertheless, the Court finds merit in the argument of petitioner Xu
that the CA erred in ruling that he is solidarily liable with Wensha.
Elementary is the rule that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it and
from that of any other legal entity to which it may be related. "Mere
ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not of itself sufficient ground for
disregarding the separate corporate personality." 34 cEaTHD

In labor cases, corporate directors and officers may be held solidarily

liable with the corporation for the termination of employment only if done
with malice or in bad faith. 35 Bad faith does not connote bad judgment or
negligence; it imports a dishonest purpose or some moral obliquity and
conscious doing of wrong; it means breach of a known duty through some
motive or interest or ill will; it partakes of the nature of fraud. 36
In the subject decision, the CA concluded that petitioner Xu and
Wensha are jointly and severally liable to Loreta. 37 We have read the
decision in its entirety but simply failed to come across any finding of bad
faith or malice on the part of Xu. There is, therefore, no justification for such
a ruling. To sustain such a finding, there should be an evidence on record that
an officer or director acted maliciously or in bad faith in terminating the
services of an employee. 38 Moreover, the finding or indication that the
dismissal was effected with malice or bad faith should be stated in the
decision itself. 39
WHEREFORE, the petition is PARTIALLY GRANTED. The
decretal portion of the May 28, 2008 Decision of the Court of Appeals, in
CA-G.R. SP No. 98855, is hereby MODIFIED to read as follows:
WHEREFORE, the petition is GRANTED. Wensha Spa Center, Inc.
is hereby ordered to pay Loreta T. Yung her full backwages, other
privileges, and benefits, or their monetary equivalent, and separation
pay reckoned from the date of her dismissal, September 1, 2004, up to
the finality of this decision, plus damages in the amounts of Fifty
Thousand (P50,000.00) Pesos, as moral damages; Twenty Five
Thousand (P25,000.00) Pesos as exemplary damages; and Twenty
Thousand (P20,000.00) Pesos, as attorney's fees. No costs.
SO ORDERED.
(Wensha Spa Center, Inc. v. Yung, G.R. No. 185122, [August 16, 2010], 642
|||

PHIL 460-476)

[G.R. No. 160545. March 9, 2010.]

PRISMA CONSTRUCTION & DEVELOPMENT
CORPORATION and ROGELIO S.
PANTALEON, petitioners, vs. ARTHUR
F. MENCHAVEZ, respondent.

DECISION

BRION, J : p

We resolve in this Decision the petition for review

on certiorari 1 filed by petitioners Prisma Construction & Development
Corporation (PRISMA) and Rogelio S.
Pantaleon (Pantaleon) (collectively, petitioners) who seek to reverse and set
aside the Decision 2 dated May 5, 2003 and the Resolution 3 dated October
22, 2003 of the Former Ninth Division of the Court of Appeals (CA) in
CA-G.R. CV No. 69627. The assailed CA Decision affirmed the Decision of
the Regional Trial Court (RTC), Branch 73, Antipolo City in Civil Case No.
97-4552 that held the petitioners liable for payment of P3,526,117.00 to
respondent Arthur F. Menchavez (respondent), but modified the interest rate
from 4% per month to 12% per annum, computed from the filing of the
complaint to full payment. The assailed CA Resolution denied the
petitioners' Motion for Reconsideration.
FACTUAL BACKGROUND
The facts of the case, gathered from the records, are briefly summarized below.
On December 8, 1993, Pantaleon, the President and Chairman of the
Board of PRISMA, obtained a P1,000,000.00 4 loan from the respondent,
with a monthly interest of P40,000.00 payable for six months, or a total
obligation of P1,240,000.00 to be paid within six (6) months, 5 under the
following schedule of payments:
January 8, 1994 P40,000.00
 February 8, 1994 P40,000.00

March 8, 1994 P40,000.00

April 8, 1994 P40,000.00

May 8, 1994 P40,000.00

June 8, 1994 P1,040,000.00 6

–––––––––––––

Total P1,240,000.00

=============

To secure the payment of the loan, Pantaleon issued a promissory note 7 that
states:
I, Rogelio S. Pantaleon, hereby acknowledge the receipt of ONE
MILLION TWO HUNDRED FORTY THOUSAND PESOS
(P1,240,000), Philippine Currency, from Mr. Arthur F. Menchavez,
representing a six-month loan payable according to the following
schedule:cACEHI

January 8, 1994 P40,000.00

February 8, 1994 P40,000.00
March 8, 1994 P40,000.00
April 8, 1994 P40,000.00
May 8, 1994 P40,000.00
June 8, 1994 P1,040,000.00
The checks corresponding to the above amounts are hereby
acknowledged. 8

and six (6) postdated checks corresponding to the schedule of payments.

Pantaleon signed the promissory note in his personal capacity, 9 and as duly
authorized by the Board of Directors of PRISMA. 10 The petitioners failed to
completely pay the loan within the stipulated six (6)-month period.
From September 8, 1994 to January 4, 1997, the petitioners paid the following
amounts to the respondent:
September 8, 1994 P320,000.00

October 8, 1995 P600,000.00

 November 8, 1995 P158,772.00

January 4, 1997 P30,000.00 11

As of January 4, 1997, the petitioners had already paid a total of

P1,108,772.00. However, the respondent found that the petitioners still had
an outstanding balance of P1,364,151.00 as of January 4, 1997, to which
it applied a 4% monthly interest. 12 Thus, on August 28, 1997, the
respondent filed a complaint for sum of money with the RTC to enforce the
unpaid balance, plus 4% monthly interest, P30,000.00 in attorney's fees,
P1,000.00 per court appearance and costs of suit. 13
In their Answer dated October 6, 1998, the petitioners admitted the
loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest,
arguing that the interest was not provided in the promissory note. Pantaleon
also denied that he made himself personally liable and that he made
representations that the loan would be repaid within six (6) months. 14
THE RTC RULING
The RTC rendered a Decision on October 27, 2000 finding that the
respondent issued a check for P1,000,000.00 in favor of the petitioners for a
loan that would earn an interest of 4% or P40,000.00 per month, or a total of
P240,000.00 for a 6-month period. It noted that the petitioners made several
payments amounting to P1,228,772.00, but they were still indebted to the
respondent for P3,526,117.00 as of February 11, 15 1999 after considering
the 4% monthly interest. The RTC observed that PRISMA was a one-man
corporation of Pantaleon and used this circumstance to justify the piercing of
the veil of corporate fiction. Thus, the RTC ordered the petitioners to jointly
and severally pay the respondent the amount of P3,526,117.00 plus 4% per
month interest from February 11, 1999 until fully paid. 16
The petitioners elevated the case to the CA via an ordinary appeal
under Rule 41 of the Rules of Court, insisting that there was no express
stipulation on the 4% monthly interest. AEHTIC

THE CA RULING
The CA decided the appeal on May 5, 2003. The CA found that the
parties agreed to a 4% monthly interest principally based on the board
resolution that authorized Pantaleon to transact a loan with an approved
interest of not more than 4% per month. The appellate court, however, noted
that the interest of 4% per month, or 48% per annum, was unreasonable and
should be reduced to 12% per annum. The CA affirmed the RTC's finding
that PRISMA was a mere instrumentality of Pantaleon that justified the
piercing of the veil of corporate fiction. Thus, the CA modified the RTC
 Decision by imposing a 12% per annum interest, computed from the filing of
the complaint until finality of judgment, and thereafter, 12% from finality
until fully paid. 17
After the CA's denial 18 of their motion for reconsideration, 19 the
petitioners filed the present petition for review on certiorari under Rule 45 of
the Rules of Court.
THE PETITION
The petitioners submit that the CA mistakenly relied on their board
resolution to conclude that the parties agreed to a 4% monthly interest
because the board resolution was not an evidence of a loan or forbearance of
money, but merely an authorization for Pantaleon to perform certain acts,
including the power to enter into a contract of loan. The expressed mandate
of Article 1956 of the Civil Code is that interest due should be stipulated in
writing, and no such stipulation exists. Even assuming that the loan is subject
to 4% monthly interest, the interest covers the six (6)-month period only and
cannot be interpreted to apply beyond it. The petitioners also point out the
glaring inconsistency in the CA Decision, which reduced the interest from 4%
per month or 48% per annum to 12% per annum, but failed to consider that
the amount of P3,526,117.00 that the RTC ordered them to pay includes the
compounded 4% monthly interest.
THE CASE FOR THE RESPONDENT
The respondent counters that the CA correctly ruled that the loan is
subject to a 4% monthly interest because the board resolution is attached to,
and an integral part of, the promissory note based on which the petitioners
obtained the loan. The respondent further contends that the petitioners are
estopped from assailing the 4% monthly interest, since they agreed to pay the
4% monthly interest on the principal amount under the promissory note and
the board resolution.
THE ISSUE
The core issue boils down to whether the parties agreed to the 4%
monthly interest on the loan. If so, does the rate of interest apply to the
6-month payment period only or until full payment of the loan?
OUR RULING
We find the petition meritorious.
Interest due should be
stipulated in writing;
otherwise, 12% per annum
 Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. 20 When the
terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations governs. 21 In such
cases, courts have no authority to alter the contract by construction or to
make a new contract for the parties; a court's duty is confined to the
interpretation of the contract the parties made for themselves without regard
to its wisdom or folly, as the court cannot supply material stipulations or read
into the contract words the contract does not contain. 22 It is only when the
contract is vague and ambiguous that courts are permitted to resort to the
interpretation of its terms to determine the parties' intent. DISEaC

In the present case, the respondent issued a check for

P1,000,000.00. 23 In turn, Pantaleon, in his personal capacity and as
authorized by the Board, executed the promissory note quoted above. Thus,
the P1,000,000.00 loan shall be payable within six (6) months, or from
January 8, 1994 up to June 8, 1994. During this period, the loan shall earn an
interest of P40,000.00 per month, for a total obligation of P1,240,000.00 for
the six-month period. We note that this agreed sum can be computed at 4%
interest per month, but no such rate of interest was stipulated in the
promissory note; rather a fixed sum equivalent to this rate was agreed
upon.
Article 1956 of the Civil Code specifically mandates that "no interest
shall be due unless it has been expressly stipulated in writing." Under this
provision, the payment of interest in loans or forbearance of money is
allowed only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is required for the payment of
interest at a stipulated rate. Thus, we held in Tan v. Valdehueza 24 and Ching
v. Nicdao 25 that collection of interest without any stipulation in writing is
prohibited by law.
Applying this provision, we find that the interest of P40,000.00 per
month corresponds only to the six (6)-month period of the loan, or from
January 8, 1994 to June 8, 1994, as agreed upon by the parties in the
promissory note. Thereafter, the interest on the loan should be at the legal
interest rate of 12% per annum, consistent with our ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals: 26 HcSaTI

When the obligation is breached, and it consists in the payment of a

sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
 time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code." (Emphasis
supplied)

We reiterated this ruling in Security Bank and Trust Co. v.

RTC-Makati, Br. 61, 27 Sulit v. Court of Appeals, 28 Crismina Garments,
Inc. v. Court of Appeals, 29 Eastern Assurance and Surety Corporation v.
Court of Appeals, 30 Sps. Catungal v. Hao, 31Yong v. Tiu, 32 and Sps.
Barrera v. Sps. Lorenzo. 33 Thus, the RTC and the CA misappreciated the
facts of the case; they erred in finding that the parties agreed to a 4% interest,
compounded by the application of this interest beyond the promissory note's
six (6)-month period. The facts show that the parties agreed to the payment of
a specific sum of money of P40,000.00 per month for six months, not to a 4%
rate of interest payable within a six (6)-month period.
Medel v. Court of Appeals not
applicable
The CA misapplied Medel v. Court of Appeals 34 in finding that a 4%
interest per month was unconscionable. cDaEAS

In Medel, the debtors in a P500,000.00 loan were required to pay an

interest of 5.5% per month, a service charge of 2% per annum, and a penalty
charge of 1% per month, plus attorney's fee equivalent to 25% of the amount
due, until the loan is fully paid. Taken in conjunction with the stipulated
service charge and penalty, we found the interest rate of 5.5% to be excessive,
iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby
rendering the stipulation null and void.
Applying Medel, we invalidated and reduced the stipulated interest
in Spouses Solangon v. Salazar 35 of 6% per month or 72% per annum
interest on a P60,000.00 loan; in Ruiz v. Court of Appeals, 36 of 3% per
month or 36% per annum interest on a P3,000,000.00 loan; in Imperial v.
Jaucian, 37 of 16% per month or 192% per annum interest on a P320,000.00
loan; in Arrofo v. Quiño, 38 of 7% interest per month or 84% per annum
interest on a P15,000.00 loan; in Bulos, Jr. v. Yasuma, 39 of 4% per month or
48% per annum interest on a P2,500,000.00 loan; and in Chua v.
Timan, 40 of 7% and 5% per month for loans totalling P964,000.00. We note
that in all these cases, the terms of the loans were open-ended; the stipulated
interest rates were applied for an indefinite period.
Medel finds no application in the present case where no other
stipulation exists for the payment of any extra amount except a specific sum
of P40,000.00 per month on the principal of a loan payable within six
months. Additionally, no issue on the excessiveness of the stipulated amount
of P40,000.00 per month was ever put in issue by the petitioners; 41 they only
assailed the application of a 4% interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the parties are
bound by the stipulations, clauses, terms and conditions they have agreed to,
which is the law between them, the only limitation being that these
stipulations, clauses, terms and conditions are not contrary to law, morals,
public order or public policy. 42 The payment of the specific sum of
money of P40,000.00 per month was voluntarily agreed upon by the
petitioners and the respondent. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims of fraud when
they entered into the agreement with the respondent.
Therefore, as agreed by the parties, the loan of P1,000,000.00 shall
earn P40,000.00 per month for a period of six (6) months, or from December
8, 1993 to June 8, 1994, for a total principal and interest amount of
P1,240,000.00. Thereafter, interest at the rate of 12% per annum shall apply.
The amounts already paid by the petitioners during the pendency of the suit,
amounting to P1,228,772.00 as of February 12, 1999, 43 should be deducted
from the total amount due, computed as indicated above. We remand the case
to the trial court for the actual computation of the total amount due.
Doctrine of Estoppel not applicable
The respondent submits that the petitioners are estopped from
disputing the 4% monthly interest beyond the six-month stipulated period,
since they agreed to pay this interest on the principal amount under the
promissory note and the board resolution. CacEIS

We disagree with the respondent's contention.

We cannot apply the doctrine of estoppel in the present case since the
facts and circumstances, as established by the record, negate its application.
Under the promissory note, 44 what the petitioners agreed to was the payment
of a specific sum of P40,000.00 per month for six months — not a 4% rate
of interest per month for six (6) months — on a loan whose principal is
P1,000,000.00, for the total amount of P1,240,000.00. Thus, no reason
exists to place the petitioners in estoppel, barring them from raising their
present defenses against a 4% per month interest after the six-month period
of the agreement. The board resolution, 45 on the other hand, simply
authorizes Pantaleon to contract for a loan with a monthly interest of not
more than 4%. This resolution merely embodies the extent of Pantaleon's
authority to contract and does not create any right or obligation except as
 between Pantaleon and the board. Again, no cause exists to place the
petitioners in estoppel.
Piercing the corporate veil unfounded
We find it unfounded and unwarranted for the lower courts to pierce
the corporate veil of PRISMA.
The doctrine of piercing the corporate veil applies only in three (3)
basic instances, namely: a) when the separate and distinct corporate
personality defeats public convenience, as when the corporate fiction is used
as a vehicle for the evasion of an existing obligation; b) in fraud cases, or
when the corporate entity is used to justify a wrong, protect a fraud, or defend
a crime; or c) is used in alter ego cases, i.e., where a corporation is
essentially a farce, since it is a mere alter ego or business conduit of a person,
or where the corporation is so organized and controlled and its affairs so
conducted as to make it merely an instrumentality, agency, conduit or adjunct
of another corporation. 46 In the absence of malice, bad faith, or a specific
provision of law making a corporate officer liable, such corporate officer
cannot be made personally liable for corporate liabilities. 47
In the present case, we see no competent and convincing evidence of
any wrongful, fraudulent or unlawful act on the part of PRISMA to justify
piercing its corporate veil. While Pantaleon denied personal liability in his
Answer, he made himself accountable in the promissory note "in his
personal capacity and as authorized by the Board
Resolution" of PRISMA. 48 With this statement of personal liability and in
the absence of any representation on the part of PRISMA that the obligation
is all its own because of its separate corporate identity, we see no occasion to
consider piercing the corporate veil as material to the case.
WHEREFORE, in light of all the foregoing, we
hereby REVERSE and SET ASIDE the Decision dated May 5, 2003 of the
Court of Appeals in CA-G.R. CV No. 69627. The petitioners' loan of
P1,000,000.00 shall bear interest of P40,000.00 per month for six (6) months
from December 8, 1993 as indicated in the promissory note. Any portion of
this loan, unpaid as of the end of the six-month payment period, shall
thereafter bear interest at 12% per annum. The total amount due and unpaid,
including accrued interests, shall bear interest at 12% per annum from the
finality of this Decision. Let this case be REMANDED to the Regional Trial
Court, Branch 73, Antipolo City for the proper computation of the amount
due as herein directed, with due regard to the payments the petitioners have
already remitted. Costs against the respondent. HEcTAI

SO ORDERED.
 (Prisma Construction & Development Corporation v. Menchavez, G.R. No.
|||

160545, [March 9, 2010], 628 PHIL 495-508)

[G.R. No. 150283. April 16, 2008.]

RYUICHI YAMAMOTO, petitioner, vs. NISHINO
LEATHER INDUSTRIES, INC. and IKUO
NISHINO, respondents.

DECISION

CARPIO-MORALES, J : p

In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese

national, organized under Philippine laws Wako Enterprises Manila,
Incorporated (WAKO), a corporation engaged principally in leather tanning,
now known as Nishino Leather Industries, Inc. (NLII), one of herein
respondents.
In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino),
also a Japanese national, forged a Memorandum of Agreement under which
they agreed to enter into a joint venture wherein Nishino would acquire such
number of shares of stock equivalent to 70% of the authorized capital stock
of WAKO.
Eventually, Nishino and his brother 1 Yoshinobu Nishino (Yoshinobu)
acquired more than 70% of the authorized capital stock of WAKO, reducing
Yamamoto's investment therein to, by his claim, 10%, 2 less than 10%
according to Nishino. 3
The corporate name of WAKO was later changed to, as reflected
earlier, its current name NLII.
Negotiations subsequently ensued in light of a planned takeover of
NLII by Nishino who would buy-out the shares of stock of Yamamoto. In the
course of the negotiations, Yoshinobu and Nishino's counsel Atty.
Emmanuel G. Doce (Atty. Doce) advised Yamamoto by letter dated October
30, 1991, the pertinent portions of which follow:
Hereunder is a simple memorandum of the subject matters
discussed with me by Mr. Yoshinobu Nishino yesterday, October
 29th, based on the letter of Mr. Ikuo Nishino from Japan, and which
I am now transmitting to you. 4
xxx xxx xxx

12. Machinery and Equipment:

The following machinery/equipment have been contributed
by you to the company:
Splitting machine - 1 unit

Samming machine - 1 unit

Forklift - 1 unit

Drums - 4 units

Toggling machine - 2 units

Regarding the above machines, you may take them out with
you (for your own use and sale) if you want, provided, the value of
such machines is deducted from your and Wako's capital
contributions, which will be paid to you.
Kindly let me know of your comments on all the above,
soonest.
xxx xxx xxx 5 (Emphasis and underscoring supplied)

On the basis of such letter, Yamamoto attempted to recover the

machineries and equipment which were, by Yamamoto's admission, part of
his investment in the corporation, 6 but he was frustrated by respondents,
drawing Yamamoto to file on January 15, 1992 before the Regional Trial
Court (RTC) of Makati a complaint 7 against them for replevin.
Branch 45 of the Makati RTC issued a writ of replevin after
Yamamoto filed a bond. 8
In their Answer with Counterclaim, 9 respondents claimed that the
machineries and equipment subject of replevin form part of Yamamoto's
capital contributions in consideration of his equity in NLII and should thus be
treated as corporate property; and that the above-said letter of Atty. Doce to
Yamamoto was merely a proposal, "conditioned on [Yamamoto's] sell-out
to . . . Nishino of his entire equity", 10 which proposal was yet to be
authorized by the stockholders and Board of Directors of NLII.
By way of Counterclaim, respondents, alleging that they suffered
damage due to the seizure via the implementation of the writ of replevin over
the machineries and equipment, prayed for the award to them of moral and
exemplary damages, attorney's fees and litigation expenses, and costs of suit.
The trial court, by Decision of June 9, 1995, decided the case in favor
of Yamamoto, 11 disposing thus:
WHEREFORE, judgment is hereby rendered: (1)
declaring plaintiff as the rightful owner and possessor of the
machineries in question, and making the writ of seizure permanent;
(2) ordering defendants to pay plaintiff attorney's fees and expenses
of litigation in the amount of Fifty Thousand Pesos (P50,000.00),
Philippine Currency; (3) dismissing defendants' counterclaims for
lack of merit; and (4) ordering defendants to pay the costs of suit.
SO ORDERED. 12 (Underscoring supplied)
On appeal, 13 the Court of Appeals held in favor of herein respondents
and accordingly reversed the RTC decision and dismissed the
complaint. 14 In so holding, the appellate court found that the machineries
and equipment claimed by Yamamoto are corporate property of NLII and
may not thus be retrieved without the authority of the NLII Board of
Directors; 15 and that petitioner's argument that Nishino and Yamamoto
cannot hide behind the shield of corporate fiction does not lie, 16 nor does
petitioner's invocation of the doctrine of promissory estoppel. 17 At the same
time, the Court of Appeals found no ground to support respondents'
Counterclaim. 18
The Court of Appeals having denied 19 his Motion for
Reconsideration, 20 Yamamoto filed the present petition, 21 faulting the
Court of Appeals:
A.

. . . IN HOLDING THAT THE VEIL OF CORPORATE

FICTION SHOULD NOT BE PIERCED IN THE CASE AT BAR.
B.

. . . IN HOLDING THAT THE DOCTRINE OF

PROMISSORY ESTOPPEL DOES NOT APPLY TO THE CASE
AT BAR.
C.

. . . IN HOLDING THAT RESPONDENTS ARE NOT

LIABLE FOR ATTORNEY'S FEES. 22
 The resolution of the petition hinges, in the main, on whether the
advice in the letter of Atty. Doce that Yamamoto may retrieve the
machineries and equipment, which admittedly were part of his investment,
bound the corporation. The Court holds in the negative.
Indeed, without a Board Resolution authorizing respondent Nishino to
act for and in behalf of the corporation, he cannot bind the latter. Under the
Corporation Law, unless otherwise provided, corporate powers are exercised
by the Board of Directors. 23
Urging this Court to pierce the veil of corporate fiction, Yamamoto
argues, viz.:
During the negotiations, the issue as to the ownership of the
Machiner[ies] never came up. Neither did the issue on the proper
procedure to be taken to execute the complete take-over of the
Company come up since Ikuo, Yoshinobu, and Yamamoto were the
owners thereof, the presence of other stockholders being only for the
purpose of complying with the minimum requirements of the law.
What course of action the Company decides to do or not to
do depends not on the "other members of the Board of Directors". It
depends on what Ikuo and Yoshinobu decide. The Company is
but a mere instrumentality of Ikuo [and] Yoshinobu. 24
xxx xxx xxx

. . . The Company hardly holds board meetings. It has an

inactive board, the directors are directors in name only and are there
to do the bidding of the Nish[i]nos, nothing more. Its minutes are
paper minutes. . . . 25
xxx xxx xxx

The fact that the parties started at a 70-30 ratio and

Yamamoto's percentage declined to 10% does not mean the 20%
went to others. . . . The 20% went to no one else but Ikuo
himself. . . . Yoshinobu is the younger brother of Ikuo and has
no say at all in the business. Only Ikuo makes the decisions.
There were, therefore, no other members of the Board who have
not given their approval. 26 (Emphasis and underscoring supplied)
While the veil of separate corporate personality may be pierced when
the corporation is merely an adjunct, a business conduit, or alter ego of a
person, 27 the mere ownership by a single stockholder of even all or nearly all
of the capital stocks of a corporation is not by itself a sufficient ground to
disregard the separate corporate personality. 28
 The elements determinative of the applicability of the doctrine of
piercing the veil of corporate fiction follow:
"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 the plaintiff's legal rights; and
3. The aforesaid control and breach of duty
must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents
"piercing the corporate veil." In applying the 'instrumentality' or
'alter ego' doctrine, the courts are concerned with reality and not
form, with how the corporation operated and the individual
defendant's relationship to that operation." 29 (Italics in the original;
emphasis and underscoring supplied)
In relation to the second element, to disregard the separate juridical
personality of a corporation, the wrongdoing or unjust act in contravention of
a plaintiff's legal rights must be clearly and convincingly established; it
cannot be presumed. 30 Without a demonstration that any of the evils sought
to be prevented by the doctrine is present, it does not apply. 31
In the case at bar, there is no showing that Nishino used the separate
personality of NLII to unjustly act or do wrong to Yamamoto in
contravention of his legal rights.
Yamamoto argues, in another vein, that promissory estoppel lies
against respondents, thus:
Under the doctrine of promissory estoppel, . . . estoppel may
arise from the making of a promise, even though without
consideration, if it was intended that the promise should be relied
upon and in fact it was relied upon, and if a refusal to enforce it
would be virtually to sanction the perpetration of fraud or would
result in other injustice.
. . . Ikuo and Yoshinobu wanted Yamamoto out of the
Company. For this purpose negotiations were had between the
parties. Having expressly given Yamamoto, through the Letter and
 through a subsequent meeting at the Manila Peninsula where Ikuo
himself confirmed that Yamamoto may take out the Machinery from
the Company anytime, respondents should not be allowed to turn
around and do the exact opposite of what they have represented they
will do.

In paragraph twelve (12) of the Letter, Yamamoto was

expressly advised that he could take out the Machinery if he wanted
to so, provided that the value of said machines would be deducted
from his capital contribution . . . .
xxx xxx xxx

Respondents cannot now argue that they did not intend for
Yamamoto to rely upon the Letter. That was the purpose of the
Letter to begin with. Petitioner[s] in fact, relied upon said Letter and
such reliance was further strengthened during their meeting at the
Manila Peninsula.
To sanction respondents' attempt to evade their obligation
would be to sanction the perpetration of fraud and injustice against
petitioner. 32 (Underscoring supplied)
It bears noting, however, that the aforementioned paragraph 12 of the
letter is followed by a request for Yamamoto to give his "comments on all the
above, soonest." 33
What was thus proffered to Yamamoto was not a promise, but a mere
offer, subject to his acceptance. Without acceptance, a mere offer produces
no obligation. 34
Thus, under Article 1181 of the Civil Code, "[i]n conditional
obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which
constitutes the condition." In the case at bar, there is no showing of
compliance with the condition for allowing Yamamoto to take the
machineries and equipment, namely, his agreement to the deduction of their
value from his capital contribution due him in the buy-out of his interests in
NLII. Yamamoto's allegation that he agreed to the condition 35 remained just
that, no proof thereof having been presented.
The machineries and equipment, which comprised Yamamoto's
investment in NLII, 36 thus remained part of the capital property of the
corporation. 37
 It is settled that the property of a corporation is not the property of its
stockholders or members. 38 Under the trust fund doctrine, the capital stock,
property, and other assets of a corporation are regarded as equity in trust for
the payment of corporate creditors which are preferred over the stockholders
in the distribution of corporate assets. 39 The distribution of corporate assets
and property cannot be made to depend on the whims and caprices of the
stockholders, officers, or directors of the corporation unless the
indispensable conditions and procedures for the protection of corporate
creditors are followed. 40
WHEREFORE, the petition is DENIED.
Costs against petitioner.
SO ORDERED.
(Yamamoto v. Nishino Leather Industries, Inc., G.R. No. 150283, [April 16,
|||

2008], 574 PHIL 587-597)

[G.R. No. 124715. January 24, 2000.]

RUFINA LUY LIM, petitioner, vs. COURT OF APPEALS,
AUTO TRUCK TBA CORPORATION, SPEED
DISTRIBUTING, INC., ACTIVE DISTRIBUTORS,
ALLIANCE MARKETING CORPORATION, ACTION
COMPANY, INC., respondents.

Antonio F. Navarrete for petitioner.

Paul Bernard T. Irao for private respondent.
SYNOPSIS

The properties of private respondent corporations were included in the inventory

of the estate of the late Pastor Lim on the allegation that Pastor personally owned
the respondent corporations. Hence, the probate court denied the motion for
exclusion of respondent corporations.
The issue is: May a corporation, in its universality, be the proper subject of and
be included in the inventory of the estate of a deceased person?
The Court ruled that inasmuch as the real properties included in the inventory of
the estate of the late Pastor are in the possession of and are registered in the name
of private respondent corporations, which under the law possess a personality
separate and distinct from their stockholders, and in the absence of any cogency
to shred the veil of corporate fiction, the presumption of conclusiveness of said
titles in favor of private respondents should stand undisturbed. Accordingly, the
probate court was remiss in denying the motion for exclusion. TIAEac

SYLLABUS

1. REMEDIAL LAW; JURISDICTION ON MATTERS OF PROBATE

DEPENDS ON GROSS VALUE OF ESTATE. — The determination of which
court exercises jurisdiction over matters of probate depends upon the gross value
of the estate of the decedent.
2. ID.; SPECIAL PROCEEDINGS; SETTLEMENT OF ESTATE OF
DECEASED PERSONS; WHERE PARCELS OF LAND REGISTERED IN
THE NAME OF CORPORATIONS. — Where the parcels of land are registered
in the name of private respondent corporations, the jurisprudence pronounced
in BOLISAY vs. ALCID is of great essence and finds applicability, thus: "It does
not matter that respondent administratrix has evidence purporting to support her
claim of ownership, for, on the other hand, petitioners have a Torrens Title in
their favor, which under the law is endowed with incontestability until after it
has been set aside in the manner indicated in the law itself, which, of course,
does not include, bringing up the matter as a mere incident in special
proceedings for the settlement of the estate of deceased persons. . . . . In regard to
such incident of inclusion or exclusion, We hold that if a property covered by
Torrens Title is involved, the presumptive conclusiveness of such title should be
given due weight, and in the absence of strong compelling evidence to the
contrary, the holder thereof should be considered as the owner of the property in
controversy until his title is nullified or modified in an appropriate ordinary
action, particularly, when as in the case at bar, possession of the property itself is
in the persons named in the title. . . ." A perusal of the records would reveal that
no strong compelling evidence was ever presented by petitioner to bolster her
bare assertions as to the title of the deceased Pastor Y. Lim over the properties.
3. CIVIL LAW; LAND TITLES; PROPERTY REGISTRATION DECREE;
PROSCRIBES COLLATERAL ATTACK ON TORRENS TITLE. — P.D.
1529, otherwise known as, "The Property Registration Decree", proscribes
collateral attack on Torrens Title, hence: ". . . Section 48. Certificate not subject
to collateral attack. A certificate of title shall not be subject to collateral attack. It
cannot be altered, modified or canceled except in a direct proceeding in
accordance with law." Inasmuch as the real properties included in the inventory
of the estate of the late Pastor Y. Lim are in the possession of and are registered
in the name of private respondent corporations, which under the law possess a
personality separate and distinct from their stockholders, and in the absence of
any cogency to shred the veil of corporate fiction, the presumption of
conclusiveness of said titles in favor of private respondents should stand
undisturbed.
4. COMMERCIAL LAW; CORPORATION; SEPARATE AND DISTINCT
PERSONALITY. — It is settled that a corporation is clothed with personality
separate and distinct from that of the persons composing it. It may not generally
be held liable for that of the persons composing it. It may not be held liable for
the personal indebtedness of its stockholders or those of the entities connected
with it.
5. ID.; ID.; ID.; PIERCING THE VEIL OF CORPORATE ENTITY;
DISCUSSED. — Piercing the veil of corporate entity requires the court to see
through the protective shroud which exempts its stockholders from liabilities
that ordinarily, they could be subject to, or distinguishes one corporation from a
seemingly separate one, were it not for the existing corporate fiction. 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. Further, the test in determining the applicability of the
doctrine of piercing the veil of corporate fiction is as follows: 1) Control, not
mere majority or complete stock control, but complete domination, not only of
finances but of policy and business practice in respect to the transaction attacked
so that the corporate entity as to this transaction had at the time no separate mind,
will or existence of its own; (2) Such control must have been used by the
defendant to commit fraud or wrong, to perpetuate the violation of a statutory or
other positive legal duty, or dishonest and unjust act in contravention of
plaintiff's legal right; and (3) The aforesaid control and breach of duty must
proximately cause the injury or unjust loss complained of. The absence of any of
these elements prevent "piercing the corporate veil". Mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a
corporation is not of itself a sufficient reason for disregarding the fiction of
separate corporate personalities. Moreover, to disregard the separate juridical
personality of a corporation, the wrong-doing must be clearly and convincingly
established. It cannot be presumed. SDHTEC

6. REMEDIAL LAW; EVIDENCE; RULES ON ADMISSIBILITY;

AFFIDAVITS; CONSIDERED HEARSAY IN CASE AT BAR. — The reliance
reposed by petitioner on the affidavits executed by certain witnesses is
unavailing considering that said documents possess no weighty probative value
pursuant to the hearsay rule. Besides it is imperative for us to stress that such
affidavits are inadmissible in evidence inasmuch as the affiants were not at all
presented during the course of the proceedings in the lower court. To put it
differently, for this Court to uphold the admissibility of said documents would be
to relegate from Our duty to apply such basic rule of evidence in a manner
consistent with the law and jurisprudence. Our pronouncement in PEOPLE
BANK AND TRUST COMPANY vs. LEONIDASfinds pertinence: "Affidavits are
classified as hearsay evidence since they are not generally prepared by the affiant
but by another who uses his own language in writing the affiant's statements,
which may thus be either omitted or misunderstood by the one writing them.
Moreover, the adverse party is deprived of the opportunity to cross-examine the
affiants. For this reason, affidavits are generally rejected for being hearsay,
unless the affiants themselves are placed on the witness stand to testify thereon."
DECISION

BUENA, J : p

May a corporation, in its universality, be the proper subject of and be included in

the inventory of the estate of a deceased person? LibLex

Petitioner disputes before us through the instant petition for review on certiorari,
the decision 1 of the Court of Appeals promulgated on 18 April 1996, in CA-GR
SP No. 38617, which nullified and set aside the orders dated 04 July 1995 2, 12
September 1995 3 and 15 September 1995 4 of the Regional Trial Court of
Quezon City, Branch 93, sitting as a probate court.
Petitioner Rufina Luy Lim is the surviving spouse of the late Pastor Y. Lim
whose estate is the subject of probate proceedings in Special Proceedings
Q-95-23334, entitled, "In Re: Intestate Estate of Pastor Y. Lim Rufina Luy
Lim, represented by George Luy, Petitioner".
Private respondents Auto Truck Corporation, Alliance Marketing Corporation,
Speed Distributing, Inc., Active Distributing, Inc. and Action Company are
corporations formed, organized and existing under Philippine laws and which
owned real properties covered under the Torrens system.
On 11 June 1994, Pastor Y. Lim died intestate. Herein petitioner, as surviving
spouse and duly represented by her nephew George Luy, filed on 17 March 1995,
a joint petition 5 for the administration of the estate of Pastor Y. Lim before the
Regional Trial Court of Quezon City.
Private respondent corporations, whose properties were included in the
inventory of the estate of Pastor Y. Lim, then filed a motion 6 for the lifting of lis
pendens and motion 7 for exclusion of certain properties from the estate of the
decedent.
In an order 8 dated 08 June 1995, the Regional Trial Court of Quezon City,
Branch 93, sitting as a probate court, granted the private respondents' twin
motions, in this wise:
"Wherefore, the Register of Deeds of Quezon City is hereby ordered
to lift, expunge or delete the annotation of lis pendenson Transfer
Certificates of Title Nos. 116716, 116717, 116718, 116719 and 5182
and it is hereby further ordered that the properties covered by the same
titles as well as those properties by (sic) Transfer Certificate of Title
Nos. 613494, 363123, 236236 and 263236 are excluded from these
proceedings.

SO ORDERED."

Subsequently, Rufina Luy Lim filed a verified amended petition 9 which

contained the following averments:

"3. The late Pastor Y. Lim personally owned during his lifetime the
following business entities, to wit:

Business Entity Address:

xxx xxx xxx

Alliance Marketing, Inc. Block 3, Lot 6, Dacca

BF Homes,

Parañaque,

Metro Manila.
xxx xxx xxx

Speed Distributing Inc. 910 Barrio Niog,

Aguinaldo Highway,

Bacoor, Cavite.
xxx xxx xxx

Auto Truck TBA Corp. 2251 Roosevelt Avenue,

Quezon City.
xxx xxx xxx
 Active Distributors, Inc. Block 3, Lot 6, Dacca BF

Homes, Parañaque,

Metro Manila.
xxx xxx xxx

Action Company 100 20th Avenue

Murphy, Quezon City

or

92-D Mc-Arthur Highway

Valenzuela Bulacan.
"3.1 Although the above business entities dealt and engaged in
business with the public as corporations, all their capital, assets and
equity were however, personally owned by the late Pastor Y Lim.
Hence the alleged stockholders and officers appearing in the
respective articles of incorporation of the above business entities were
mere dummies of Pastor Y. Lim, and they were listed therein only for
purposes of registration with the Securities and Exchange
Commission.

"4. Pastor Lim, likewise, had Time, Savings and Current Deposits
with the following banks: (a) Metrobank, Grace Park, Caloocan City
and Quezon Avenue, Quezon City Branches and (b) First Intestate
Bank (formerly Producers Bank), Rizal Commercial Banking
Corporation and in other banks whose identities are yet to be
determined.

"5. That the following real properties, although registered in the name
of the above entities, were actually acquired by Pastor Y. Lim during
his marriage with petitioner, to wit:

Corporation Title Location

xxx xxx xxx

k. Auto Truck TCT No. 617726 Sto. Domingo

TBA Corporation Cainta, Rizal

q. Alliance Marketing TCT No. 27896 Prance,

Metro Manila
 Copies of the above-mentioned Transfer Certificate of Title and/or
Tax Declarations are hereto attached as Annexes "C" to "W".

xxx xxx xxx

"7. The aforementioned properties and/or real interests left by the late
Pastor Y. Lim, are all conjugal in nature, having been acquired by him
during the existence of his marriage with petitioner. cda

"8. There are other real and personal properties owned by Pastor Y.
Lim which petitioner could not as yet identify. Petitioner, however
will submit to this Honorable Court the identities thereof and the
necessary documents covering the same as soon as possible."

On 04 July 1995, the Regional Trial Court acting on petitioner's motion issued an
order 10 , thus:
"Wherefore, the order dated 08 June 1995 is hereby set aside and the
Registry of Deeds of Quezon City is hereby directed to reinstate the
annotation of lis pendens in case said annotation had already been
deleted and/or cancelled said TCT Nos. 116716, 116717, 116718,
116719 and 51282.

Further more (sic), said properties covered by TCT Nos. 613494,

365123, 236256 and 236237 by virtue of the petitioner are included in
the instant petition.

SO ORDERED."

On 04 September 1995, the probate court appointed Rufina Lim as special

administrator 11 and Miguel Lim and Lawyer Donald Lee, as co-special
administrators of the estate of Pastor Y. Lim, after which letters of
administration were accordingly issued.
In an order 12 dated 12 September 1995, the probate court denied anew private
respondents' motion for exclusion, in this wise:
"The issue precisely raised by the petitioner in her petition is whether
the corporations are the mere alter egos or instrumentalities of Pastor
Lim, Otherwise (sic) stated, the issue involves the piercing of the
corporate veil, a matter that is clearly within the jurisdiction of this
Honorable Court and not the Securities and Exchange Commission.
Thus, in the case of Cease vs. Court of Appeals, 93 SCRA 483, the
crucial issue decided by the regular court was whether the corporation
involved therein was the mere extension of the decedent. After finding
in the affirmative, the Court ruled that the assets of the corporation are
also assets of the estate.
 A reading of P.D. 902, the law relied upon by oppositors, shows that
the SEC's exclusive (sic) applies only to intra-corporate controversy.
It is simply a suit to settle the intestate estate of a deceased person who,
during his lifetime, acquired several properties and put up
corporations as his instrumentalities.

SO ORDERED."

On 15 September 1995, the probate court acting on an ex parte motion filed by

petitioner, issued an order 13 the dispositive portion of which reads:
"Wherefore, the parties and the following banks concerned herein
under enumerated are hereby ordered to comply strictly with this order
and to produce and submit to the special administrators, through this
Honorable Court within (5) five days from receipt of this order their
respective records of the savings/current accounts/time deposits and
other deposits in the names of Pastor Lim and/or corporations
above-mentioned, showing all the transactions made or done
concerning savings/current accounts from January 1994 up to their
receipt of this court order.

xxx xxx xxx

SO ORDERED."

Private respondent filed a special civil action for certiorari 14 , with an urgent
prayer for a restraining order or writ of preliminary injunction, before the Court
of Appeals questioning the orders of the Regional Trial Court, sitting as a
probate court.
On 18 April 1996, the Court of Appeals, finding in favor of herein private
respondents, rendered the assailed decision 15 , the decretal portion of which
declares:
"Wherefore, premises considered, the instant special civil action
for certiorari is hereby granted, The impugned orders issued by
respondent court on July 4, 1995 and September 12, 1995 are hereby
nullified and set aside. The impugned order issued by respondent on
September 15, 1995 is nullified insofar as petitioner corporations"
bank accounts and records are concerned.

SO ORDERED."

Through the expediency of Rule 45 of the Rules of Court, herein petitioner

Rufina Luy Lim now comes before us with a lone assignment of error: 16
 "The respondent Court of Appeals erred in reversing the orders of the
lower court which merely allowed the preliminary or provisional
inclusion of the private respondents as part of the estate of the late
deceased (sic) Pastor Y. Lim with the respondent Court of Appeals
arrogating unto itself the power to repeal, to disobey or to ignore the
clear and explicit provisions of Rules 81, 83, 84 and 87 of the Rules of
Court and thereby preventing the petitioner, from performing her duty
as special administrator of the estate as expressly provided in the said
Rules."

Petitioner's contentions tread on perilous grounds.

In the instant petition for review, petitioner prays that we affirm the orders issued
by the probate court which were subsequently set aside by the Court of Appeals.
Yet, before we delve into the merits of the case, a review of the rules on
jurisdiction over probate proceedings is indeed in order.
The provisions of Republic Act 7691 17 , which introduced amendments to Batas
Pambansa Blg. 129, are pertinent:
"SECTION 1. Section 19 of Batas Pambansa Blg. 129, otherwise
known as the "Judiciary Reorganization Act of 1980", is hereby
amended to read as follows:

SECTION 19. Jurisdiction in civil cases. Regional Trial Courts shall

exercise exclusive jurisdiction:

xxx xxx xxx

(4) In all matters of probate, both testate and intestate, where the gross
value of the estate exceeds One Hundred Thousand Pesos (P100,000)
or, in probate matters in Metro Manila, where such gross value
exceeds Two Hundred Thousand Pesos (P200,000);

xxx xxx xxx

SECTION 3. Section 33 of the same law is hereby amended to read as

follows: cdll

SECTION 33. Jurisdiction of Metropolitan Trial Courts,

Municipal Trial Courts and Municipal Circuit Trial Courts in
Civil Cases. — Metropolitan Trial Courts, Municipal Trial
Courts and Municipal Circuit Trial Courts shall exercise:

1. Exclusive original jurisdiction over civil actions and probate

proceedings, testate and intestate, including the grant of
provisional remedies in proper cases, where the value of the
 personal property, estate or amount of the demand does not
exceed One Hundred Thousand Pesos (P100,000) or, in Metro
Manila where such personal property, estate or amount of the
demand does not exceed Two Hundred Thousand Pesos
(P200,000), exclusive of interest, damages of whatever kind,
attorney's fees, litigation expenses and costs, the amount of
which must be specifically alleged, Provided, that interest,
damages of whatever kind, attorney's litigation expenses and
costs shall be included in the determination of the filing fees,
Provided further, that where there are several claims or causes
of actions between the same or different parties, embodied in
the same complaint, the amount of the demand shall be the
totality of the claims in all the causes of action, irrespective of
whether the causes of action arose out of the same or different
transactions;

xxx xxx xxx

Simply put, the determination of which court exercises jurisdiction over matters
of probate depends upon the gross value of the estate of the decedent.
As to the power and authority of the probate court, petitioner relies heavily on
the principle that a probate court may pass upon title to certain properties, albeit
provisionally, for the purpose of determining whether a certain property should
or should not be included in the inventory.
In a litany of cases, We defined the parameters by which the court may extend its
probing arms in the determination of the question of title in probate proceedings.
This Court, in PASTOR, JR. vs. COURT OF APPEALS, 18 held:

". . . As a rule, the question of ownership is an extraneous matter

which the probate court cannot resolve with finality. Thus, for the
purpose of determining whether a certain property should or should
not be included in the inventory of estate properties, the Probate Court
may pass upon the title thereto, but such determination is provisional,
not conclusive, and is subject to the final decision in a separate action
to resolve title."

We reiterated the rule in PEREIRA vs. COURT OF APPEALS: 19

". . . The function of resolving whether or not a certain property should
be included in the inventory or list of properties to be administered by
the administrator is one clearly within the competence of the probate
 court. However, the court's determination is only provisional in
character, not conclusive, and is subject to the final decision in a
separate action which may be instituted by the parties."

Further, in MORALES vs. CFI OF CAVITE 20 citing CUIZON

vs. RAMOLETE, 21 We made an exposition on the probate court's limited
jurisdiction:
"It is a well-settled rule that a probate court or one in charge of
proceedings whether testate or intestate cannot adjudicate or
determine title to properties claimed to be a part of the estate and
which are equally claimed to belong to outside parties. All that the
said court could do as regards said properties is to determine whether
they should or should not be included in the inventory or list of
properties to be administered by the administrator. If there is no
dispute, well and good; but if there is, then the parties, the
administrator and the opposing parties have to resort to an ordinary
action for a final determination of the conflicting claims of title
because the probate court cannot do so."

Again, in VALERA vs. INSERTO, 22 We had occasion to elucidate, through Mr.

Justice Andres Narvasa: 23
"Settled is the rule that a Court of First Instance (now Regional Trial
Court), acting as a probate court, exercises but limited jurisdiction,
and thus has no power to take cognizance of and determine the issue of
title to property claimed by a third person adversely to the decedent,
unless the claimant and all other parties having legal interest in the
property consent, expressly or impliedly, to the submission of the
question to the probate court for adjudgment, or the interests of third
persons are not thereby prejudiced, the reason for the exception being
that the question of whether or not a particular matter should be
resolved by the court in the exercise of its general jurisdiction or of its
limited jurisdiction as a special court (e.g. probate, land registration,
etc.), is in reality not a jurisdictional but in essence of procedural one,
involving a mode of practice which may be waived. . . .

. . . . These considerations assume greater cogency where, as here, the

Torrens title is not in the decedent's name but in others, a situation on
which this Court has already had occasion to rule. . .."(italics Ours)

Petitioner, in the present case, argues that the parcels of land covered under the
Torrens system and registered in the name of private respondent corporations
should be included in the inventory of the estate of the decedent Pastor Y. Lim,
alleging that after all the determination by the probate court of whether these
properties should be included or not is merely provisional in nature, thus, not
conclusive and subject to a final determination in a separate action brought for
the purpose of adjudging once and for all the issue of title.
Yet, under the peculiar circumstances, where the parcels of land are registered in
the name of private respondent corporations, the jurisprudence pronounced
in BOLISAY vs. ALCID 24 is of great essence and finds applicability, thus:
"It does not matter that respondent-administratrix has evidence
purporting to support her claim of ownership, for, on the other hand,
petitioners have a Torrens title in their favor, which under the law is
endowed with incontestability until after it has been set aside in the
manner indicated in the law itself, which, of course, does not include,
bringing up the matter as a mere incident in special proceedings for the
settlement of the estate of deceased persons. . . . "

". . . . In regard to such incident of inclusion or exclusion, We hold that

if a property covered by Torrens title is involved, the presumptive
conclusiveness of such title should be given due weight, and in the
absence of strong compelling evidence to the contrary, the holder
thereof should be considered as the owner of the property in
controversy until his title is nullified or modified in an appropriate
ordinary action, particularly, when as in the case at bar, possession of
the property itself is in the persons named in the title. . . . "

A perusal of the records would reveal that no strong compelling evidence was
ever presented by petitioner to bolster her bare assertions as to the title of the
deceased Pastor Y. Lim over the properties. Even so, P.D. 1529, otherwise
known as, "The Property Registration Decree", proscribes collateral attack on
Torrens Title, hence:
xxx xxx xxx

SECTION 48. Certificate not subject to collateral attack. — A

certificate of title shall not be subject to collateral attack. It cannot be
altered, modified or cancelled except in a direct proceeding in
accordance with law."

In CUIZON vs. RAMOLETE, where similarly as in the case at bar, the property
subject of the controversy was duly registered under the Torrens system, We
categorically stated:
". . . Having been apprised of the fact that the property in question was
in the possession of third parties and more important, covered by a
 transfer certificate of title issued in the name of such third parties, the
respondent court should have denied the motion of the respondent
administrator and excluded the property in question from the
inventory of the property of the estate. It had no authority to deprive
such third persons of their possession and ownership of the
property. . . . "
cdtai

Inasmuch as the real properties included in the inventory of the estate of the late
Pastor Y. Lim are in the possession of and are registered in the name of private
respondent corporations, which under the law possess a personality separate and
distinct from their stockholders, and in the absence of any cogency to shred the
veil of corporate fiction, the presumption of conclusiveness of said titles in favor
of private respondents should stand undisturbed.
Accordingly, the probate court was remiss in denying private respondents'
motion for exclusion. While it may be true that the Regional Trial Court, acting
in a restricted capacity and exercising limited jurisdiction as a probate court, is
competent to issue orders involving inclusion or exclusion of certain properties
in the inventory of the estate of the decedent, and to adjudge, albeit,
provisionally the question of title over properties, it is no less true that such
authority conferred upon by law and reinforced by jurisprudence, should be
exercised judiciously, with due regard and caution to the peculiar circumstances
of each individual case.
Notwithstanding that the real properties were duly registered under the Torrens
system in the name of private respondents, and as such were to be afforded the
presumptive conclusiveness of title, the probate court obviously opted to shut its
eyes to this gleamy fact and still proceeded to issue the impugned orders.
By its denial of the motion for exclusion, the probate court in effect acted in utter
disregard of the presumption of conclusiveness of title in favor of private
respondents. Certainly, the probate court through such brazen act transgressed
the clear provisions of law and infringed settled jurisprudence on this matter.
Moreover, petitioner urges that not only the properties of private respondent
corporations are properly part of the decedent's estate but also the private
respondent corporations themselves. To rivet such flimsy contention, petitioner
cited that the late Pastor Y. Lim during his lifetime, organized and
wholly-owned the five corporations, which are the private respondents in the
instant case. 25 Petitioner thus attached as Annexes "F" 26 and "G" 27 of the
petition for review affidavits executed by Teresa Lim and Lani Wenceslao which
among others, contained averments that the incorporators of Uniwide
Distributing, Inc. included on the list had no actual participation in the
organization and incorporation of the said corporation. The affiants added that
the persons whose names appeared on the articles of incorporation of Uniwide
Distributing, Inc., as incorporators thereof, are mere dummies since they have
not actually contributed any amount to the capital stock of the corporation and
have been merely asked by the late Pastor Y. Lim to affix their respective
signatures thereon.
It is settled that a corporation is clothed with personality separate and distinct
from that of the persons composing it. It may not generally be held liable for that
of the persons composing it. It may not be held liable for the personal
indebtedness of its stockholders or those of the entities connected with it. 28
Rudimentary is the rule that a corporation is invested by law with a personality
distinct and separate from its stockholders or members. In the same vein, a
corporation by legal fiction and convenience is an entity shielded by a protective
mantle and imbued by law with a character alien to the persons comprising it.
Nonetheless, the shield is not at all times invincible. Thus, in FIRST
PHILIPPINE INTERNATIONAL BANK vs. COURT OF APPEALS 29 , We
enunciated:
". . . When the fiction is urged as a means of perpetrating a fraud or an
illegal act or as a vehicle for the evasion of an existing obligation, the
circumvention of statutes, the achievement or perfection of a
monopoly or generally the perpetration of knavery or crime, the veil
with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals. . . . "

Piercing the veil of corporate entity requires the court to see through the
protective shroud which exempts its stockholders from liabilities that ordinarily,
they could be subject to, or distinguishes one corporation from a seemingly
separate one, were it not for the existing corporate fiction. 30
The corporate mask may be lifted and the corporate veil may be pierced when a
corporation is just but the alter ego of a person or of another corporation. Where
badges of fraud exist, where public convenience is defeated; where a wrong is
sought to be justified thereby, the corporate fiction or the notion of legal entity
should come to naught. 31
Further, the test in determining the applicability of the doctrine of piercing the
veil of corporate fiction is as follows: 1) Control, not mere majority or complete
stock control, but complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so that the corporate
entity as to this transaction had at the time no separate mind, will or existence of
its own; (2) Such control must have been used by the defendant to commit fraud
or wrong, to perpetuate the violation of a statutory or other positive legal duty, or
dishonest and unjust act in contravention of plaintiffs legal right; and (3) The
aforesaid control and breach of duty must proximately cause the injury or unjust
loss complained of. The absence of any of these elements prevent "piercing the
corporate veil." 32
Mere ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient reason
for disregarding the fiction of separate corporate personalities. 33
Moreover, to disregard the separate juridical personality of a corporation, the
wrong-doing must be clearly and convincingly established. It cannot be
presumed. 34
Granting arguendo that the Regional Trial Court in this case was not merely
acting in a limited capacity as a probate court, petitioner nonetheless failed to
adduce competent evidence that would have justified the court to impale the veil
of corporate fiction. Truly, the reliance reposed by petitioner on the affidavits
executed by Teresa Lim and Lani Wenceslao is unavailing considering that the
aforementioned documents possess no weighty probative value pursuant to the
hearsay rule. Besides it is imperative for us to stress that such affidavits are
inadmissible in evidence inasmuch as the affiants were not at all presented
during the course of the proceedings in the lower court. To put it differently, for
this Court to uphold the admissibility of said documents would be to relegate
from Our duty to apply such basic rule of evidence in a manner consistent with
the law and jurisprudence.
Our pronouncement in PEOPLE BANK AND TRUST COMPANY
vs. LEONIDAS 35 finds pertinence:
"Affidavits are classified as hearsay evidence since they are not
generally prepared by the affiant but by another who uses his own
language in writing the affiant's statements, which may thus be either
omitted or misunderstood by the one writing them. Moreover, the
adverse party is deprived of the opportunity to cross-examine the
affiants. For this reason, affidavits are generally rejected for being
hearsay, unless the affiant themselves are placed on the witness stand
to testify thereon."
prLL

As to the order 36 of the lower court, dated 15 September 1995, the Court of
Appeals correctly observed that the Regional Trial Court, Branch 93 acted
without jurisdiction in issuing said order; The probate court had no authority to
demand the production of bank accounts in the name of the private respondent
corporations.
WHEREFORE, in view of the foregoing disquisitions, the instant petition is
hereby DISMISSED for lack of merit and the decision of the Court of Appeals
which nullified and set aside the orders issued by the Regional Trial Court,
Branch 93, acting as a probate court, dated 04 July 1995 and 12 September 1995
is AFFIRMED.
SO ORDERED.
(Lim v. Court of Appeals, G.R. No. 124715, [January 24, 2000], 380 PHIL
|||

60-78)

[G.R. No. 125986. January 28, 1999.]

LUXURIA HOMES INC., and/or AIDA M.
POSADAS, petitioners, vs. HONORABLE COURT OF
APPEALS, JAMES BUILDER CONSTRUCTION and/or
JAIME T. BRAVO, respondents.

Ricardo M. Dira for petitioners.

Amado R. Fojas for private respondent.
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 is 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. IEcaHS

SYLLABUS

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. — 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 plaintiff's causes of action finds support in the law or
that the latter is entitled to the relief prayed for.
TIHDAa

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 plaintiff's 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 ASSENT OF 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.
DECISION

MARTINEZ, J : p

This petition for review assails the decision of the respondent Court of Appeals
dated March 15, 1996, 1 which affirmed with modification the judgment of
default rendered by the Regional Trial Court of Muntinlupa, Branch 276, in Civil
Case No. 92-2592 granting all the reliefs prayed for in the complaint of private
respondents James Builder Construction and/or Jaime T. Bravo. LLphil

As culled from the record, the facts are as follows:

Petitioner Aida M. Posadas and her two (2) 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 private respondent to negotiate
with the squatters to leave the said property. With a written authorization,
respondent Bravo buckled down to work and started negotiations with the
squatters.
Meanwhile, some seven (7) months later, on December 11, 1989, petitioner
Posadas and her two (2) children, through a Deed of Assignment, assigned the
said property to petitioner Luxuria Homes, Inc., purportedly for organizational
and tax avoidance purposes. Respondent Bravo signed as one of the witnesses to
the execution of the Deed of Assignment and the Articles of Incorporation of
petitioner Luxuria Homes, Inc.
Then sometime in 1992, the harmonious and congenial relationship of petitioner
Posadas and respondent Bravo turned sour when the former supposedly could
not accept the management contracts to develop the 1.6 hectare property into a
residential subdivision, the latter was proposing. In retaliation, respondent Bravo
demanded payment for services rendered in connection with the development of
the land. In his statement of account dated 21 August 1991 2 respondent
demanded the payment of P1,708,489.00 for various services rendered, i.e.,
relocation of squatters, preparation of the architectural design and site
development plan, survey and fencing.
Petitioner Posadas refused to pay the amount demanded. Thus, 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. Private respondents alleged therein
that petitioner Posadas asked them to clear the subject parcel of land of squatters
for a fee of P1,100,000.00 for which they were partially paid the amount of
P461,511.50, leaving a balance of P638,488.50. They were also supposedly
asked to prepare a site development plan and an architectural design for a
contract price of P450,000.00 for which they were partially paid the amount of
P25,000.00, leaving a balance of P425,000.00. And in anticipation of the signing
of the land development contract, they had to construct a bunkhouse and
warehouse on the property which amounted to P300,000.00, and a hollow blocks
factory for P60,000.00. Private respondents also claimed that petitioner Posadas
agreed that private respondents will develop the land into a first class
subdivision thru a management contract and that petitioner Posadas is unjustly
refusing to comply with her obligation to finalize the said management contract.
The prayer in the complaint of the private respondents before the trial court reads
as follows:
"WHEREFORE, premises considered, it is respectfully prayed of this
Honorable Court that after hearing/trial judgment be rendered
ordering defendant to:

a) Comply with its obligation to deliver/finalize Management

Contract of its land in Sucat, Muntinlupa, Metro Manila and to pay
plaintiff its balance in the amount of P1,708,489.00;

b) Pay plaintiff moral and exemplary damages in the amount of

P500,000.00;

c) Pay plaintiff actual damages in the amount of P500,000.00

(Bunkhouse/warehouse-P300,000.00, Hollow-block
factory-P60,000.00, lumber, cement, etc., P120,000.00,
guard-P20,000.00);
 d) Pay plaintiff attorney's fee of P50,000 plus P700 per appearance in
court and 5% of that which may be awarded by the court to plaintiff re
its monetary claims;

e) Pay cost of this suit." 3

On September 27, 1993, the trial court declared petitioner Posadas in default and
allowed the private respondents to present their evidence ex-parte. On March 8,
1994, it ordered petitioner Posadas, jointly and in solidum with petitioner
Luxuria Homes, Inc., to pay private respondents as follows:
"1. . . . the balance of the payment for the various services performed
by Plaintiff with respect to the land covered by TCT NO. 167895
previously No. 158290 in the total amount of P1,708,489.00.

2. . . . actual damages incurred for the construction of the

warehouses/bunks, and for the materials used in the total sum of
P1,500,000.00.

3. Moral and exemplary damages of P500,000.00.

4. Attorney's fee of P50,000.00.

5. And cost of this proceedings.

Defendant Aida Posadas as the Representative of the Corporation

Luxuria Homes, Incorporated, is further directed to execute the
management contract she committed to do, also in consideration of the
various undertakings that Plaintiff rendered for her." 4

Aggrieved by the aforecited decision, petitioners appealed to respondent Court

of Appeals, which, as aforestated, affirmed with modification the decision of the
trial court. The appellate court deleted the award of moral damages on the
ground that respondent James Builder Construction is a corporation and hence
could not experience physical suffering and mental anguish. It also reduced the
award of exemplary damages. The dispositive portion of the decision reads:
"WHEREFORE, the decision appealed from is hereby AFFIRMED
with the modification that the award of moral damages is ordered
deleted and the award of exemplary damages to the plaintiffs-appellee
should only be in the amount of FIFTY THOUSAND (P50,000.00)
PESOS." 5

Petitioners' motion for reconsideration was denied, prompting the filing of this
petition for review before this Court.
On January 15, 1997, the Third Division of this Court denied due course to this
petition for failing to show convincingly any reversible error on the part of the
Court of Appeals. This Court however deleted the grant of exemplary damages
and attorney's fees. The Court also reduced the trial court's award of actual
damages from P1,500,000.00 to P500,000.00 reasoning that the grant should not
exceed the amount prayed for in the complaint. In the prayer in the complaint
respondents asked for actual damages in the amount of P500,000.00 only.
Still feeling aggrieved with the resolution of this Court, petitioners filed a motion
for reconsideration. On March 17, 1997, this Court found merit in the petitioners'
motion for reconsideration and reinstated this petition for review.
From their petition for review and motion for reconsideration before this Court,
we now synthesize the issues as follows:
1. Were private respondents able to present ex-parte sufficient evidence to
substantiate the allegations in their complaint and entitle them to their prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to private respondents for
the transactions supposedly entered into between petitioner Posadas and private
respondents?
3. Can petitioners be compelled to enter into a management contract with private
respondents?
Petitioners who were declared in default assert that the private respondents who
presented their evidence ex-parte nonetheless utterly failed to substantiate the
allegations in their complaint and as such cannot be entitled to the reliefs prayed
for.LLjur

A perusal of the record shows that petitioner Posadas contracted respondent

Bravo to render various services for the initial development of the property as
shown by vouchers evidencing payments made by petitioner Posadas to
respondent Bravo for squatter relocation, architectural design, survey and
fencing.
Respondents prepared the architectural design, site development plan and survey
in connection with petitioner Posadas' application with the Housing and Land
Use Regulatory Board (HLURB) for the issuance of the Development Permit,
Preliminary Approval and Locational Clearance. 6 Petitioner benefited from said
services as the Development Permit and the Locational Clearance were
eventually issued by the HLURB in her favor. Petitioner Posadas is therefore
liable to pay for these services rendered by respondents. The contract price for
the survey of the land is P140,000.00. Petitioner made partial payments totaling
P130,000.00 leaving a payable balance of P10,000.00.
In his testimony, 7 he alleged that the agreed price for the preparation of the site
development plan is P500,000.00 and that the preparation of the architectural
designs is for P450,000, or a total of P950,000.00 for the two contracts. In his
complaint however, respondent Bravo alleged that he was asked "to prepare the
site development plan and the architectural designs . . . for a contract price of
P450,000.00 . . . ." 8 The discrepancy or inconsistency was never reconciled and
clarified.
We reiterate that 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, 9 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.

As regards the contracts for the ejectment of squatters and fencing, we believe
however that respondents failed to show proof that they actually fulfilled their
commitments therein. Aside from the bare testimony of respondent Bravo, no
other evidence was presented to show that all the squatters were ejected from the
property. Respondent Bravo failed to show how many shanties or structures
were actually occupying the property before he entered the same, to serve as
basis for concluding whether the task was finished or not. His testimony alone
that he successfully negotiated for the ejectment of all the squatters from the
property will not suffice.
Likewise, in the case of fencing, there is no proof that it was accomplished as
alleged. Respondent Bravo claims that he finished sixty percent (60%) of the
fencing project but he failed to present evidence showing the area sought to be
fenced and the actual area fenced by him. We therefore have no basis to
determining the veracity respondent's allegations. We cannot assume that the
said services rendered for it will be unfair to require petitioner to pay the full
amount claimed in case the respondents obligations were not completely
fulfilled.
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, 10 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.
And the rules do not change even if the defendant is declared in default. In the
leading case of Lopez v. Mendezona, 11 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, 12 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 plaintiff's causes of action finds support in the law or that the latter is
entitled to the relief prayed for.
We explained the rule in judgments by default in Pascua v. Florendo, 13 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 14 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 plaintiff's 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.
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, 15 we said 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. 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, 16 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.
We go to the second issue of whether Luxuria Homes, Inc., was a party to the
transactions entered into by petitioner Posadas and private respondents and thus
could be held jointly and severally with petitioner Posadas. Private respondents
contend that petitioner Posadas surreptitiously formed Luxuria Homes, Inc., and
transferred the subject parcel of land to it to evade payment and defraud creditors,
including private respondents. This allegation does not find support in the
evidence on record.
On the contrary we hold that respondent Court of Appeals committed a
reversible error when it upheld the factual finding of the trial court that
petitioners' liability was aggravated by the fact that Luxuria Homes, Inc., was
formed by petitioner Posadas after demand for payment had been made,
evidently for her to evade payment of her obligation, thereby showing that the
transfer of her property to Luxuria Homes, Inc., was in fraud of creditors.
We easily glean from the record that private respondents sent demand letters on
21 August 1991 and 14 September 1991, or more than a year and a half after the
execution of the Deed of Assignment on 11 December 1989, and the issuance of
the Articles of Incorporation of petitioner Luxuria Homes on 26 January 1990.
And, the transfer was made at the time the relationship between petitioner
Posadas and private respondents was supposedly very pleasant. In fact the Deed
of Assignment dated 11 December 1989 and the Articles of Incorporation of
Luxuria Homes, Inc., issued 26 January 1990 were both signed by respondent
Bravo himself as witness. It cannot be said then that the incorporation of
petitioner Luxuria Homes and the eventual transfer of the subject property to it
were in fraud of private respondents as such were done with the full knowledge
of respondent Bravo himself.
Besides petitioner Posadas is not the majority stockholder of petitioner Luxuria
Homes, Inc., as erroneously stated by the lower court. The Articles of
Incorporation of petitioner Luxuria Homes, Inc., clearly show that petitioner
Posadas owns approximately 33% only of the capital stock. Hence petitioner
Posadas cannot be considered as an alter ego of petitioner Luxuria Homes, Inc.
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, 17 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. Accordingly in Del
Rosario v. NLRC, 18 where the Philsa International Placement and Services Corp.
was organized and registered with the POEA in 1981, several years before the
complainant was filed a case in 1985, we held that this cannot imply fraud.
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.
We now resolve the third and final issue. Private respondents urge the court to
compel petitioners to execute a management contract with them on the basis of
the authorization letter dated May 3, 1989. The full text of Exh. "D" reads:
"I hereby certify that we have duly authorized the bearer, Engineer
Bravo to negotiate, in our behalf, the ejectment of squatters from our
property of 1.6 hectares, more or less, in Sucat, Muntinlupa. This
authority is extended to him as the representative of the Managers,
under our agreement for them to undertake the development of said
area and the construction of housing units intended to convert the land
into a first class subdivision."

The aforecited document is nothing more than a "to-whom-it-may-concern"

authorization letter to negotiate with the squatters. Although it appears that there
was an agreement for the development of the area, there is no showing that same
was ever perfected and finalized. Private respondents presented in evidence only
drafts of a proposed management contract with petitioner's handwritten marginal
notes but the management contract was not put in its final form. The reason why
there was no final uncorrected draft was because the parties could not agree on
the stipulations of said contract, which even private respondents admitted as
found by the trial court. 19 As a consequence the management drafts submitted
by the private respondents should at best be considered as mere unaccepted
offers. We find no cogent reason, considering that the parties no longer are in a
harmonious relationship, for the execution of a contract to develop a subdivision.
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, 20 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.
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.
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed decision
dated March 15, 1996, of respondent Honorable Court of Appeals and its
Resolution dated August 12, 1996, are MODIFIED ordering PETITIONER
AIDA M. POSADAS 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 of respondents are hereby
DENIED for lack of merit. cdpr

SO ORDERED.
(Luxuria Homes, Inc. v. Court of Appeals, G.R. No. 125986, [January 28,
|||

1999], 361 PHIL 989-1005)

Ooooooooooooooooooooooooooooooooooo
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SyllabusDecision

517 PHIL 151-178

FIRST DIVISION

[G.R. No. 164317. February 6, 2006.]

 ALFREDO CHING, petitioner, vs. THE
SECRETARY OF JUSTICE, ASST. CITY
PROSECUTOR CECILYN
BURGOS-VILLAVERT, JUDGE
EDGARDO SUDIAM of the Regional Trial
Court, Manila, Branch 52; RIZAL
COMMERCIAL BANKING CORP. and
THE PEOPLE OF THE
PHILIPPINES, respondents.

Balgos & Perez for petitioner.

The Solicitor General for public respondents.
Ponce Enrile Reyes & Manalastas for RCBC.
SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; FORUM

SHOPPING; PETITIONER'S CERTIFICATION IS
INCOMPLETE AND UNINTELLIGIBLE AS IT FAILED TO
CERTIFY THAT HE "HAD NOT COMMENCED ANY
OTHER ACTION INVOLVING THE SAME ISSUES
BEFORE THE COURTS, ANY OTHER TRIBUNAL OR
AGENCY." — We agree with the ruling of the CA that the
certification of non-forum shopping petitioner incorporated
in his petition before the appellate court is defective.
Under Section 1, second paragraph of Rule 65 of the
Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum
shopping, as provided in the third paragraph of Section 3,
Rule 46 of said Rules. Compliance with the certification
against forum shopping is separate from and independent
of the avoidance of forum shopping itself. The
requirement is mandatory. The failure of the petitioner to
comply with the foregoing requirement shall be sufficient
ground for the dismissal of the petition without prejudice,
unless otherwise provided. Indubitably, the first paragraph
of petitioner's certification is incomplete and unintelligible.
Petitioner failed to certify that he "had not heretofore
commenced any other action involving the same issues in
the Supreme Court, the Court of Appeals or the different
divisions thereof or any other tribunal or agency" as
required by paragraph 4, Section 3, Rule 46 of the
Revised Rules of Court. We agree with petitioner's
contention that the certification is designed to promote
and facilitate the orderly administration of justice, and
therefore, should not be interpreted with absolute
literalness. In his works on the Revised Rules of Civil
Procedure, former Supreme Court Justice Florenz
Regalado states that, with respect to the contents of the
certification which the pleader may prepare, the rule of
substantial compliance may be availed of. However, there
must be a special circumstance or compelling reason
which makes the strict application of the requirement
clearly unjustified. The instant petition has not alleged any
such extraneous circumstance. Moreover, as worded, the
certification cannot even be regarded as substantial
compliance with the procedural requirement. Thus, the CA
was not informed whether, aside from the petition before it,
petitioner had commenced any other action involving the
same issues in other tribunals.
2. ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; MAY
NULLIFY ACTS OF THE SECRETARY OF JUSTICE
THAT IS CONTRARY TO LAW, WITHOUT AUTHORITY
AND/OR IN EXCESS OF AUTHORITY. —
In Mendoza-Arce v. Office of the Ombudsman (Visayas),
this Court held that the acts of a quasi-judicial officer may
be assailed by the aggrieved party via a petition
for certiorari and enjoined (a) when necessary to afford
adequate protection to the constitutional rights of the
accused; (b) when necessary for the orderly
administration of justice; (c) when the acts of the officer
are without or in excess of authority; (d) where the
charges are manifestly false and motivated by the lust for
vengeance; and (e) when there is clearly no prima
facie case against the accused. The Court also declared
that, if the officer conducting a preliminary investigation (in
that case, the Office of the Ombudsman) acts without or in
excess of his authority and resolves to file an Information
despite the absence of probable cause, such act may be
nullified by a writ of certiorari. Indeed, under Section 4,
Rule 112 of the 2000 Rules of Criminal Procedure, the
Information shall be prepared by the Investigating
Prosecutor against the respondent only if he or she finds
probable cause to hold such respondent for trial. The
Investigating Prosecutor acts without or in excess of his
authority under the Rule if the Information is filed against
the respondent despite absence of evidence showing
probable cause therefore. If the Secretary of Justice
reverses the Resolution of the Investigating Prosecutor
who found no probable cause to hold the respondent for
trial, and orders such prosecutor to file the Information
despite the absence of probable cause; the Secretary of
Justice acts contrary to law, without authority and/or in
excess of authority. Such resolution may likewise be
nullified in a petition for certiorari under Rule 65 of the
Revised Rules of Civil Procedure.
3. ID.; ID.; ID.; THE SECRETARY OF JUSTICE ACTED
IN ACCORD WITH LAW AND EVIDENCE IN HIS
RESOLUTIONS UPHOLDING THE FINDING OF
PROBABLE CAUSE; CASE AT BAR. — A preliminary
investigation, designed to secure the respondent against
hasty, malicious and oppressive prosecution, is an inquiry
to determine whether (a) a crime has been committed;
and (b) whether there is probable cause to believe that the
accused is guilty thereof. It is a means of discovering the
person or persons who may be reasonably charged with a
crime. Probable cause need not be based on clear and
convincing evidence of guilt, as the investigating officer
acts upon probable cause of reasonable belief. Probable
cause implies probability of guilt and requires more than
bare suspicion but less than evidence which would justify
a conviction. A finding of probable cause needs only to
rest on evidence showing that more likely than not, a
crime has been committed by the suspect. However, while
probable cause should be determined in a summary
manner, there is a need to examine the evidence with
care to prevent material damage to a potential accused's
constitutional right to liberty and the guarantees of
freedom and fair play and to protect the State from the
burden of unnecessary expenses in prosecuting alleged
offenses and holding trials arising from false, fraudulent or
groundless charges. In this case, petitioner failed to
establish that the Secretary of Justice committed grave
abuse of discretion in issuing the assailed resolutions.
Indeed, he acted in accord with law and the evidence.
4. MERCANTILE LAW; TRUST RECEIPTS LAW (P.D.
NO. 115); TRANSACTION BETWEEN PETITIONER AND
RESPONDENT BANK FALLS UNDER THE TRUST
RECEIPT TRANSACTIONS ENVISAGED IN P.D. NO.
115; RESPONDENT BANK IMPORTED THE GOODS
AND ENTRUSTED THE SAME TO PETITIONER'S
COMPANY UNDER THE TRUST RECEIPTS SIGNED
BY PETITIONER, AS ENTRUSTEE, WITH THE BANK
AS ENTRUSTER. — An entrustee is one having or taking
possession of goods, documents or instruments under a
trust receipt transaction, and any successor in interest of
such person for the purpose of payment specified in the
trust receipt agreement. The entrustee is obliged to: (1)
hold the goods, documents or instruments in trust for the
entruster and shall dispose of them strictly in accordance
with the terms and conditions of the trust receipt; (2)
receive the proceeds in trust for the entruster and turn
over the same to the entruster to the extent of the amount
owing to the entruster or as appears on the trust receipt;
(3) insure the goods for their total value against loss from
fire, theft, pilferage or other casualties; (4) keep said
goods or proceeds thereof whether in money or whatever
form, separate and capable of identification as property of
the entruster; (5) return the goods, documents or
instruments in the event of non-sale or upon demand of
the entruster; and (6) observe all other terms and
conditions of the trust receipt not contrary to the
provisions of the decree. The entruster shall be entitled to
the proceeds from the sale of the goods, documents or
instruments released under a trust receipt to the entrustee
to the extent of the amount owing to the entruster or as
appears in the trust receipt, or to the return of the goods,
documents or instruments in case of non-sale, and to the
enforcement of all other rights conferred on him in the
trust receipt; provided, such are not contrary to the
provisions of the document. In the case at bar, the
transaction between petitioner and respondent bank falls
under the trust receipt transactions envisaged in P.D. No.
115. Respondent bank imported the goods and entrusted
the same to PBMI under the trust receipts signed by
petitioner, as entrustee, with the bank as entruster.
5. ID.; ID.; THE TRUST RECEIPTS LAW APPLIES TO
GOODS USED BY THE ENTRUSTEE IN THE
OPERATION OF ITS MACHINERIES AND EQUIPMENT.
— It must be stressed that P.D. No. 115 is a declaration
by legislative authority that, as a matter of public policy,
the failure of person to turn over the proceeds of the sale
of the goods covered by a trust receipt or to return said
goods, if not sold, is a public nuisance to be abated by the
imposition of penal sanctions. The Court likewise rules
that the issue of whether P.D. No. 115 encompasses
transactions involving goods procured as a component of
a product ultimately sold has been resolved in the
affirmative in Allied Banking Corporation v. Ordoñez. The
law applies to goods used by the entrustee in the
operation of its machineries and equipment. The
non-payment of the amount covered by the trust receipts
or the non-return of the goods covered by the receipts, if
not sold or otherwise not disposed of, violate the
entrustee's obligation to pay the amount or to return the
goods to the entruster.
6. ID.; ID.; PENALTY CLAUSE OF P.D. NO. 115;
ALTHOUGH PETITIONER SIGNED THE TRUST
RECEIPTS MERELY AS SENIOR VICE-PRESIDENT OF
THE COMPANY AND HAS NO PHYSICAL
POSSESSION OF THE GOODS, HE CANNOT AVOID
PROSECUTION FOR VIOLATION OF THE LAW. —
In Colinares v. Court of Appeals, the Court declared that
there are two possible situations in a trust receipt
transaction. The first is covered by the provision which
refers to money received under the obligation involving
the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision
which refers to merchandise received under the obligation
to return it (devolvera) to the owner. Thus, failure of the
entrustee to turn over the proceeds of the sale of the
goods covered by the trust receipts to the entruster or to
return said goods if they were not disposed of in
accordance with the terms of the trust receipt is a crime
under P.D. No. 115, without need of proving intent to
defraud. The law punishes dishonesty and abuse of
confidence in the handling of money or goods to the
prejudice of the entruster, regardless of whether the latter
is the owner or not. A mere failure to deliver the proceeds
of the sale of the goods, if not sold, constitutes a criminal
offense that causes prejudice, not only to another, but
more to the public interest. The Court rules that although
petitioner signed the trust receipts merely as Senior
Vice-President of PBMI and had no physical possession
of the goods, he cannot avoid prosecution for violation
of P.D. No. 115.
7. ID.; ID.; PERSONS HELD RESPONSIBLE FOR
VIOLATION OF THE TRUST RECEIPTS LAW WHEN
ENTRUSTEE IS A CORPORATION; RATIONALE. — The
crime defined in P.D. No. 115 is malum prohibitum but is
classified as estafa under paragraph 1 (b), Article 315 of
the Revised Penal Code, or estafa with abuse of
confidence. It may be committed by a corporation or other
juridical entity or by natural persons. However, the penalty
for the crime is imprisonment for the periods provided in
said Article 315. Article 315. Swindling (estafa). — Any
person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by: 1st. The
penalty of prision correccional in its maximum period
to prision mayor in its minimum period, if the amount of
the fraud is over 12,000 pesos but does not exceed
22,000 pesos; and if such amount exceeds the latter sum,
the penalty provided in this paragraph shall be imposed in
its maximum period, adding one year for each additional
10,000 pesos; but the total penalty which may be imposed
shall not exceed twenty years. In such cases, and in
connection with the accessory penalties which may be
imposed and for the purpose of the other provisions of this
Code, the penalty shall be termed prision
mayor or reclusion temporal, as the case may be. Though
the entrustee is a corporation, nevertheless, the law
specifically makes the officers, employees or other
officers or persons responsible for the offense, without
prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such
officers or employees are vested with the authority and
responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held
criminally accountable; thus, they have a responsible
share in the violations of the law. If the crime is committed
by a corporation or other juridical entity, the directors,
officers, employees or other officers thereof responsible
for the offense shall be charged and penalized for the
crime, precisely because of the nature of the crime and
the penalty therefor. A corporation cannot be arrested and
imprisoned; hence, cannot be penalized for a crime
punishable by imprisonment. However, a corporation may
be charged and prosecuted for a crime if the imposable
penalty is fine. Even if the statute prescribes both fine and
imprisonment as penalty, a corporation may be
prosecuted and, if found guilty, may be fined.
8. ID.; ID.; WHETHER THE OFFICERS AND
EMPLOYEES ARE BENEFITED BY THEIR DELICTUAL
ACTS IS NOT A TOUCHSTONE OF THEIR CRIMINAL
LIABILITY; BENEFIT IS NOT AN OPERATIVE FACT OF
THE OFFENSE. — A crime is the doing of that which the
penal code forbids to be done, or omitting to do what it
commands. A necessary part of the definition of every
crime is the designation of the author of the crime upon
whom the penalty is to be inflicted. When a criminal
statute designates an act of a corporation or a crime and
prescribes punishment therefor, it creates a criminal
offense which, otherwise, would not exist and such can be
committed only by the corporation. But when a penal
statute does not expressly apply to corporations, it does
not create an offense for which a corporation may be
punished. On the other hand, if the State, by statute,
defines a crime that may be committed by a corporation
but prescribes the penalty therefor to be suffered by the
officers, directors, or employees of such corporation or
other persons responsible for the offense, only such
individuals will suffer such penalty. Corporate officers or
employees, through whose act, default or omission the
corporation commits a crime, are themselves individually
guilty of the crime. The principle applies whether or not
the crime requires the consciousness of wrongdoing. It
applies to those corporate agents who themselves commit
the crime and to those, who, by virtue of their managerial
positions or other similar relation to the corporation, could
be deemed responsible for its commission, if by virtue of
their relationship to the corporation, they had the power to
prevent the act. Moreover, all parties active in promoting a
crime, whether agents or not, are principals. Whether
such officers or employees are benefited by their delictual
acts is not a touchstone of their criminal liability. Benefit is
not an operative fact. In this case, petitioner signed the
trust receipts in question. He cannot, thus, hide behind the
cloak of the separate corporate personality of PBMI. In the
words of Chief Justice Earl Warren, a corporate officer
cannot protect himself behind a corporation where he is
the actual, present and efficient actor.
DECISION
 CALLEJO, SR., J : p

Before the Court is a petition for review on certiorari of the

Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No.
57169 dismissing the petition for certiorari, prohibition
and mandamus filed by petitioner Alfredo Ching, and its
Resolution 2 dated June 28, 2004 denying the motion for
reconsideration thereof.
Petitioner was the Senior Vice-President of Philippine
Blooming Mills, Inc. (PBMI). Sometime in September to
October 1980, PBMI, through petitioner, applied with the
Rizal Commercial Banking Corporation (respondent bank)
for the issuance of commercial letters of credit to finance
its importation of assorted goods. 3
Respondent bank approved the application, and
irrevocable letters of credit were issued in favor of
petitioner. The goods were purchased and delivered in
trust to PBMI. Petitioner signed 13 trust receipts 4 as
surety, acknowledging delivery of the following goods:
T/R Date Maturity Principal Description of

Nos. Granted Date Goods

1845 12-05-80 03-05-81 P1,596,470.05 79.9425 M/T "SDK"

Brand

Synthetic Graphite
Electrode

1853 12-08-80 03-06-81 P198,150.67 3,000 pcs. (15

bundles) Calorized

Lance Pipes

1824 11-28-80 02-26-81 P707,879.71 One Lot High Fired

Refractory

Tundish Bricks
1798 11-21-80 02-19-81 P835,526.25 5 cases spare parts for
CCM

1808 11-21-80 02-19-81 P370,332.52 200 pcs. ingot moulds

2042 01-30-81 04-30-81 P469,669.29 High Fired Refractory

Nozzle

Bricks

1801 11-21-80 02-19-81 P2,001,715.17 Synthetic Graphite

Electrode [with]

tapered pitch filed

nipples

1857 12-09-80 03-09-81 P197,843.61 3,000 pcs. (15 bundles

calorized

lance pipes [)]

1895 12-17-80 03-17-81 P67,652.04 Spare parts for

Spectrophotometer

1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds

2041 01-30-81 04-30-81 P91,456.97 50 pcs. Ingot moulds

2099 02-10-81 05-11-81 P66,162.26 8 pcs. Kubota Rolls for

rolling mills

2100 02-10-81 05-12-81 P210,748.00 Spare parts for

 Lacolaboratory

Equipment 5

Under the receipts, petitioner agreed to hold the goods in

trust for the said bank, with authority to sell but not by way
of conditional sale, pledge or otherwise; and in case such
goods were sold, to turn over the proceeds thereof as
soon as received, to apply against the relative
acceptances and payment of other indebtedness to
respondent bank. In case the goods remained unsold
within the specified period, the goods were to be returned
to respondent bank without any need of demand. Thus,
said "goods, manufactured products or proceeds thereof,
whether in the form of money or bills, receivables, or
accounts separate and capable of identification" were
respondent bank's property.
When the trust receipts matured, petitioner failed to return
the goods to respondent bank, or to return their value
amounting to P6,940,280.66 despite demands. Thus, the
bank filed a criminal complaint for estafa 6 against
petitioner in the Office of the City Prosecutor of Manila.
After the requisite preliminary investigation, the City
Prosecutor found probable cause estafa under Article 315,
paragraph 1(b) of the Revised Penal Code, in relation
to Presidential Decree (P.D.) No. 115, otherwise known
as the Trust Receipts Law. Thirteen (13) Informations
were filed against the petitioner before the Regional Trial
Court (RTC) of Manila. The cases were docketed as
Criminal Cases No. 86-42169 to 86-42181, raffled to
Branch 31 of said court. ACIDSc

Petitioner appealed the resolution of the City Prosecutor

to the then Minister of Justice. The appeal was dismissed
in a Resolution 7 dated March 17, 1987, and petitioner
moved for its reconsideration. On December 23, 1987, the
Minister of Justice granted the motion, thus reversing the
previous resolution finding probable cause against
petitioner. 8 The City Prosecutor was ordered to move for
the withdrawal of the Informations.
This time, respondent bank filed a motion for
reconsideration, which, however, was denied on February
24, 1988. 9 The RTC, for its part, granted the Motion to
Quash the Informations filed by petitioner on the ground
that the material allegations therein did not amount
to estafa. 10
In the meantime, the Court rendered judgment in Allied
Banking Corporation v. Ordoñez, 11 holding that the penal
provision of P.D. No. 115 encompasses any act violative
of an obligation covered by the trust receipt; it is not
limited to transactions involving goods which are to be
sold (retailed), reshipped, stored or processed as a
component of a product ultimately sold. The Court also
ruled that "the non-payment of the amount covered by a
trust receipt is an act violative of the obligation of the
entrustee to pay." 12
On February 27, 1995, respondent bank re-filed the
criminal complaint for estafa against petitioner before the
Office of the City Prosecutor of Manila. The case was
docketed as I.S. No. 95B-07614.
Preliminary investigation ensued. On December 8, 1995,
the City Prosecutor ruled that there was no probable
cause to charge petitioner with violating P.D. No. 115, as
petitioner's liability was only civil, not criminal, having
signed the trust receipts as surety. 13Respondent bank
appealed the resolution to the Department of Justice (DOJ)
via petition for review, alleging that the City Prosecutor
erred in ruling:
1.That there is no evidence to show that
respondent participated in the
misappropriation of the goods subject of
the trust receipts;
2.That the respondent is a mere surety
of the trust receipts; and
3.That the liability of the respondent is
only civil in nature. 14
On July 13, 1999, the Secretary of Justice issued
Resolution No. 250 15 granting the petition and reversing
the assailed resolution of the City Prosecutor. According
to the Justice Secretary, the petitioner, as Senior
Vice-President of PBMI, executed the 13 trust receipts
and as such, was the one responsible for the offense.
Thus, the execution of said receipts is enough to indict the
petitioner as the official responsible for violation of P.D.
No. 115. The Justice Secretary also declared that
petitioner could not contend that P.D. No. 115 covers only
goods ultimately destined for sale, as this issue had
already been settled in Allied Banking Corporation v.
Ordoñez, 16 where the Court ruled that P.D. No. 115 is
"not limited to transactions in goods which are to be sold
(retailed), reshipped, stored or processed as a component
of a product ultimately sold but covers failure to turn over
the proceeds of the sale of entrusted goods, or to return
said goods if unsold or not otherwise disposed of in
accordance with the terms of the trust receipts."
The Justice Secretary further stated that the respondent
bound himself under the terms of the trust receipts not
only as a corporate official of PBMI but also as its surety;
hence, he could be proceeded against in two (2)
ways: first, as surety as determined by the Supreme Court
in its decision in Rizal Commercial Banking Corporation v.
Court of Appeals; 17 and second, as the corporate official
responsible for the offense under P.D. No. 115, via
criminal prosecution. Moreover, P.D. No. 115 explicitly
allows the prosecution of corporate officers "without
prejudice to the civil liabilities arising from the criminal
offense." Thus, according to the Justice Secretary,
following Rizal Commercial Banking Corporation, the civil
liability imposed is clearly separate and distinct from the
criminal liability of the accused under P.D. No. 115.
Conformably with the Resolution of the Secretary of
Justice, the City Prosecutor filed 13 Informations against
petitioner for violation of P.D. No. 115 before the RTC of
Manila. The cases were docketed as Criminal Cases No.
99-178596 to 99-178608 and consolidated for trial before
Branch 52 of said court. Petitioner filed a motion for
reconsideration, which the Secretary of Justice denied in
a Resolution 18 dated January 17, 2000.
Petitioner then filed a petition for certiorari, prohibition
and mandamus with the CA, assailing the resolutions of
the Secretary of Justice on the following grounds:
1.THE RESPONDENTS ARE ACTING WITH
AN UNEVEN HAND AND IN FACT, ARE
ACTING OPPRESSIVELY AGAINST
ALFREDO CHING WHEN THEY ALLOWED
HIS PROSECUTION DESPITE THE FACT
THAT NO EVIDENCE HAD BEEN
 PRESENTED TO PROVE HIS
PARTICIPATION IN THE ALLEGED
TRANSACTIONS.
2.THE RESPONDENT SECRETARY OF
JUSTICE COMMITTED AN ACT IN GRAVE
ABUSE OF DISCRETION AND IN EXCESS
OF HIS JURISDICTION WHEN THEY
CONTINUED PROSECUTION OF THE
PETITIONER DESPITE THE LENGTH OF
TIME INCURRED IN THE TERMINATION OF
THE PRELIMINARY INVESTIGATION THAT
SHOULD JUSTIFY THE DISMISSAL OF THE
INSTANT CASE.
3.THE RESPONDENT SECRETARY OF
JUSTICE AND ASSISTANT CITY
PROSECUTOR ACTED IN GRAVE ABUSE OF
DISCRETION AMOUNTING TO AN EXCESS
OF JURISDICTION WHEN THEY
CONTINUED THE PROSECUTION OF THE
PETITIONER DESPITE LACK OF
SUFFICIENT BASIS. 19
In his petition, petitioner incorporated a certification stating
that "as far as this Petition is concerned, no action or
proceeding in the Supreme Court, the Court of Appeals or
different divisions thereof, or any tribunal or agency. It is
finally certified that if the affiant should learn that a similar
action or proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or different
divisions thereof, of any other tribunal or agency, it hereby
undertakes to notify this Honorable Court within five (5)
days from such notice." 20
In its Comment on the petition, the Office of the Solicitor
General alleged that —
A.
THE HONORABLE SECRETARY OF JUSTICE
CORRECTLY RULED THAT PETITIONER
ALFREDO CHING IS THE OFFICER
RESPONSIBLE FOR THE OFFENSE
CHARGED AND THAT THE ACTS OF
PETITIONER FALL WITHIN THE AMBIT OF
VIOLATION OF P.D. [No.] 115 IN RELATION
 TO ARTICLE 315, PAR. 1(B) OF THE
REVISED PENAL CODE.

B.
THERE IS NO MERIT IN PETITIONER'S
CONTENTION THAT EXCESSIVE DELAY
HAS MARRED THE CONDUCT OF THE
PRELIMINARY INVESTIGATION OF THE
CASE, JUSTIFYING ITS DISMISSAL. TcHCDI

C.
THE PRESENT SPECIAL CIVIL ACTION FOR
CERTIORARI, PROHIBITION AND
MANDAMUS IS NOT THE PROPER MODE
OF REVIEW FROM THE RESOLUTION OF
THE DEPARTMENT OF JUSTICE. THE
PRESENT PETITION MUST THEREFORE BE
DISMISSED. 21
On April 22, 2004, the CA rendered judgment dismissing
the petition for lack of merit, and on procedural grounds.
On the procedural issue, it ruled that (a) the certification of
non-forum shopping executed by petitioner and
incorporated in the petition was defective for failure to
comply with the first two of the three-fold undertakings
prescribed in Rule 7, Section 5 of the Revised Rules of
Civil Procedure; and (b) the petition for certiorari,
prohibition and mandamus was not the proper remedy of
the petitioner.
On the merits of the petition, the CA ruled that the
assailed resolutions of the Secretary of Justice were
correctly issued for the following reasons: (a) petitioner,
being the Senior Vice-President of PBMI and the
signatory to the trust receipts, is criminally liable for
violation of P.D. No. 115; (b) the issue raised by the
petitioner, on whether he violated P.D. No. 115 by his
actuations, had already been resolved and laid to rest
in Allied Bank Corporation v. Ordoñez; 22 and (c)
petitioner was estopped from raising the City Prosecutor's
delay in the final disposition of the preliminary
investigation because he failed to do so in the DOJ.
Thus, petitioner filed the instant petition, alleging that:
 I
THE COURT OF APPEALS ERRED WHEN IT
DISMISSED THE PETITION ON THE
GROUND THAT THE CERTIFICATION OF
NON-FORUM SHOPPING INCORPORATED
THEREIN WAS DEFECTIVE.
II
THE COURT OF APPEALS ERRED WHEN IT
RULED THAT NO GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION WAS
COMMITTED BY THE SECRETARY OF
JUSTICE IN COMING OUT WITH THE
ASSAILED RESOLUTIONS. 23
The Court will delve into and resolve the issues seriatim.
The petitioner avers that the CA erred in dismissing his
petition on a mere technicality. He claims that the rules of
procedure should be used to promote, not frustrate,
substantial justice. He insists that the Rules of Court
should be construed liberally especially when, as in this
case, his substantial rights are adversely affected; hence,
the deficiency in his certification of non-forum shopping
should not result in the dismissal of his petition.
The Office of the Solicitor General (OSG) takes the
opposite view, and asserts that indubitably, the certificate
of non-forum shopping incorporated in the petition before
the CA is defective because it failed to disclose essential
facts about pending actions concerning similar issues and
parties. It asserts that petitioner's failure to comply with
the Rules of Court is fatal to his petition. The OSG cited
Section 2, Rule 42, as well as the ruling of this Court
in Melo v. Court of Appeals. 24
We agree with the ruling of the CA that the certification of
non-forum shopping petitioner incorporated in his petition
before the appellate court is defective. The certification
reads:
It is further certified that as far as this Petition is
concerned, no action or proceeding in the
Supreme Court, the Court of Appeals or
 different divisions thereof, or any tribunal or
agency.
It is finally certified that if the affiant should
learn that a similar action or proceeding has
been filed or is pending before the Supreme
Court, the Court of Appeals, or different
divisions thereof, of any other tribunal or
agency, it hereby undertakes to notify this
Honorable Court within five (5) days from such
notice. 25
Under Section 1, second paragraph of Rule 65 of the
Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum
shopping, as provided in the third paragraph of Section 3,
Rule 46 of said Rules. The latter provision reads in part:
SEC. 3.Contents and filing of petition; effect of
non-compliance with requirements. — The
petition shall contain the full names and actual
addresses of all the petitioners and
respondents, a concise statement of the
matters involved, the factual background of the
case and the grounds relied upon for the relief
prayed for.
xxx xxx xxx
The petitioner shall also submit together with
the petition a sworn certification that he has not
theretofore commenced any other action
involving the same issues in the Supreme Court,
the Court of Appeals or different divisions
thereof, or any other tribunal or agency; if there
is such other action or proceeding, he must
state the status of the same; and if he should
thereafter learn that a similar action or
proceeding has been filed or is pending before
the Supreme Court, the Court of Appeals, or
different divisions thereof, or any other tribunal
or agency, he undertakes to promptly inform
the aforesaid courts and other tribunal or
agency thereof within five (5) days
therefrom. . . .
Compliance with the certification against forum shopping
is separate from and independent of the avoidance of
forum shopping itself. The requirement is mandatory. The
failure of the petitioner to comply with the foregoing
requirement shall be sufficient ground for the dismissal of
the petition without prejudice, unless otherwise
provided. 26
Indubitably, the first paragraph of petitioner's certification
is incomplete and unintelligible. Petitioner failed to certify
that he "had not heretofore commenced any other action
involving the same issues in the Supreme Court, the Court
of Appeals or the different divisions thereof or any other
tribunal or agency" as required by paragraph 4, Section 3,
Rule 46 of the Revised Rules of Court.
We agree with petitioner's contention that the certification
is designed to promote and facilitate the orderly
administration of justice, and therefore, should not be
interpreted with absolute literalness. In his works on the
Revised Rules of Civil Procedure, former Supreme Court
Justice Florenz Regalado states that, with respect to the
contents of the certification which the pleader may
prepare, the rule of substantial compliance may be
availed of. 27 However, there must be a special
circumstance or compelling reason which makes the strict
application of the requirement clearly unjustified. The
instant petition has not alleged any such extraneous
circumstance. Moreover, as worded, the certification
cannot even be regarded as substantial compliance with
the procedural requirement. Thus, the CA was not
informed whether, aside from the petition before it,
petitioner had commenced any other action involving the
same issues in other tribunals. DcCIAa

On the merits of the petition, the CA ruled that the

petitioner failed to establish that the Secretary of Justice
committed grave abuse of discretion in finding probable
cause against the petitioner for violation of estafa under
Article 315, paragraph 1(b) of the Revised Penal Code, in
relation to P.D. No. 115. Thus, the appellate court
ratiocinated:
Be that as it may, even on the merits, the
arguments advanced in support of the petition
are not persuasive enough to justify the desired
conclusion that respondent Secretary of Justice
gravely abused its discretion in coming out with
his assailed Resolutions. Petitioner posits that,
except for his being the Senior Vice-President
of the PBMI, there is no iota of evidence that he
was a participes crimines in violating the trust
receipts sued upon; and that his liability, if at all,
is purely civil because he signed the said trust
receipts merely as a . . . surety and not as the
entrustee. These assertions are, however, too
dull that they cannot even just dent the findings
of the respondent Secretary, viz:
". . . it is apropos to quote section 13
of PD 115 which states in part, viz:
'. . . If the violation or offense is
committed by a corporation,
partnership, association or other
judicial entities, the penalty
provided for in this Decree shall
be imposed upon the directors,
officers, employees or other
officials or persons therein
responsible for the offense,
without prejudice to the civil
liabilities arising from the criminal
offense.'
"There is no dispute that it was the respondent,
who as senior vice-president of PBM, executed
the thirteen (13) trust receipts. As such, the law
points to him as the official responsible for the
offense. Since a corporation cannot be
proceeded against criminally because it cannot
commit crime in which personal violence or
malicious intent is required, criminal action is
limited to the corporate agents guilty of an act
amounting to a crime and never against the
corporation itself (West Coast Life Ins. Co. vs.
Hurd, 27 Phil. 401; Times, [I]nc. v. Reyes, 39
SCRA 303). Thus, the execution by respondent
of said receipts is enough to indict him as the
official responsible for violation of PD 115.
 "Parenthetically, respondent is estopped to still
contend that PD 115 covers only goods which
are ultimately destined for sale and not goods,
like those imported by PBM, for use in
manufacture. This issue has already been
settled in the Allied Banking Corporation
case, supra, where he was also a party, when
the Supreme Court ruled that PD 115 is 'not
limited to transactions in goods which are to be
sold (retailed), reshipped, stored or processed
as a component or a product ultimately sold' but
'covers failure to turn over the proceeds of the
sale of entrusted goods, or to return said goods
if unsold or disposed of in accordance with the
terms of the trust receipts.'
"In regard to the other assigned errors, we note
that the respondent bound himself under the
terms of the trust receipts not only as a
corporate official of PBM but also as its surety.
It is evident that these are two (2) capacities
which do not exclude the other. Logically, he
can be proceeded against in two (2) ways: first,
as surety as determined by the Supreme Court
in its decision in RCBC vs. Court of Appeals,
178 SCRA 739; and, secondly, as the
corporate official responsible for the offense
under PD 115, the present case is an
appropriate remedy under our penal law.

"Moreover, PD 115 explicitly allows the

prosecution of corporate officers 'without
prejudice to the civil liabilities arising from the
criminal offense' thus, the civil liability imposed
on respondent in RCBC vs. Court of
Appeals case is clearly separate and distinct
from his criminal liability under PD 115.'" 28
Petitioner asserts that the appellate court's ruling is
erroneous because (a) the transaction between PBMI and
respondent bank is not a trust receipt transaction; (b) he
entered into the transaction and was sued in his capacity
as PBMI Senior Vice-President; (c) he never received the
goods as an entrustee for PBMI, hence, could not have
committed any dishonesty or abused the confidence of
respondent bank; and (d) PBMI acquired the goods and
used the same in operating its machineries and
equipment and not for resale.
The OSG, for its part, submits a contrary view, to wit:
34.Petitioner further claims that he is not a
person responsible for the offense allegedly
because "[b]eing charged as the Senior
Vice-President of Philippine Blooming Mills
(PBM), petitioner cannot be held criminally
liable as the transactions sued upon were
clearly entered into in his capacity as an officer
of the corporation" and that [h]e never received
the goods as an entrustee for PBM as he never
had or took possession of the goods nor did he
commit dishonesty nor "abuse of confidence in
transacting with RCBC." Such argument is
bereft of merit.
35.Petitioner's being a Senior Vice-President of
the Philippine Blooming Mills does not
exculpate him from any liability. Petitioner's
responsibility as the corporate official of PBM
who received the goods in trust is premised on
Section 13 of P.D. No. 115, which provides:
Section 13.Penalty Clause. The failure
of an entrustee to turn over the proceeds
of the sale of the goods, documents or
instruments covered by a trust receipt to
the extent of the amount owing to the
entruster or as appears in the trust
receipt or to return said goods,
documents or instruments if they were
not sold or disposed of in accordance
with the terms of the trust receipt shall
constitute the crime of estafa,
punishable under the provisions of
Article Three hundred and fifteen,
paragraph one (b) of Act Numbered
Three thousand eight hundred and
fifteen, as amended, otherwise known
as the Revised Penal Code. If the
violation or offense is committed by a
 corporation, partnership, association
or other juridical entities, the penalty
provided for in this Decree shall be
imposed upon the directors, officers,
employees or other officials or
persons therein responsible for the
offense, without prejudice to the civil
liabilities arising from the criminal
offense. (Emphasis supplied)
36.Petitioner having participated in the
negotiations for the trust receipts and having
received the goods for PBM, it was inevitable
that the petitioner is the proper corporate officer
to be proceeded against by virtue of the PBM's
violation of P.D. No. 115. 29
The ruling of the CA is correct. SDaHEc

In Mendoza-Arce v. Office of the

Ombudsman (Visayas), 30 this Court held that the acts of
a quasi-judicial officer may be assailed by the aggrieved
party via a petition for certiorariand enjoined (a) when
necessary to afford adequate protection to the
constitutional rights of the accused; (b) when necessary
for the orderly administration of justice; (c) when the acts
of the officer are without or in excess of authority; (d)
where the charges are manifestly false and motivated by
the lust for vengeance; and (e) when there is clearly
noprima facie case against the accused. 31 The Court also
declared that, if the officer conducting a preliminary
investigation (in that case, the Office of the Ombudsman)
acts without or in excess of his authority and resolves to
file an Information despite the absence of probable cause,
such act may be nullified by a writ of certiorari. 32
Indeed, under Section 4, Rule 112 of the 2000 Rules of
Criminal Procedure, 33 the Information shall be prepared
by the Investigating Prosecutor against the respondent
only if he or she finds probable cause to hold such
respondent for trial. The Investigating Prosecutor acts
without or in excess of his authority under the Rule if the
Information is filed against the respondent despite
absence of evidence showing probable cause
therefor. 34 If the Secretary of Justice reverses the
Resolution of the Investigating Prosecutor who found no
probable cause to hold the respondent for trial, and orders
such prosecutor to file the Information despite the
absence of probable cause, the Secretary of Justice acts
contrary to law, without authority and/or in excess of
authority. Such resolution may likewise be nullified in a
petition for certiorari under Rule 65 of the Revised Rules
of Civil Procedure. 35
A preliminary investigation, designed to secure the
respondent against hasty, malicious and oppressive
prosecution, is an inquiry to determine whether (a) a crime
has been committed; and (b) whether there is probable
cause to believe that the accused is guilty thereof. It is a
means of discovering the person or persons who may be
reasonably charged with a crime. Probable cause need
not be based on clear and convincing evidence of guilt, as
the investigating officer acts upon probable cause of
reasonable belief. Probable cause implies probability of
guilt and requires more than bare suspicion but less than
evidence which would justify a conviction. A finding of
probable cause needs only to rest on evidence showing
that more likely than not, a crime has been committed by
the suspect. 36
However, while probable cause should be determined in a
summary manner, there is a need to examine the
evidence with care to prevent material damage to a
potential accused's constitutional right to liberty and the
guarantees of freedom and fair play 37 and to protect the
State from the burden of unnecessary expenses in
prosecuting alleged offenses and holding trials arising
from false, fraudulent or groundless charges. 38
In this case, petitioner failed to establish that the
Secretary of Justice committed grave abuse of discretion
in issuing the assailed resolutions. Indeed, he acted in
accord with law and the evidence.
Section 4 of P.D. No. 115 defines a trust receipt
transaction, thus:
Section 4.What constitutes a trust receipt
transaction. A trust receipt transaction, within
the meaning of this Decree, is any transaction
by and between a person referred to in this
Decree as the entruster, and another person
referred to in this Decree as entrustee, whereby
the entruster, who owns or holds absolute title
or security interests over certain specified
goods, documents or instruments, releases the
same to the possession of the entrustee upon
the latter's execution and delivery to the
entruster of a signed document called a "trust
receipt" wherein the entrustee binds himself to
hold the designated goods, documents or
instruments in trust for the entruster and to sell
or otherwise dispose of the goods, documents
or instruments with the obligation to turn over to
the entruster the proceeds thereof to the extent
of the amount owing to the entruster or as
appears in the trust receipt or the goods,
documents or instruments themselves if they
are unsold or not otherwise disposed of, in
accordance with the terms and conditions
specified in the trust receipt, or for other
purposes substantially equivalent to any of the
following:
1.In case of goods or documents, (a) to sell the
goods or procure their sale; or (b) to
manufacture or process the goods with the
purpose of ultimate sale; Provided, That, in the
case of goods delivered under trust receipt for
the purpose of manufacturing or processing
before its ultimate sale, the entruster shall
retain its title over the goods whether in its
original or processed form until the entrustee
has complied fully with his obligation under the
trust receipt; or (c) to load, unload, ship or
otherwise deal with them in a manner
preliminary or necessary to their sale; or
2.In the case of instruments a) to sell or procure
their sale or exchange; or b) to deliver them to a
principal; or c) to effect the consummation of
some transactions involving delivery to a
depository or register; or d) to effect their
presentation, collection or renewal.
The sale of goods, documents or instruments
by a person in the business of selling goods,
documents or instruments for profit who, at the
outset of the transaction, has, as against the
 buyer, general property rights in such goods,
documents or instruments, or who sells the
same to the buyer on credit, retaining title or
other interest as security for the payment of the
purchase price, does not constitute a trust
receipt transaction and is outside the purview
and coverage of this Decree.
An entrustee is one having or taking possession of goods,
documents or instruments under a trust receipt
transaction, and any successor in interest of such person
for the purpose of payment specified in the trust receipt
agreement. 39 The entrustee is obliged to: (1) hold the
goods, documents or instruments in trust for the entruster
and shall dispose of them strictly in accordance with the
terms and conditions of the trust receipt; (2) receive the
proceeds in trust for the entruster and turn over the same
to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the
goods for their total value against loss from fire, theft,
pilferage or other casualties; (4) keep said goods or
proceeds thereof whether in money or whatever form,
separate and capable of identification as property of the
entruster; (5) return the goods, documents or instruments
in the event of non-sale or upon demand of the entruster;
and (6) observe all other terms and conditions of the trust
receipt not contrary to the provisions of the decree. 40

The entruster shall be entitled to the proceeds from the

sale of the goods, documents or instruments released
under a trust receipt to the entrustee to the extent of the
amount owing to the entruster or as appears in the trust
receipt, or to the return of the goods, documents or
instruments in case of non-sale, and to the enforcement of
all other rights conferred on him in the trust receipt;
provided, such are not contrary to the provisions of the
document. 41
In the case at bar, the transaction between petitioner and
respondent bank falls under the trust receipt transactions
envisaged in P.D. No. 115. Respondent bank imported
the goods and entrusted the same to PBMI under the trust
receipts signed by petitioner, as entrustee, with the bank
as entruster. The agreement was as follows:
 And in consideration thereof, I/we hereby agree
to hold said goods in trust for the said BANK as
its property with liberty to sell the same within
____ days from the date of the execution of this
Trust Receipt and for the Bank's account, but
without authority to make any other disposition
whatsoever of the said goods or any part
thereof (or the proceeds) either by way of
conditional sale, pledge or otherwise.
I/we agree to keep the said goods insured to
their full value against loss from fire, theft,
pilferage or other casualties as directed by the
BANK, the sum insured to be payable in case
of loss to the BANK, with the understanding
that the BANK is, not to be chargeable with the
storage premium or insurance or any other
expenses incurred on said goods.
In case of sale, I/we further agree to turn over
the proceeds thereof as soon as received to the
BANK, to apply against the relative
acceptances (as described above) and for the
payment of any other indebtedness of
mine/ours to the BANK. In case of non-sale
within the period specified herein, I/we agree to
return the goods under this Trust Receipt to the
BANK without any need of demand. EcDSHT

I/we agree to keep the said goods,

manufactured products or proceeds thereof,
whether in the form of money or bills,
receivables, or accounts separate and capable
of identification as property of the BANK. 42
It must be stressed that P.D. No. 115 is a declaration by
legislative authority that, as a matter of public policy, the
failure of person to turn over the proceeds of the sale of
the goods covered by a trust receipt or to return said
goods, if not sold, is a public nuisance to be abated by the
imposition of penal sanctions. 43
The Court likewise rules that the issue of whether P.D. No.
115 encompasses transactions involving goods procured
as a component of a product ultimately sold has been
resolved in the affirmative in Allied Banking Corporation v.
Ordoñez. 44 The law applies to goods used by the
entrustee in the operation of its machineries and
equipment. The non-payment of the amount covered by
the trust receipts or the non-return of the goods covered
by the receipts, if not sold or otherwise not disposed of,
violate the entrustee's obligation to pay the amount or to
return the goods to the entruster.
In Colinares v. Court of Appeals, 45 the Court declared
that there are two possible situations in a trust receipt
transaction. The first is covered by the provision which
refers to money received under the obligation involving
the duty to deliver it (entregarla) to the owner of the
merchandise sold. The second is covered by the provision
which refers to merchandise received under the obligation
to return it (devolvera) to the owner. 46 Thus, failure of the
entrustee to turn over the proceeds of the sale of the
goods covered by the trust receipts to the entruster or to
return said goods if they were not disposed of in
accordance with the terms of the trust receipt is a crime
under P.D. No. 115, without need of proving intent to
defraud. The law punishes dishonesty and abuse of
confidence in the handling of money or goods to the
prejudice of the entruster, regardless of whether the latter
is the owner or not. A mere failure to deliver the proceeds
of the sale of the goods, if not sold, constitutes a criminal
offense that causes prejudice, not only to another, but
more to the public interest. 47
The Court rules that although petitioner signed the trust
receipts merely as Senior Vice-President of PBMI and had
no physical possession of the goods, he cannot avoid
prosecution for violation of P.D. No. 115.
The penalty clause of the law, Section 13 of P.D. No.
115 reads:
Section 13.Penalty Clause. The failure of an
entrustee to turn over the proceeds of the sale
of the goods, documents or instruments
covered by a trust receipt to the extent of the
amount owing to the entruster or as appears in
the trust receipt or to return said goods,
documents or instruments if they were not sold
or disposed of in accordance with the terms of
the trust receipt shall constitute the crime
of estafa, punishable under the provisions of
 Article Three hundred and fifteen, paragraph
one (b) of Act Numbered Three thousand eight
hundred and fifteen, as amended, otherwise
known as the Revised Penal Code. If the
violation or offense is committed by a
corporation, partnership, association or other
juridical entities, the penalty provided for in this
Decree shall be imposed upon the directors,
officers, employees or other officials or persons
therein responsible for the offense, without
prejudice to the civil liabilities arising from the
criminal offense.
The crime defined in P.D. No. 115 is malum
prohibitum but is classified as estafa under paragraph
1(b), Article 315 of the Revised Penal Code, or estafa with
abuse of confidence. It may be committed by a
corporation or other juridical entity or by natural persons.
However, the penalty for the crime is imprisonment for the
periods provided in said Article 315, which reads:
ARTICLE 315.Swindling (estafa). — Any
person who shall defraud another by any of the
means mentioned hereinbelow shall be
punished by:
1st.The penalty of prision correccional in its
maximum period to prision mayor in its
minimum period, if the amount of the fraud is
over 12,000 pesos but does not exceed 22,000
pesos; and if such amount exceeds the latter
sum, the penalty provided in this paragraph
shall be imposed in its maximum period, adding
one year for each additional 10,000 pesos; but
the total penalty which may be imposed shall
not exceed twenty years. In such cases, and in
connection with the accessory penalties which
may be imposed and for the purpose of the
other provisions of this Code, the penalty shall
be termed prision mayor or reclusion temporal,
as the case may be;
2nd.The penalty of prision correccional in its
minimum and medium periods, if the amount of
the fraud is over 6,000 pesos but does not
exceed 12,000 pesos;
 3rd.The penalty of arresto mayor in its
maximum period to prision correccional in its
minimum period, if such amount is over 200
pesos but does not exceed 6,000 pesos; and
4th.By arresto mayor in its medium and
maximum periods, if such amount does not
exceed 200 pesos, provided that in the four
cases mentioned, the fraud be committed by
any of the following means; . . .
Though the entrustee is a corporation, nevertheless, the
law specifically makes the officers, employees or other
officers or persons responsible for the offense, without
prejudice to the civil liabilities of such corporation and/or
board of directors, officers, or other officials or employees
responsible for the offense. The rationale is that such
officers or employees are vested with the authority and
responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are held
criminally accountable; thus, they have a responsible
share in the violations of the law. 48
If the crime is committed by a corporation or other juridical
entity, the directors, officers, employees or other officers
thereof responsible for the offense shall be charged and
penalized for the crime, precisely because of the nature of
the crime and the penalty therefor. A corporation cannot
be arrested and imprisoned; hence, cannot be penalized
for a crime punishable by imprisonment. 49 However, a
corporation may be charged and prosecuted for a crime if
the imposable penalty is fine. Even if the statute
prescribes both fine and imprisonment as penalty, a
corporation may be prosecuted and, if found guilty, may
be fined. 50
A crime is the doing of that which the penal code forbids to
be done, or omitting to do what it commands. A necessary
part of the definition of every crime is the designation of
the author of the crime upon whom the penalty is to be
inflicted. When a criminal statute designates an act of a
corporation or a crime and prescribes punishment therefor,
it creates a criminal offense which, otherwise, would not
exist and such can be committed only by the corporation.
But when a penal statute does not expressly apply to
corporations, it does not create an offense for which a
 corporation may be punished. On the other hand, if the
State, by statute, defines a crime that may be committed
by a corporation but prescribes the penalty therefor to be
suffered by the officers, directors, or employees of such
corporation or other persons responsible for the offense,
only such individuals will suffer such penalty. 51 Corporate
officers or employees, through whose act, default or
omission the corporation commits a crime, are themselves
individually guilty of the crime. 52
The principle applies whether or not the crime requires the
consciousness of wrongdoing. It applies to those
corporate agents who themselves commit the crime and
to those, who, by virtue of their managerial positions or
other similar relation to the corporation, could be deemed
responsible for its commission, if by virtue of their
relationship to the corporation, they had the power to
prevent the act. 53 Moreover, all parties active in
promoting a crime, whether agents or not, are
principals. 54 Whether such officers or employees are
benefited by their delictual acts is not a touchstone of their
criminal liability. Benefit is not an operative fact.
aHcDEC

In this case, petitioner signed the trust receipts in question.

He cannot, thus, hide behind the cloak of the separate
corporate personality of PBMI. In the words of Chief
Justice Earl Warren, a corporate officer cannot protect
himself behind a corporation where he is the actual,
present and efficient actor. 55
IN LIGHT OF ALL THE FOREGOING, the petition is
DENIED for lack of merit. Costs against the petitioner.
SO ORDERED.
(Ching v. Secretary of Justice, G.R. No. 164317, [February 6, 2006], 517 PHIL
|||

151-178)

[G.R. Nos. 160577-94. December 16, 2005.]

GREGORIO SINGIAN, JR., petitioner, vs. THE
HONORABLE SANDIGANBAYAN (Third Division), THE
PEOPLE OF THE PHILIPPINES, and THE
 PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT, respondents.

Francisco B. Gonzalez and Ligon Solis Ilao Law Firm for petitioner.
The Solicitor General for respondents.
SYLLABUS

1. POLITICAL LAW; CONSTITUTIONAL LAW; ACCOUNTABILITY OF

PUBLIC OFFICERS; OFFICE OF THE OMBUDSMAN; OMBUDSMAN'S
FINDINGS OF PROBABLE CAUSE WILL NOT BE INTERFERED WITH
ABSENT GRAVE ABUSE OF DISCRETION. — In dealing with cases of this
kind, we have invariably refused to interfere with the discretion of the
Ombudsman. The act of the Ombudsman in finding probable cause to indict
petitioner is an exercise of his powers based upon constitutional mandate and the
courts should not interfere with such exercise, unless clothed with grave abuse of
discretion. The rule is based not only upon respect for the investigatory powers
granted by the Constitution to the Office of the Ombudsman but upon
practicality as well. Otherwise, the functions of the Court will be grievously
hampered by innumerable petitions assailing the findings by the Ombudsman
with respect to complaints filed before him.
2. REMEDIAL LAW; COURTS; SANDIGANBAYAN; DISCRETION
THEREOF FINDING PROBABLE CAUSE AGAINST THE PARTY WILL
NOT BE INTERFERED WITH ABSENT GRAVE ABUSE OF DISCRETION.
— Grave abuse of discretion is the capricious and whimsical exercise of
judgment on the part of the public officer concerned which is equivalent to an
excess or lack of jurisdiction. The abuse of discretion must be so patent and gross
as to amount to an evasion of a positive duty or a virtual refusal to perform a duty
enjoined by law, or to act at all in contemplation of law as where the power is
exercised in an arbitrary and despotic manner by reason of passion or hostility.
In the same manner, we cannot interfere with the discretion of the
Sandiganbayan in finding probable cause against petitioner, absent grave abuse
of discretion.
3. CRIMINAL LAW; ANTI-GRAFT AND CORRUPT PRACTICES ACT;
SECTION 3 (E) AND (G) THEREOF; ELEMENTS; BEING CRONY OF THE
LATE PRESIDENT MARCOS IS NEITHER AN INDISPENSABLE
CRITERION NOR AN ELEMENT FOR THE INDICTMENT AND
CONVICTION OF OFFENSES THEREUNDER. — Petitioner is being indicted
for nine (9) counts each for violation of Section 3 (e) and (g) of Rep. Act No.
3019. The elements of the offense defined under Section 3 (e) of Rep. Act No.
3019 are the following: 1) that the accused are public officers or private persons
charged in conspiracy with them; 2) that the prohibited act/s were done in the
discharge of the public officer's official, administrative or judicial, functions; 3)
that they cause undue injury to any party, whether Government or a private
person; 4) that such injury is caused by giving any unwarranted benefits,
advantage or preference to such party; and 5) that the public officers acted with
manifest partiality, evident bad faith or gross inexcusable negligence. To be
indicted of the offense under Section 3 (g) of Rep. Act No. 3019, the following
elements must be present: 1) that the accused is a public officer; 2) that he
entered into a contract or transaction on behalf of the government; and 3) that
such contract or transaction is grossly and manifestly disadvantageous to the
government. Tested against the foregoing elements, it is readily apparent that
being a crony of the late President Marcos is neither an indispensable criterion
nor an element for the indictment and conviction of the said offenses. In fact, the
eighteen (18) Informations subject of the controversy did not allege that
petitioner and his co-accused were cronies.
4. COMMERCIAL LAW; CORPORATIONS; LIABILITY OF OFFICERS;
OFFICERS OF CORPORATIONS CAN BE MADE CRIMINALLY LIABLE
FOR THE CRIMINAL ACTS IF PROVEN THAT THEY PARTICIPATED
THEREIN. — True, the powers to increase capitalization and to offer or give
collateral to secure indebtedness are lodged with the corporation's board of
directors. However, this does not mean that the officers of the corporation other
than the board of directors cannot be made criminally liable for their criminal
acts if it can be proven that they participated therein. In the instant case, there is
evidence that petitioner participated in the loan transactions when he signed the
undertaking.
5. REMEDIAL LAW; EVIDENCE; CONSPIRACY; ABSENCE THEREOF IS
EVIDENTIARY IN NATURE AND IS A MATTER OF DEFENSE. — It is
petitioner's view that the prosecution failed to adduce evidence that he took part
in any conspiracy relative to the grant of the loan transactions. Suffice it to state
that the alleged absence of any conspiracy among the accused is evidentiary in
nature and is a matter of defense, the truth of which can be best passed upon after
a full-blown trial on the merits.
6. ID.; ID.; FINDINGS OF THE OMBUDSMAN AND THE
SANDIGANBAYAN WILL NOT BE OVERTURNED IF SUPPORTED BY
SUBSTANTIAL EVIDENCE. — In sum, the Ombudsman and the
Sandiganbayan were far from being abusive of their discretions. On the contrary,
their findings were based on evidence extant in the records. In finding probable
cause against petitioner, there was no grave abuse of discretion committed so as
to call for the exercise of our supervisory powers over them. This Court is not a
trier of facts. As long as there are substantial evidence in support of the
Ombudsman and the Sandiganbayan's decisions, these decisions will not be
overturned.
DECISION

CHICO-NAZARIO, J : p

This is a special civil action for certiorari under Rule 65 of the Rules of Court,
with a prayer for preliminary injunction and/or temporary restraining order
assailing the Resolution 1 dated 18 August 2003 of the Third Division of the
Sandiganbayan dismissing the Motion for Re-determination of Existence of
Probable Cause of Gregorio Singian, Jr. in Criminal Cases No. 26297-26314 and
its Order dated 24 October 2003 denying his motion for reconsideration.
The facts giving rise to the present petition are as follows:
Atty. Orlando L. Salvador was Presidential Commission On Good Government
Consultant on detail with the Presidential Ad Hoc Committee on Behest Loans
(Committee). 2 He was also the coordinator of the Technical Working Group
composed of officers and employees of government financing institutions to
examine and study the reports and recommendations of the Asset Privatization
Trust relating to loan accounts in all government financing institutions. 3 Among
the accounts acted upon by the Committee were the loans granted to Integrated
Shoe, Inc. (ISI) by the Philippine National Bank (PNB). 4
It would appear that on 18 January 1972, ISI applied for a five-year confirmed
irrevocable deferred letter of credit amounting to US$2,500,000.00
(P16,287,500.00) to finance its purchase of a complete line of machinery and
equipment. The letter of credit was recommended to the PNB Board of Directors
by then Senior Vice President, Mr. Constantino Bautista.
On 27 January 1972, the PNB approved the loan, subject to certain
stipulations. 5 The said letter of credit was to be secured by the following
collaterals: a) a second mortgage on 10,367-square meter lot under Transfer
Certificate of Title No. 218999 with improvements, machinery and equipment; b)
machinery and equipment to be imported under the subject letter of credit; and c)
assignment of US$0.50 per pair of shoes of ISI's export sales. It was further
subjected to the following pertinent conditions: a) that the letter of credit be
subject to joint and several signatures of Mr. Francisco J. Teodoro, Mrs. Leticia
T. Teodoro, Marfina T. Singian, Tomas Teodoro, and Gregorio Singian, Jr.; b)
that ISI, which has a paid-up capital amounting to P1,098,750.00 as of January
1972, shall increase its authorized capital to P5,000,000.00, and in the event that
cash receipts do not come up to the projections, or as may be required by the
bank, ISI will further increase its capitalization and the present stockholders will
subscribe to their present holdings; and c) that ISI shall submit other collaterals
in case the appraised value of the new machinery and equipment be insufficient.
ISI was further extended the following subsequent loan accommodations:
1. P1,500,000.00 on 10 February 1972 for the purchase of
raw materials;
2. P1,000,000.00 on 18 January 1973 as export advance;
3. P1,500,000.00 on 21 March 1973 as export advance;
4. P600,000.00 on 06 March 1974 as credit line;
5. P2,500,000.00 renewed on 15 December 1976;
6. P5,000,000.00 on 19 November 1978 as export
advance;
7. P1,500,000.00 on 04 August 1980 as export advance;
and
8. P7,000,000.00 on 15 December 1980 also as an export
advance. 6
The Committee found that the loans extended to ISI bore characteristics of
behest loans specifically for not having been secured with sufficient collaterals
and obtained with undue haste. 7
As a result, Atty. Orlando Salvador filed with the Office of the Ombudsman a
sworn complaint dated 20 March 1996, for violation of Section 3, paragraphs (e)
and (g), of Republic Act No. 3019, as amended, against the following: Panfilo
Domingo, former PNB President, Constantino Bautista, former PNB Senior
Vice President, Domingo Ingco, former member of the PNB Board of Directors,
John Does, former members of the PNB Board of Directors, Francisco Teodoro,
President of ISI, Leticia Teodoro, Vice President of ISI, Marfina Singian,
Incorporator of ISI, Tomas Teodoro, General Manager of ISI, and Gregorio
Singian, Jr., Executive Vice President of ISI. The complaint, docketed as
OMB-0-96-0967, was assigned to Graft Investigation Officer I Atty. Edgar R.
Navales (Investigator Navales) of the Evaluation and Preliminary Investigation
Bureau (EPIB) for investigation. IHcTDA

In a Resolution dated 04 October 1999, Investigator Navales recommended the

dismissal of the complaint on the grounds of prescription and insufficiency of
evidence. Director Angel C. Mayoralgo of the EPIB recommended the approval
of the findings and conclusion of Investigator Navales. The resolution partly
reads: 8
Be that as it may, the present case may still be dismissed on the ground
of insufficiency of evidence.

Perusal of the record shows that except for the allegations that the
public respondents herein have illegally entered into a contract with
ISI and that the respondents have given unwarranted benefits to ISI
through manifest partiality, evident bad faith or gross inexcusable
negligence, there is nothing on record that would concretely show that,
indeed, the respondents have acted in such a manner, and that the
transactions entered by the respondent public officers were illegal.

Further, the allegation of the complaint that the subject five-year

confirmed irrevocable, deferred L/C for U.S.$2.5 million extended to
ISI, through the private respondents, was only secured by a piece of
land valued at P1,646,700.00 and, therefore, undercollater[al]ized,
was inaccurate.

A careful review of the record shows that aside from the aforesaid
collateral, ISI had likewise offered as securities the joint and several
signatures of Mr. and Mrs. Francisco J. Teodoro, private respondents
herein; machinery and equipment to be imported under said L/C; and
assignment of $0.50 per pair of shoes to be exported by ISI (see
Memorandum, dated January 18, 1972, pp. 59-69, Record). These
collaterals were offered by private respondents aside from the fact that
the releases and disbursements of the proceeds of the subject L/C were
subject to the rigid control of the PNB Board of Directors. These,
therefore, belied the contention of the complainant that the subject L/C
was without sufficient security.

It is worth stressing that the public respondents herein were not the
ones who entered the subject transactions with ISI but the members of
the PNB Board of Directors who, incidentally, have in their favor the
presumption of regularity in the performance of their official duties
and functions, of which the complainant herein, as borne by the record,
had failed to overcome or disprove by clear and solid evidence.

The recommendation of Investigator Navales was disapproved by then

Ombudsman Aniano A. Desierto. Thereafter, the case was assigned to Special
Prosecution Officer I Florita S. Linco (Prosecutor Linco) for review.
In a Memorandum dated 02 May 2000, Prosecutor Linco found that probable
cause existed to indict petitioner, among other respondents, and recommended
that they be charged with violation of Section 3(e) and (g) of Rep. Act No. 3019.
Director Wendell Barreras-Sulit and Special Prosecutor Leonardo P. Tamayo
approved Prosecutor Linco's recommendation, while Deputy Special Prosecutor
Robert E. Kallos disapproved the same and expressed his concurrence in the
resolution of Investigator Navales. Ombudsman Desierto approved Prosecutor
Linco's recommendation on 13 October 2000.
Hence, the corresponding eighteen (18) Informations against petitioner and his
co-accused for violation of Section 3(e) and (g) of Rep. Act No. 3019, docketed
as Criminal Cases No. 26297 to No. 26314, were filed before the Sandiganbayan
and were raffled to the Third Division thereof. The eighteen (18) Informations
correspond to the nine (9) loan accommodations granted to ISI, each loan being
the subject of two informations alleging violations of both paragraphs of Section
3 of Rep. Act No. 3019.
On 26 July 2001, petitioner filed before the Sandiganbayan an Urgent
Consolidated Motions for Reinvestigation and Reduction of Bail on the ground
that he was not notified of the proceedings conducted in OMB-0-96-0967 and
that the notices due him were sent to an erroneous address.
On 31 August 2001, the Sandiganbayan issued an order granting petitioner's
motion for reinvestigation. Pursuant thereto, the Office of the Special Prosecutor
conducted the reinvestigation of Criminal Cases No. 26297 to No. 26314
through Special Prosecution Officer III Joselito R. Ferrer (Prosecutor Ferrer).
In a memorandum dated 26 February 2003, Prosecutor Ferrer resolved the
reinvestigation setting forth the following recommendations:
WHEREFORE, premises considered, it is respectfully recommended
that the OSP Review Memorandum 9 dated May 2, 2000 be
MODIFIED as follows:

1. That accused Panfilo O. Domingo, Domingo G.

Ingco, Constantino Bautista, Leticia T. Teodoro,
Gregorio Singian, Tomas T. Teodoro and Marfina T.
Singian be EXONERATED from any criminal liability
in the following Criminal Cases:

(a) Criminal Cases Nos. 26298, 26301-304 and

26306-26314 against all the accused charged
therein;

(b) Criminal Case No. 26297 as against

accused Panfilo Domingo and Domingo Ingco;
 (c) Criminal Case No. 26299 as against
accused Constantino Bautista;

(d) Criminal Cases Nos. 26300 and 26305 as

against Domingo Ingco and Constantino
Bautista;

2. That the Informations in Criminal Cases Nos. 26297,

26299-26300 and 26305 be correspondingly amended
to conform with the evidence on records. 10

The recommendations of Prosecutor Ferrer exonerating petitioner and his

co-accused of the charges were, however, disapproved by Ombudsman Simeon
V. Marcelo.
From the adverse finding of the Ombudsman, petitioner filed before the
Sandiganbayan a Motion for Re-determination of Existence of Probable Cause
which was denied by the latter in a resolution dated 18 August 2003. Petitioner
filed a motion for reconsideration which was eventually denied by the
Sandiganbayan in a resolution dated 24 October 2003.

Hence, this petition for certiorari.

Petitioner ascribes to the Sandiganbayan grave abuse of discretion amounting to
lack or excess of jurisdiction in issuing the assailed resolution dated 18 August
2003, and order dated 24 October 2003 on the following grounds:
I

PETITIONER SINGIAN CANNOT BE HELD LIABLE FOR

VIOLATING SECTIONS 3(e) AND (g) OF R.A. 3019 BECAUSE
NO PROOF WAS EVER ADDUCED TO ESTABLISH THAT THE
LOANS SUBJECT OF CRIMINAL CASES NOS. 26297 TO 26314
NOW PENDING WITH THE RESPONDENT SANDIGANBAYAN
WERE BEHEST LOANS.

A. THE CONTENTION OF THE PROSECUTION THAT

THE SUBJECT LOANS WERE
UNDERCOLLATERALIZED IS COMPLETELY BELIED
BY THE FACT THAT OTHER SECURITIES WERE
GIVEN BY ISI IN ADDITION TO THE LAND THAT IT
PUT UP AS COLLATERAL.

B. THE PROSECUTION'S CLAIM THAT ISI ALLEGEDLY

SUFFERED FROM A VERY LOW CAPITAL RATIO OF
 6.75% IS BOTH GRATUITOUS AND SELF-SERVING, IN
VIEW OF ITS FAILURE TO ADDUCE THE BANKING
STANDARD OF ACCEPTABILITY.

II

THE RULING OF THE RESPONDENT COURT THAT

PETITIONER SINGIAN IS CRIMINALLY RESPONSIBLE FOR
ISI'S PURPORTED FAILURE TO PUT UP ADDITIONAL
CAPITALIZATION AND COLLATERALS IS MANIFESTLY
INCONSISTENT WITH ITS FINDING THAT SAID PETITIONER
IS NEITHER A STOCKHOLDER NOR A DIRECTOR OF THE
COMPANY.

III

THERE IS NO EVIDENCE THAT PETITIONER WAS PART OF

ANY CONSPIRACY RELATIVE TO THE EVALUATION AND
GRANT OF THE LOANS SUBJECT OF THE CRIMINAL CASES
BEFORE THE RESPONDENT SANDIGANBAYAN.

In dealing with cases of this kind, we have invariably refused to interfere with
the discretion of the Ombudsman. The act of the Ombudsman in finding
probable cause to indict petitioner is an exercise of his powers based upon
constitutional mandate and the courts should not interfere with such exercise,
unless clothed with grave abuse of discretion. 11 The rule is based not only upon
respect for the investigatory powers granted by the Constitution to the Office of
the Ombudsman but upon practicality as well. 12 Otherwise, the functions of the
Court will be grievously hampered by innumerable petitions assailing the
findings by the Ombudsman with respect to complaints filed before him. 13
Grave abuse of discretion is the capricious and whimsical exercise of judgment
on the part of the public officer concerned which is equivalent to an excess or
lack of jurisdiction. The abuse of discretion must be so patent and gross as to
amount to an evasion of a positive duty or a virtual refusal to perform a duty
enjoined by law, or to act at all in contemplation of law as where the power is
exercised in an arbitrary and despotic manner by reason of passion or hostility. 14
In the same manner, we cannot interfere with the discretion of the
Sandiganbayan in finding probable cause against petitioner, absent grave abuse
of discretion.
No grave abuse of discretion, as defined, can be attributed to the Ombudsman as
well as the Sandiganbayan for the following reasons.
First. As to the first ground, it is petitioner's stance that the primary basis of the
prosecution for considering the subject loan transactions as behest loans, which
are the subject matters of Criminal Cases No. 26297 to No. 26314, is the fact that
the incorporators of the borrower ISI are Francisco J. Teodoro and his clan who
are known cronies of the late President Ferdinand E. Marcos. Since his
indictment is being essentially premised on the sole allegation that his
co-accused Francisco J. Teodoro and the latter's clan were known cronies of
President Marcos, which assertion was not substantiated by any evidence by the
prosecution, the charges against him should have been dismissed.
Petitioner is being indicted for nine (9) counts each for violation of Section 3(e)
and (g) of Rep. Act No. 3019. The elements 15 of the offense defined under
Section 3(e) of Rep. Act No. 3019 are the following:
1) that the accused are public officers or private persons
charged in conspiracy with them;

2) that the prohibited act/s were done in the discharge of the

public officer's official, administrative or judicial, functions;

3) that they cause undue injury to any party, whether

Government or a private person;

4) that such injury is caused by giving any unwarranted

benefits, advantage or preference to such party; and

5) that the public officers acted with manifest partiality,

evident bad faith or gross inexcusable negligence.

To be indicted of the offense under Section 3(g) of Rep. Act No. 3019, the
following elements 16 must be present:
1) that the accused is a public officer;

2) that he entered into a contract or transaction on behalf of the

government; and

3) that such contract or transaction is grossly and manifestly

disadvantageous to the government.

Tested against the foregoing elements, it is readily apparent that being a crony of
the late President Marcos is neither an indispensable criterion nor an element for
the indictment and conviction of the said offenses. In fact, the eighteen (18)
Informations subject of the controversy did not allege that petitioner and his
co-accused were cronies. The nine (9) indictments 17for violation of Section
3(e), Rep. Act No. 3019, are similarly worded as follows:
 . . . [G]ive unwarranted benefits, advantage and preference to ISI in
the amount of (amount of loan), purportedly for (purpose of loan),
releasing and disbursing the said sum of (amount of loan) to ISI
despite the knowledge that ISI lacked sufficient corporate
capitalization to secure the interest of the Government in case of ISI's
failure to pay, to the damage and prejudice of the government in the
aforestated amount and detriment to public service.

The nine (9) Informations 18 for violation of Section 3(g) which are also
similarly worded read:
. . . [W]illfully, unlawfully and criminally enter, on behalf of the
government, into a transaction with ISI which is manifestly and
grossly disadvantageous to the government, by accommodating and
granting a loan of (amount of loan) in favor of ISI as (purpose of the
loan) despite its failure to put up additional collaterals and raise its
working capital, to secure the interest of the Government in case ISI
failed to pay the said loan, as in fact ISI failed to pay, and thereafter
released and disbursed the said sum of (amount) to ISI to the damage
and prejudice of the government in the aforestated amount and
detriment to public service.

Second. Petitioner argues that the loan amounting to U.S. US$2,500,000.00 is

not under collateralized because, in addition to the piece of land valued at
P1,646,700.00, ISI likewise offered as securities the joint and several signatures
of petitioner and his co-accused, machinery and equipment to be imported under
the subject letter of credit, and the assignment of US$0.50 per pair of shoes to be
exported by ISI. Citing the ruling in Presidential Ad Hoc Fact-Finding
Committee on Behest Loans v. Desierto, 19petitioner concluded that because of
the failure of complaining witness, Atty. Salvador, to provide the proper
valuation for the additional properties as collateral, the prosecution committed a
fatal error in asserting that ISI did not have sufficient capital.
The case relied upon by petitioner arose from the investigation of the Committee
where it found that the borrower therein, Apparel, applied for an Import Letter of
Credit with the PNB in the amount of DM15,000,000.00 (P40,660,114.86) for
the importation of machinery, equipment and accessories for a garment factory.
The PNB approved the loan less than a month from the filing of the application
and without collateral except for a joint and solidary agreement of Francisco
Teodoro and Leticia Teodoro and a chattel mortgage on the machinery. The loan
remained unpaid. Hence, a complaint was filed with the Ombudsman against
those involved in the transaction. The Ombudsman dismissed the complaint,
among other reasons, for lack of evidence.
The Committee then filed before this Court a petition for certiorari alleging
grave abuse of discretion on the part of the Ombudsman in dismissing the
complaint. We upheld the finding of the Ombudsman that there was no probable
cause to charge those involved in the loan, and that his resolution was based on
substantial evidence, thus:
The Court cannot sustain petitioners' contention that the Ombudsman
acted with grave abuse of discretion when he dismissed the charges
against respondents herein. The Ombudsman elaborated his reasons
for finding that there was no sufficient ground to engender a
well-founded belief that respondents violated R.A. No. 3019.

In 1974, when the loan was granted, Apparel's paid up capital was
only P3,859,000.00. Thus, petitioners claimed that Apparel was not
entitled to the loan. The Committee, however, failed to provide the
proper valuation of all the property and therefore committed error in
finding that the loan Apparel obtained did not sufficiently have
collateral and capital.

First, the notation of PNB's acting Senior Vice President Jose B.

Samson, mentioned in a Memorandum dated May 26, 1982, indicated
that the appraised value of the machinery and equipment did not
include those still contained in crates. Second, the Terminal Report of
the Asset Privatization Trust, dated July 15, 1992, indicated that
Apparel had remaining unsold assets, which were under litigation,
located in Epza, Bataan. 20 (Emphasis supplied.)

Petitioner's reliance on Presidential Ad Hoc Fact-Finding Committee on Behest

Loans v. Desierto 21 is misplaced. In the case at hand, petitioner, in his capacity
as Executive Vice President of ISI, affixed his signature and categorically bound
himself to said terms and conditions of the Deed of Undertaking imposed by
PNB, i.e., to compel the corporation to put up additional capital and collaterals.
Despite the failure of ISI to honor the undertaking in the first loan, eight
subsequent loan accommodations were granted to it by PNB. These
circumstances distinguish the instant case from that cited by petitioner.

Besides, petitioner's averment that the loan transaction in question had sufficient
collateral is a matter of defense which should be best ventilated in a full-blown
trial.
Third. Petitioner assails the prosecution's allegation that ISI suffered from a
very low capital ratio of 6.75% as gratuitous and self-serving. Invoking this
Court's ruling in Presidential Ad Hoc Fact-Finding Committee on Behest Loan v.
Desierto, 22 he claims that such allegation is not proven considering that the
prosecution failed to establish the existence of any acceptable banking standard
obtaining at the time the subject loans were evaluated.
Again, the facts obtaining in the case cited by petitioner are different from the
instant case because unlike the former case, petitioner herein is being made
liable for his participation in the loan transactions based on his signature affixed
in the undertaking.
Fourth. Petitioner argues that he cannot be made criminally liable for ISI's
failure to put up the additional capitalization and collaterals required by the
undertaking because it is not his responsibility, but that of the board of directors
of ISI, to comply with the same. As an Executive Vice President of ISI, he has no
power to legally compel and cause it to comply with PNB's conditions stipulated
in the undertaking. He added that implicit in the Sandiganbayan's finding is that
there is no probable cause that has been established against petitioner in
Criminal Cases No. 26297 to No. 26314 since the undertaking he signed covers
specifically the deferred Letter of Credit for US$2,500,000.00 subject of
Criminal Case No. 26297.
True, the powers to increase capitalization and to offer or give collateral to
secure indebtedness are lodged with the corporation's board of directors.
However, this does not mean that the officers of the corporation other than the
board of directors cannot be made criminally liable for their criminal acts if it
can be proven that they participated therein. 23 In the instant case, there is
evidence that petitioner participated in the loan transactions when he signed the
undertaking. As correctly pointed out by the Sandiganbayan: 24
. . . [T]he Court finds that although it is true that accused Gregorio
Singian, Jr. is not a stockholder or director of Integrated Shoe, Inc.
(ISI), the evidence on record, however, shows that aside from the fact
that he was the Executive Vice President of Integrated Shoe, Inc. (ISI)
during the time material to this case, he also executed a "Deed of
Undertaking and Conformity to Bank Conditions" jointly with
Francisco J. Teodoro, President of Integrated Shoe, Inc. and other
officers of the corporation namely: Marfina T. Singian, Leticia T.
Teodoro, Tomas T. Teodoro in connection with the application and
granting by the PNB of a five year confirmed irrevocable, deferred
loan Letter of Credit for US $2,500,000.00 (P16,287,500.00) in favor
of the Integrated Shoe, Inc. (ISI), which loan remained unpaid by ISI.

A careful reading of the resolution of the respondent court reveals that it never
mentioned that the undertaking was the only evidence that led it to its
pronouncement that there exists probable cause against petitioner. In fact, the
circumstances surrounding the granting of the first loan for US$2,500,000.00
which is subject matter of Criminal Case No. 26297 and the subsequent loan
transactions which are the subject matters of Criminal Cases No. 26298 to No.
26314 appear at first blush to be connected with each other and form part of the
whole design to prejudice the government.
Fifth. It is petitioner's view that the prosecution failed to adduce evidence that he
took part in any conspiracy relative to the grant of the loan transactions. Suffice
it to state that the alleged absence of any conspiracy among the accused is
evidentiary in nature and is a matter of defense, the truth of which can be best
passed upon after a full-blown trial on the merits. 25
In sum, the Ombudsman and the Sandiganbayan were far from being abusive of
their discretions. On the contrary, their findings were based on evidence extant
in the records. In finding probable cause against petitioner, there was no grave
abuse of discretion committed so as to call for the exercise of our supervisory
powers over them. This Court is not a trier of facts. 26 As long as there are
substantial evidence in support of the Ombudsman and the Sandiganbayan's
decisions, these decisions will not be overturned. 27
WHEREFORE, premises considered, the instant petition is hereby DISMISSED
for lack of merit. No costs. SHacCD

SO ORDERED.
(Singian Jr. v. Sandiganbayan, G.R. Nos. 160577-94, [December 16, 2005],
|||

514 PHIL 536-552)

[G.R. No. 131719. May 25, 2004.]

THE EXECUTIVE SECRETARY, THE SECRETARY OF
JUSTICE, THE SECRETARY OF LABOR AND
EMPLOYMENT, AND THE SECRETARY OF FOREIGN
AFFAIRS, OWWA ADMINISTRATOR, and POEA
ADMINISTRATOR, petitioners, vs. THE HON. COURT OF
APPEALS and ASIAN RECRUITMENT COUNCIL
PHILIPPINE CHAPTER (ARCO-PHIL.), INC.,
representing its members: Worldcare Services
Internationale, Inc., Steadfast International Recruitment
Corporation, Dragon International Manpower Services
Corporation, Verdant Manpower Mobilization Corporation,
Brent Overseas Personnel, Inc., ARL Manpower Services,
 Inc., Dahlzhen International Services, Inc., Interworld
Placement Center, Inc., Lakas Tao Contract Services, Ltd.
Co., and SSC Multiservices,respondents.

DECISION

CALLEJO, SR., J : p

In this petition for review on certiorari, the Executive Secretary of the President
of the Philippines, the Secretary of Justice, the Secretary of Foreign Affairs, the
Secretary of Labor and Employment, the POEA Administrator and the OWWA
Administrator, through the Office of the Solicitor General, assail the
Decision 1 of the Court of Appeals in CA-G.R. SP No. 38815 affirming the
Order 2 of the Regional Trial Court of Quezon City dated August 21, 1995 in
Civil Case No. Q-95-24401, granting the plea of the petitioners therein for a writ
of preliminary injunction and of the writ of preliminary injunction issued by the
trial court on August 24, 1995.
The Antecedents
Republic Act No. 8042, otherwise known as the Migrant Workers and Overseas
Filipinos Act of 1995, took effect on July 15, 1995. The Omnibus Rules and
Regulations Implementing the Migrant Workers and Overseas Filipino Act of
1995 was, thereafter, published in the April 7, 1996 issue of the Manila Bulletin.
However, even before the law took effect, the Asian Recruitment Council
Philippine Chapter, Inc. (ARCO-Phil.) filed, on July 17, 1995, a petition for
declaratory relief under Rule 63 of the Rules of Court with the Regional Trial
Court of Quezon City to declare as unconstitutional Section 2, paragraph (g),
Section 6, paragraphs (a) to (j), (l) and (m), Section 7, paragraphs (a) and (b), and
Sections 9 and 10 of the law, with a plea for the issuance of a temporary
restraining order and/or writ of preliminary injunction enjoining the respondents
therein from enforcing the assailed provisions of the law.
In a supplement to its petition, the ARCO-Phil. alleged that Rep. Act No.
8042 was self-executory and that no implementing rules were needed. It prayed
that the court issue a temporary restraining order to enjoin the enforcement of
Section 6, paragraphs (a) to (m) on illegal recruitment, Section 7 on penalties for
illegal recruitment, and Section 9 on venue of criminal actions for illegal
recruitments, viz:
Viewed in the light of the foregoing discussions, there appears to be
urgent an imperative need for this Honorable Court to maintain
 the status quo by enjoining the implementation or effectivity of the
questioned provisions of RA 8042, by way of a restraining order
otherwise, the member recruitment agencies of the petitioner will
suffer grave or irreparable damage or injury. With the effectivity
of RA 8042, a great majority of the duly licensed recruitment agencies
have stopped or suspended their operations for fear of being
prosecuted under the provisions of a law that are unjust and
unconstitutional. This Honorable Court may take judicial notice of the
fact that processing of deployment papers of overseas workers for the
past weeks have come to a standstill at the POEA and this has affected
thousands of workers everyday just because of the enactment of RA
8042. Indeed, this has far reaching effects not only to survival of the
overseas manpower supply industry and the active participating
recruitment agencies, the country's economy which has survived
mainly due to the dollar remittances of the overseas workers but more
importantly, to the poor and the needy who are in dire need of
income-generating jobs which can only be obtained from abroad. The
loss or injury that the recruitment agencies will suffer will then be
immeasurable and irreparable. As of now, even foreign employers
have already reduced their manpower requirements from the
Philippines due to their knowledge that RA 8042 prejudiced and
adversely affected the local recruitment agencies. 3

On August 1, 1995, the trial court issued a temporary restraining order effective
for a period of only twenty (20) days therefrom.
After the petitioners filed their comment on the petition, the ARCO-Phil. filed an
amended petition, the amendments consisting in the inclusion in the caption
thereof eleven (11) other corporations which it alleged were its members and
which it represented in the suit, and a plea for a temporary restraining order
enjoining the respondents from enforcing Section 6 subsection (i), Section 6
subsection (k) and paragraphs 15 and 16 thereof, Section 8, Section 10,
paragraphs 1 and 2, and Sections 11 and 40 of Rep. Act No. 8042.
The respondent ARCO-Phil. assailed Section 2(g) and (i), Section 6 subsection
(a) to (m), Section 7(a) to (b), and Section 10 paragraphs (1) and (2), quoted as
follows:
(g) THE STATE RECOGNIZES THAT THE ULTIMATE
PROTECTION TO ALL MIGRANT WORKERS IS THE
POSSESSION OF SKILLS. PURSUANT TO THIS AND AS SOON
AS PRACTICABLE, THE GOVERNMENT SHALL DEPLOY
AND/OR ALLOW THE DEPLOYMENT ONLY OF SKILLED
FILIPINO WORKERS. 4

Sec. 2 subsection (i, 2nd par.)

Nonetheless, the deployment of Filipino overseas workers, whether

land-based or sea-based, by local service contractors and manning
agents employing them shall be encourages (sic). Appropriate
incentives may be extended to them.

xxx xxx xxx

II. ILLEGAL RECRUITMENT

SEC. 6. Definition. — For purposes of this Act, illegal recruitment

shall mean any act of canvassing, enlisting, contracting, transporting,
utilizing, hiring, or procuring workers and includes referring, contract
services, promising or advertising for employment abroad, whether
for profit or not, when undertaken by a non-licensee or non-holder of
authority contemplated under Article 13(f) of Presidential Decree No.
442, as amended, otherwise known as the Labor Code of the
Philippines: Provided, That any such non-licensee or non-holder who,
in any manner, offers or promises for a fee employment abroad to two
or more persons shall be deemed so engaged. It shall, likewise, include
the following acts, whether committed by any person, whether a
non-licensee, non-holder, licensee or holder of authority:

(a) To charge or accept directly or indirectly any amount greater than

that specified in the schedule of allowable fees prescribed by the
Secretary of Labor and Employment, or to make a worker pay any
amount greater than that actually received by him as a loan or
advance;

(b) To furnish or publish any false notice or information or document

in relation to recruitment or employment;

(c) To give any false notice, testimony, information or document or

commit any act of misrepresentation for the purpose of securing a
license or authority under the Labor Code;

(d) To induce or attempt to induce a worker already employed to quit

his employment in order to offer him another unless the transfer is
designed to liberate a worker from oppressive terms and conditions of
employment;
(e) To influence or attempt to influence any person or entity not to
employ any worker who has not applied for employment through his
agency;

(f) To engage in the recruitment or placement of workers in jobs

harmful to public health or morality or to the dignity of the Republic
of the Philippines;

(g) To obstruct or attempt to obstruct inspection by the Secretary of

Labor and Employment or by his duly authorized representative;

(h) To fail to submit reports on the status of employment, placement

vacancies, remittance of foreign exchange earnings, separation from
jobs, departures and such other matters or information as may be
required by the Secretary of Labor and Employment;

(i) To substitute or alter to the prejudice of the worker, employment

contracts approved and verified by the Department of Labor and
Employment from the time of actual signing thereof by the parties up
to and including the period of the expiration of the same without the
approval of the Department of Labor and Employment;

(j) For an officer or agent of a recruitment or placement agency to

become an officer or member of the Board of any corporation engaged
in travel agency or to be engaged directly or indirectly in the
management of a travel agency;

(k) To withhold or deny travel documents from applicant workers

before departure for monetary or financial considerations other than
those authorized under the Labor Code and its implementing rules and
regulations;

(l) Failure to actually deploy without valid reason as determined by

the Department of Labor and Employment; and

(m) Failure to reimburse expenses incurred by the worker in

connection with his documentation and processing for purposes of
deployment, in cases where the deployment does not actually take
place without the worker's fault. Illegal recruitment when committed
by a syndicate or in large scale shall be considered an offense
involving economic sabotage.

Illegal recruitment is deemed committed by a syndicate if carried out

by a group of three (3) or more persons conspiring or confederating
with one another. It is deemed committed in large scale if committed
against three (3) or more persons individually or as a group.
The persons criminally liable for the above offenses are the principals,
accomplices and accessories. In case of juridical persons, the officers
having control, management or direction of their business shall be
liable.

xxx xxx xxx

SEC. 7. Penalties. —

(a) Any person found guilty of illegal recruitment shall suffer the
penalty of imprisonment of not less than six (6) years and one (1) day
but not more than twelve (12) years and a fine of not less than two
hundred thousand pesos (P200,000.00) nor more than five hundred
thousand pesos (P500,000.00).

(b) The penalty of life imprisonment and a fine of not less than five
hundred thousand pesos (P500,000.00) nor more than one million
pesos (P1,000,000.00) shall be imposed if illegal recruitment
constitutes economic sabotage as defined herein.

Provided, however, That the maximum penalty shall be imposed if the

person illegally recruited is less than eighteen (18) years of age or
committed by a non-licensee or non-holder of authority.

Sec. 8.

Prohibition on Officials and Employees. — It shall be unlawful for

any official or employee of the Department of Labor and Employment,
the Philippine Overseas Employment Administration (POEA), or the
Overseas Workers Welfare Administration (OWWA), or the
Department of Foreign Affairs, or other government agencies
involved in the implementation of this Act, or their relatives within the
fourth civil degree of consanguinity or affinity, to engage, directly or
indirectly, in the business of recruiting migrant workers as defined in
this Act. The penalties provided in the immediate preceding
paragraph shall be imposed upon them. (emphasis supplied)

xxx xxx xxx

Sec. 10, pars. 1 & 2.

Money Claims. — Notwithstanding any provision of law to the

contrary, the Labor Arbiters of the National Labor Relations
Commission (NLRC) shall have the original and exclusive
jurisdiction to hear and decide, within ninety (90) calendar days after
 the filing of the complaint, the claims arising out of an
employer-employee relationship or by virtue of any law or contract
involving Filipino workers for overseas deployment including claims
for actual, moral, exemplary and other forms of damages.

The liability of the principal/employer and the recruitment/placement

agency for any and all claims under this section shall be joint and
several. This provision shall be incorporated in the contract for
overseas employment and shall be a condition precedent for its
approval. The performance bond to be filed by the
recruitment/placement agency, as provided by law, shall be
answerable for all money claims or damages that may be awarded to
the workers. If the recruitment/placement agency is a juridical being,
the corporate officers and directors and partners as the case may be,
shall themselves be jointly and solidarily liable with the corporation or
partnership for the aforesaid claims and damages.

xxx xxx xxx

SEC. 11. Mandatory Periods for Resolution of Illegal Recruitment

Cases. — The preliminary investigations of cases under this Act shall
be terminated within a period of thirty (30) calendar days from the
date of their filing. Where the preliminary investigation is conducted
by a prosecution officer and a prima facie case is established, the
corresponding information shall be filed in court within twenty-four
(24) hours from the termination of the investigation. If the preliminary
investigation is conducted by a judge and a prima facie case is found
to exist, the corresponding information shall be filed by the proper
prosecution officer within forty-eight (48) hours from the date of
receipt of the records of the case.

The respondent averred that the aforequoted provisions of Rep. Act No.
8042 violate Section 1, Article III of the Constitution. 5According to the
respondent, Section 6(g) and (i) discriminated against unskilled workers and
their families and, as such, violated the equal protection clause, as well as Article
II, Section 12 6 and Article XV, Sections 1 7 and 3(3) of the Constitution. 8 As
the law encouraged the deployment of skilled Filipino workers, only overseas
skilled workers are granted rights. The respondent stressed that unskilled
workers also have the right to seek employment abroad. According to the
respondent, the right of unskilled workers to due process is violated because they
are prevented from finding employment and earning a living abroad. It cannot be
argued that skilled workers are immune from abuses by employers, while
unskilled workers are merely prone to such abuses. It was pointed out that both
skilled and unskilled workers are subjected to abuses by foreign employers.
Furthermore, the prohibition of the deployment of unskilled workers abroad
would only encourage fly-by-night illegal recruiters.
According to the respondent, the grant of incentives to service contractors and
manning agencies to the exclusion of all other licensed and authorized recruiters
is an invalid classification. Licensed and authorized recruiters are thus deprived
of their right to property and due process and to the "equality of the person." It is
understandable for the law to prohibit illegal recruiters, but to discriminate
against licensed and registered recruiters is unconstitutional.
The respondent, likewise, alleged that Section 6, subsections (a) to (m) is
unconstitutional because licensed and authorized recruitment agencies are
placed on equal footing with illegal recruiters. It contended that while the Labor
Code distinguished between recruiters who are holders of licenses and
non-holders thereof in the imposition of penalties, Rep. Act No. 8042 does not
make any distinction. The penalties in Section 7(a) and (b) being based on an
invalid classification are, therefore, repugnant to the equal protection clause,
besides being excessive; hence, such penalties are violative of Section 19(1),
Article III of the Constitution. 9 It was also pointed out that the penalty for
officers/officials/employees of recruitment agencies who are found guilty of
economic sabotage or large-scale illegal recruitment under Rep. Act No. 8042 is
life imprisonment. Since recruitment agencies usually operate with a manpower
of more than three persons, such agencies are forced to shut down, lest their
officers and/or employees be charged with large scale illegal recruitment or
economic sabotage and sentenced to life imprisonment. Thus, the penalty
imposed by law, being disproportionate to the prohibited acts, discourages the
business of licensed and registered recruitment agencies.
The respondent also posited that Section 6(m) and paragraphs (15) and (16),
Sections 8, 9 and 10, paragraph 2 of the law violate Section 22, Article III of the
Constitution 10 prohibiting ex-post facto laws and bills of attainder. This is
because the provisions presume that a licensed and registered recruitment
agency is guilty of illegal recruitment involving economic sabotage, upon a
finding that it committed any of the prohibited acts under the law. Furthermore,
officials, employees and their relatives are presumed guilty of illegal recruitment
involving economic sabotage upon such finding that they committed any of the
said prohibited acts.
The respondent further argued that the 90-day period in Section 10, paragraph (1)
within which a labor arbiter should decide a money claim is relatively short, and
could deprive licensed and registered recruiters of their right to due process. The
period within which the summons and the complaint would be served on foreign
employees and, thereafter, the filing of the answer to the complaint would take
more than 90 days. This would thereby shift on local licensed and authorized
recruiters the burden of proving the defense of foreign employers. Furthermore,
the respondent asserted, Section 10, paragraph 2 of the law, which provides for
the joint and several liability of the officers and employees, is a bill of attainder
and a violation of the right of the said corporate officers and employees to due
process. Considering that such corporate officers and employees act with prior
approval of the board of directors of such corporation, they should not be liable,
jointly and severally, for such corporate acts.
The respondent asserted that the following provisions of the law are
unconstitutional:
SEC. 9. Venue. — A criminal action arising from illegal recruitment
as defined herein shall be filed with the Regional Trial Court of the
province or city where the offense was committed or where the
offended party actually resides at the time of the commission of the
offense: Provided, That the court where the criminal action is first
filed shall acquire jurisdiction to the exclusion of other
courts: Provided, however, That the aforestated provisions shall also
apply to those criminal actions that have already been filed in court at
the time of the effectivity of this Act.

xxx xxx xxx

SEC. 10. Money Claims. — Notwithstanding any provision of law to

the contrary, the Labor Arbiters of the National Labor Relations
Commission (NLRC) shall have the original and exclusive
jurisdiction to hear and decide, within ninety (90) calendar days after
the filing of the complaint, the claims arising out of an
employer-employee relationship or by virtue of any law or contract
involving Filipino workers for overseas deployment including claims
for actual, moral, exemplary and other forms of damages.

Sec. 40.

The departments and agencies charged with carrying out the

provisions of this Act shall, within ninety (90) days after the effectiviy
of this Act, formulate the necessary rules and regulations for its
effective implementation.

According to the respondent, the said provisions violate Section 5(5). Article
VIII of the Constitution 11 because they impair the power of the Supreme Court
to promulgate rules of procedure.
In their answer to the petition, the petitioners alleged, inter alia, that (a) the
respondent has no cause of action for a declaratory relief; (b) the petition was
premature as the rules implementing Rep. Act No. 8042 not having been
released as yet; (c) the assailed provisions do not violate any provisions of the
Constitution; and, (d) the law was approved by Congress in the exercise of the
police power of the State. In opposition to the respondent's plea for injunctive
relief, the petitioners averred that:
As earlier shown, the amended petition for declaratory relief is devoid
of merit for failure of petitioner to demonstrate convincingly that the
assailed law is unconstitutional, apart from the defect and impropriety
of the petition. One who attacks a statute, alleging unconstitutionality
must prove its invalidity beyond reasonable doubt (Caleon v. Agus
Development Corporation, 207 SCRA 748). All reasonable doubts
should be resolved in favor of the constitutionality of a statute (People
v. Vera, 65 Phil. 56). This presumption of constitutionality is based on
the doctrine of separation of powers which enjoin upon each
department a becoming respect for the acts of the other departments
(Garcia vs. Executive Secretary, 204 SCRA 516 [1991]). Necessarily,
the ancillary remedy of a temporary restraining order and/or a writ of
preliminary injunction prayed for must fall. Besides, an act of
legislature approved by the executive is presumed to be within
constitutional bounds (National Press Club v. Commission on
Elections, 207 SCRA 1). 12

After the respective counsels of the parties were heard on oral arguments, the
trial court issued on August 21, 1995, an order granting the petitioner's plea for a
writ of preliminary injunction upon a bond of P50,000. The petitioner posted the
requisite bond and on August 24, 1995, the trial court issued a writ of
preliminary injunction enjoining the enforcement of the following provisions
of Rep. Act No. 8042 pending the termination of the proceedings:
. . . Section 2, subsections (g) and (i, 2nd par.); Section 6, subsections
(a) to (m), and pars. 15 & 16; Section 7, subsections (a) & (b); Section
8; Section 9; Section 10; pars. 1 & 2; Section 11; and Section 40
of Republic Act No. 8042, otherwise known as the Migrant Workers
and Overseas Filipinos Act of 1995. . . . 13

The petitioners filed a petition for certiorari with the Court of Appeals assailing
the order and the writ of preliminary injunction issued by the trial court on the
following grounds:
 1. Respondent ARCO-PHIL. had utterly failed to show its clear right/s
or that of its member-agencies to be protected by the injunctive relief
and/or violation of said rights by the enforcement of the assailed
sections of R.A. 8042;

2. Respondent Judge fixed a P50,000 injunction bond which is grossly

inadequate to answer for the damage which petitioner-officials may
sustain, should respondent ARCO-PHIL. be finally adjudged as not
being entitled thereto. 14

The petitioners asserted that the respondent is not the real party-in-interest as
petitioner in the trial court. It is inconceivable how the respondent, a non-stock
and non-profit corporation, could sustain direct injury as a result of the
enforcement of the law. They argued that if, at all, any damage would result in
the implementation of the law, it is the licensed and registered recruitment
agencies and/or the unskilled Filipino migrant workers discriminated against
who would sustain the said injury or damage, not the respondent. The respondent,
as petitioner in the trial court, was burdened to adduce preponderant evidence of
such irreparable injury, but failed to do so. The petitioners further insisted that
the petition a quo was premature since the rules and regulations implementing
the law had yet to be promulgated when such petition was filed. Finally, the
petitioners averred that the respondent failed to establish the requisites for the
issuance of a writ of preliminary injunction against the enforcement of the law
and the rules and regulations issued implementing the same.
On December 5, 1997, the appellate court came out with a four-page decision
dismissing the petition and affirming the assailed order and writ of preliminary
injunction issued by the trial court. The appellate court, likewise, denied the
petitioners' motion for reconsideration of the said decision.
The petitioners now come to this Court in a petition for review on certiorari on
the following grounds:
1. Private respondent ARCO-PHIL. had utterly failed to show its clear
right/s or that of its member-agencies to be protected by the injunctive
relief and/or violation of said rights by the enforcement of the assailed
sections of R.A. 8042;

2. The P50,000 injunction bond fixed by the court a quo and sustained
by the Court of Appeals is grossly inadequate to answer for the
damage which petitioners-officials may sustain, should private
respondent ARCO-PHIL. be finally adjudged as not being entitled
thereto. 15
On February 16, 1998, this Court issued a temporary restraining order enjoining
the respondents from enforcing the assailed order and writ of preliminary
injunction.
The Issues
The core issue in this case is whether or not the trial court committed grave abuse
of its discretion amounting to excess or lack of jurisdiction in issuing the assailed
order and the writ of preliminary injunction on a bond of only P50,000 and
whether or not the appellate court erred in affirming the trial court's order and the
writ of preliminary injunction issued by it.
The petitioners contend that the respondent has no locus standi. It is a non-stock,
non-profit organization; hence, not the real party-in-interest as petitioner in the
action. Although the respondent filed the petition in the Regional Trial Court in
behalf of licensed and registered recruitment agencies, it failed to adduce in
evidence a certified copy of its Articles of Incorporation and the resolutions of
the said members authorizing it to represent the said agencies in the proceedings.
Neither is the suit of the respondent a class suit so as to vest in it a personality to
assail Rep. Act No. 8042; the respondent is service-oriented while the
recruitment agencies it purports to represent are profit-oriented. The petitioners
assert that the law is presumed constitutional and, as such, the respondent was
burdened to make a case strong enough to overcome such presumption and
establish a clear right to injunctive relief.
The petitioners bewail the P50,000 bond fixed by the trial court for the issuance
of a writ of preliminary injunction and affirmed by the appellate court. They
assert that the amount is grossly inadequate to answer for any damages that the
general public may suffer by reason of the non-enforcement of the assailed
provisions of the law. The trial court committed a grave abuse of its discretion in
granting the respondent's plea for injunctive relief, and the appellate court erred
in affirming the order and the writ of preliminary injunction issued by the trial
court.
The respondent, for its part, asserts that it has duly established its locus
standi and its right to injunctive relief as gleaned from its pleadings and the
appendages thereto. Under Section 5, Rule 58 of the Rules of Court, it was
incumbent on the petitioners, as respondents in the RTC, to show cause why no
injunction should issue. It avers that the injunction bond posted by the
respondent was more than adequate to answer for any injury or damage the
petitioners may suffer, if any, by reason of the writ of preliminary injunction
issued by the RTC. In any event, the assailed provisions of Rep. Act No.
8042 exposed its members to the immediate and irreparable damage of being
deprived of their right to a livelihood without due process, a property right
protected under the Constitution.
The respondent contends that the commendable purpose of the law to eradicate
illegal recruiters should not be done at the expense and to the prejudice of
licensed and authorized recruitment agencies. The writ of preliminary injunction
was necessitated by the great number of duly licensed recruitment agencies that
had stopped or suspended their business operations for fear that their officers and
employees would be indicted and prosecuted under the assailed oppressive penal
provisions of the law, and meted excessive penalties. The respondent, likewise,
urges that the Court should take judicial notice that the processing of deployment
papers of overseas workers have come to a virtual standstill at the POEA.
The Court's Ruling
The petition is meritorious.
The Respondent Has Locus Standi
To File the Petition in the RTC in
Representation of the Eleven
Licensed and Registered
Recruitment Agencies Impleaded
in the Amended Petition
The modern view is that an association has standing to complain of injuries to its
members. This view fuses the legal identity of an association with that of its
members. 16 An association has standing to file suit for its workers despite its
lack of direct interest if its members are affected by the action. An organization
has standing to assert the concerns of its constituents. 17
In Telecommunications and Broadcast Attorneys of the Philippines
v. Commission on Elections, 18 we held that standing jus tertiiwould be
recognized only if it can be shown that the party suing has some substantial
relation to the third party, or that the right of the third party would be diluted
unless the party in court is allowed to espouse the third party's constitutional
claims.
In this case, the respondent filed the petition for declaratory relief under Rule 64
of the Rules of Court for and in behalf of its eleven (11) licensed and registered
recruitment agencies which are its members, and which approved separate
resolutions expressly authorizing the respondent to file the said suit for and in
their behalf. We note that, under its Articles of Incorporation, the respondent was
organized for the purposes inter alia of promoting and supporting the growth
and development of the manpower recruitment industry, both in the local and
international levels; providing, creating and exploring employment
opportunities for the exclusive benefit of its general membership; enhancing and
promoting the general welfare and protection of Filipino workers; and, to act as
the representative of any individual, company, entity or association on matters
related to the manpower recruitment industry, and to perform other acts and
activities necessary to accomplish the purposes embodied therein. The
respondent is, thus, the appropriate party to assert the rights of its members,
because it and its members are in every practical sense identical. The respondent
asserts that the assailed provisions violate the constitutional rights of its
members and the officers and employees thereof. The respondent is but the
medium through which its individual members seek to make more effective the
expression of their voices and the redress of their grievances. 19
However, the respondent has no locus standi to file the petition for and in behalf
of unskilled workers. We note that it even failed to implead any unskilled
workers in its petition. Furthermore, in failing to implead, as parties-petitioners,
the eleven licensed and registered recruitment agencies it claimed to represent,
the respondent failed to comply with Section 2 of Rule 63 20 of the Rules of
Court. Nevertheless, since the eleven licensed and registered recruitment
agencies for which the respondent filed the suit are specifically named in the
petition, the amended petition is deemed amended to avoid multiplicity of
suits. 21

The Assailed Order and Writ of

Preliminary Injunction Is Mooted
By Case Law
The respondent justified its plea for injunctive relief on the allegation in its
amended petition that its members are exposed to the immediate and irreparable
danger of being deprived of their right to a livelihood and other constitutional
rights without due process, on its claim that a great number of duly licensed
recruitment agencies have stopped or suspended their operations for fear that (a)
their officers and employees would be prosecuted under the unjust and
unconstitutional penal provisions of Rep. Act No. 8042 and meted equally
unjust and excessive penalties, including life imprisonment, for illegal
recruitment and large scale illegal recruitment without regard to whether the
recruitment agencies involved are licensed and/or authorized; and, (b) if the
members of the respondent, which are licensed and authorized, decide to
continue with their businesses, they face the stigma and the curse of being
labeled "illegal recruiters." In granting the respondent's plea for a writ of
preliminary injunction, the trial court held, without stating the factual and legal
basis therefor, that the enforcement of Rep. Act No. 8042, pendente lite, would
cause grave and irreparable injury to the respondent until the case is decided on
its merits.
We note, however, that since Rep. Act No. 8042 took effect on July 15, 1995, the
Court had, in a catena of cases, applied the penal provisions in Section 6,
including paragraph (m) thereof, and the last two paragraphs therein defining
large scale illegal recruitment committed by officers and/or employees of
recruitment agencies by themselves and in connivance with private individuals,
and imposed the penalties provided in Section 7 thereof, including the penalty of
life imprisonment. 22 The Informations therein were filed after preliminary
investigations as provided for in Section 11 of Rep. Act No. 8042 and in venues
as provided for in Section 9 of the said act. In People v. Chowdury, 23 we held
that illegal recruitment is a crime of economic sabotage and must be enforced.
In People v. Diaz, 24 we held that Rep. Act No. 8042 is but an amendment of
the Labor Code of the Philippines and is not an ex-post facto law because it is
not applied retroactively. In JMM Promotion and Management, Inc. v. Court of
Appeals, 25 the issue of the extent of the police power of the State to regulate a
business, profession or calling vis-à-vis the equal protection clause and the
non-impairment clause of the Constitution were raised and we held, thus:
A profession, trade or calling is a property right within the meaning of
our constitutional guarantees. One cannot be deprived of the right to
work and the right to make a living because these rights are property
rights, the arbitrary and unwarranted deprivation of which normally
constitutes an actionable wrong.

Nevertheless, no right is absolute, and the proper regulation of a

profession, calling, business or trade has always been upheld as a
legitimate subject of a valid exercise of the police power by the state
particularly when their conduct affects either the execution of
legitimate governmental functions, the preservation of the State, the
public health and welfare and public morals. According to the
maxim, sic utere tuo ut alienum non laedas, it must of course be
within the legitimate range of legislative action to define the mode and
manner in which every one may so use his own property so as not to
pose injury to himself or others.

In any case, where the liberty curtailed affects at most the rights of
property, the permissible scope of regulatory measures is certainly
much wider. To pretend that licensing or accreditation requirements
violates the due process clause is to ignore the settled practice, under
the mantle of the police power, of regulating entry to the practice of
various trades or professions. Professionals leaving for abroad are
required to pass rigid written and practical exams before they are
deemed fit to practice their trade. Seamen are required to take tests
determining their seamanship. Locally, the Professional Regulation
Commission has begun to require previously licensed doctors and
other professionals to furnish documentary proof that they had either
re-trained or had undertaken continuing education courses as a
requirement for renewal of their licenses. It is not claimed that these
requirements pose an unwarranted deprivation of a property right
under the due process clause. So long as professionals and other
workers meet reasonable regulatory standards no such deprivation
exists.

Finally, it is a futile gesture on the part of petitioners to invoke the

non-impairment clause of the Constitution to support their argument
that the government cannot enact the assailed regulatory measures
because they abridge the freedom to contract. In Philippine
Association of Service Exporters, Inc. vs. Drilon, we held that "[t]he
non-impairment clause of the Constitution . . . must yield to the loftier
purposes targeted by the government." Equally important, into every
contract is read provisions of existing law, and always, a reservation
of the police power for so long as the agreement deals with a subject
impressed with the public welfare.

A last point. Petitioners suggest that the singling out of entertainers

and performing artists under the assailed department orders
constitutes class legislation which violates the equal protection clause
of the Constitution. We do not agree.

The equal protection clause is directed principally against undue favor

and individual or class privilege. It is not intended to prohibit
legislation which is limited to the object to which it is directed or by
the territory in which it is to operate. It does not require absolute
equality, but merely that all persons be treated alike under like
conditions both as to privileges conferred and liabilities imposed. We
have held, time and again, that the equal protection clause of the
Constitution does not forbid classification for so long as such
classification is based on real and substantial differences having a
reasonable relation to the subject of the particular legislation. If
classification is germane to the purpose of the law, concerns all
members of the class, and applies equally to present and future
conditions, the classification does not violate the equal protection
guarantee. 26
The validity of Section 6 of R.A. No. 8042 which provides that employees of
recruitment agencies may be criminally liable for illegal recruitment has been
upheld in People v. Chowdury: 27
As stated in the first sentence of Section 6 of RA 8042, the persons
who may be held liable for illegal recruitment are the principals,
accomplices and accessories. An employee of a company or
corporation engaged in illegal recruitment may be held liable as
principal, together with his employer, if it is shown that he actively
and consciously participated in illegal recruitment. It has been held
that the existence of the corporate entity does not shield from
prosecution the corporate agent who knowingly and intentionally
causes the corporation to commit a crime. The corporation obviously
acts, and can act, only by and through its human agents, and it is their
conduct which the law must deter. The employee or agent of a
corporation engaged in unlawful business naturally aids and abets in
the carrying on of such business and will be prosecuted as principal if,
with knowledge of the business, its purpose and effect, he consciously
contributes his efforts to its conduct and promotion, however slight his
contribution may be. . . . 28

By its rulings, the Court thereby affirmed the validity of the assailed penal and
procedural provisions of Rep. Act No. 8042, including the imposable penalties
therefor. Until the Court, by final judgment, declares that the said provisions are
unconstitutional, the enforcement of the said provisions cannot be enjoined.
The RTC Committed Grave Abuse
of Its Discretion Amounting to
Excess or Lack of Jurisdiction in
Issuing the Assailed Order and the
Writ of Preliminary Injunction
The matter of whether to issue a writ of preliminary injunction or not is
addressed to the sound discretion of the trial court. However, if the court
commits grave abuse of its discretion in issuing the said writ amounting to
excess or lack of jurisdiction, the same may be nullified via a writ
of certiorari and prohibition.
In Social Security Commission v. Judge Bayona, 29 we ruled that a law is
presumed constitutional until otherwise declared by judicial interpretation. The
suspension of the operation of the law is a matter of extreme delicacy because it
is an interference with the official acts not only of the duly elected
representatives of the people but also of the highest magistrate of the land.
In Younger v. Harris, Jr., 30 the Supreme Court of the United States emphasized,
thus:
Federal injunctions against state criminal statutes, either in their
entirety or with respect to their separate and distinct prohibitions, are
not to be granted as a matter of course, even if such statutes are
unconstitutional. No citizen or member of the community is immune
from prosecution, in good faith, for his alleged criminal acts. The
imminence of such a prosecution even though alleged to be
unauthorized and, hence, unlawful is not alone ground for relief in
equity which exerts its extraordinary powers only to prevent
irreparable injury to the plaintiff who seeks its aid. 752 Beal
v. Missouri Pacific Railroad Corp., 312 U.S. 45, 49, 61 S.Ct. 418, 420,
85 L.Ed. 577.

And similarly, in Douglas, supra, we made clear, after reaffirming this

rule, that:

"It does not appear from the record that petitioners have been
threatened with any injury other than that incidental to every criminal
proceeding brought lawfully and in good faith . . ." 319 U.S., at 164,
63 S.Ct., at 881. 31

The possible unconstitutionality of a statute, on its face, does not of itself justify
an injunction against good faith attempts to enforce it, unless there is a showing
of bad faith, harassment, or any other unusual circumstance that would call for
equitable relief. 32 The "on its face" invalidation of statutes has been described as
"manifestly strong medicine," to be employed "sparingly and only as a last
resort," and is generally disfavored. 33
To be entitled to a preliminary injunction to enjoin the enforcement of a law
assailed to be unconstitutional, the party must establish that it will suffer
irreparable harm in the absence of injunctive relief and must demonstrate that it
is likely to succeed on the merits, or that there are sufficiently serious questions
going to the merits and the balance of hardships tips decidedly in its
favor. 34 The higher standard reflects judicial deference toward "legislation or
regulations developed through presumptively reasoned democratic processes."
Moreover, an injunction will alter, rather than maintain, the status quo, or will
provide the movant with substantially all the relief sought and that relief cannot
be undone even if the defendant prevails at a trial on the merits. 35 Considering
that injunction is an exercise of equitable relief and authority, in assessing
whether to issue a preliminary injunction, the courts must sensitively assess all
the equities of the situation, including the public interest. 36 In litigations
between governmental and private parties, courts go much further both to give
and withhold relief in furtherance of public interest than they are accustomed to
go when only private interests are involved. 37 Before the plaintiff may be
entitled to injunction against future enforcement, he is burdened to show some
substantial hardship. 38
The fear or chilling-effect of the assailed penal provisions of the law on the
members of the respondent does not by itself justify prohibiting the State from
enforcing them against those whom the State believes in good faith to be
punishable under the laws:
. . . Just as the incidental "chilling effect" of such statutes does not
automatically render them unconstitutional, so the chilling effect that
admittedly can result from the very existence of certain laws on the
statute books does not in itself justify prohibiting the State from
carrying out the important and necessary task of enforcing these laws
against socially harmful conduct that the State believes in good faith
to be punishable under its laws and the Constitution. 39

It must be borne in mind that subject to constitutional limitations, Congress is

empowered to define what acts or omissions shall constitute a crime and to
prescribe punishments therefor. 40 The power is inherent in Congress and is part
of the sovereign power of the State to maintain peace and order. Whatever views
may be entertained regarding the severity of punishment, whether one believes
in its efficiency or its futility, these are peculiarly questions of legislative
policy. 41 The comparative gravity of crimes and whether their consequences are
more or less injurious are matters for the State and Congress itself to
determine. 42 Specification of penalties involves questions of legislative
policy. 43
Due process prohibits criminal stability from shifting the burden of proof to the
accused, punishing wholly passive conduct, defining crimes in vague or
overbroad language and failing to grant fair warning of illegal conduct. 44 Class
legislation is such legislation which denies rights to one which are accorded to
others, or inflicts upon one individual a more severe penalty than is imposed
upon another in like case offending. 45 Bills of attainder are legislative acts
which inflict punishment on individuals or members of a particular group
without a judicial trial. Essential to a bill of attainder are a specification of
certain individuals or a group of individuals, the imposition of a punishment,
penal or otherwise, and the lack of judicial trial. 46
Penalizing unlicensed and licensed recruitment agencies and their officers and
employees and their relatives employed in government agencies charged with
the enforcement of the law for illegal recruitment and imposing life
imprisonment for those who commit large scale illegal recruitment is not
offensive to the Constitution. The accused may be convicted of illegal
recruitment and large scale illegal recruitment only if, after trial, the prosecution
is able to prove all the elements of the crime charged. 47
The possibility that the officers and employees of the recruitment agencies,
which are members of the respondent, and their relatives who are employed in
the government agencies charged in the enforcement of the law, would be
indicted for illegal recruitment and, if convicted sentenced to life imprisonment
for large scale illegal recruitment, absent proof of irreparable injury, is not
sufficient on which to base the issuance of a writ of preliminary injunction to
suspend the enforcement of the penal provisions of Rep. Act No. 8042 and avert
any indictments under the law. 48 The normal course of criminal prosecutions
cannot be blocked on the basis of allegations which amount to speculations
about the future. 49
There is no allegation in the amended petition or evidence adduced by the
respondent that the officers and/or employees of its members had been
threatened with any indictments for violations of the penal provisions of Rep.
Act No. 8042. Neither is there any allegation therein that any of its members
and/or their officers and employees committed any of the acts enumerated in
Section 6(a) to (m) of the law for which they could be indicted. Neither did the
respondent adduce any evidence in the RTC that any or all of its members or a
great number of other duly licensed and registered recruitment agencies had to
stop their business operations because of fear of indictments under Sections 6
and 7 of Rep. Act No. 8042. The respondent merely speculated and surmised
that licensed and registered recruitment agencies would close shop and stop
business operations because of the assailed penal provisions of the law. A writ of
preliminary injunction to enjoin the enforcement of penal laws cannot be based
on such conjectures or speculations. The Court cannot take judicial notice that
the processing of deployment papers of overseas workers have come to a virtual
standstill at the POEA because of the assailed provisions of Rep. Act No. 8042.
The respondent must adduce evidence to prove its allegation, and the petitioners
accorded a chance to adduce controverting evidence.
The respondent even failed to adduce any evidence to prove irreparable injury
because of the enforcement of Section 10(1)(2) of Rep. Act No. 8042. Its fear or
apprehension that, because of time constraints, its members would have to
defend foreign employees in cases before the Labor Arbiter is based on
speculations. Even if true, such inconvenience or difficulty is hardly irreparable
injury.
The trial court even ignored the public interest involved in suspending the
enforcement of Rep. Act No. 8042 vis-à-vis the eleven licensed and registered
recruitment agencies represented by the respondent. In People v. Gamboa, 50 we
emphasized the primary aim of Rep. Act No. 8042:
Preliminarily, the proliferation of illegal job recruiters and syndicates
preying on innocent people anxious to obtain employment abroad is
one of the primary considerations that led to the enactment
of The Migrant Workers and Overseas Filipinos Act of 1995. Aimed
at affording greater protection to overseas Filipino workers, it is a
significant improvement on existing laws in the recruitment and
placement of workers for overseas employment. Otherwise known as
the Magna Carta of OFWs, it broadened the concept of illegal
recruitment under the Labor Code and provided stiffer penalties
thereto, especially those that constitute economic
sabotage, i.e., Illegal Recruitment in Large Scale and Illegal
Recruitment Committed by a Syndicate. 51

By issuing the writ of preliminary injunction against the petitioners sans any
evidence, the trial court frustrated, albeit temporarily, the prosecution of illegal
recruiters and allowed them to continue victimizing hapless and innocent people
desiring to obtain employment abroad as overseas workers, and blocked the
attainment of the salutary policies 52 embedded in Rep. Act No. 8042. It bears
stressing that overseas workers, land-based and sea-based, had been remitting to
the Philippines billions of dollars which over the years had propped the
economy.
In issuing the writ of preliminary injunction, the trial court considered
paramount the interests of the eleven licensed and registered recruitment
agencies represented by the respondent, and capriciously overturned the
presumption of the constitutionality of the assailed provisions on the barefaced
claim of the respondent that the assailed provisions of Rep. Act No. 8042 are
unconstitutional. The trial court committed a grave abuse of its discretion
amounting to excess or lack of jurisdiction in issuing the assailed order and writ
of preliminary injunction. It is for this reason that the Court issued a temporary
restraining order enjoining the enforcement of the writ of preliminary injunction
issued by the trial court.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The
assailed decision of the appellate court is REVERSED AND SET ASIDE. The
Order of the Regional Trial Court dated August 21, 1995 in Civil Case No.
Q-95-24401 and the Writ of Preliminary Injunction issued by it in the said case
on August 24, 1995 are NULLIFIED. No costs.
SO ORDERED.
(Executive Secretary v. Court of Appeals, G.R. No. 131719, [May 25, 2004],
|||

473 PHIL 27-64)

G.R. No. 119858. April 29, 2003.]

EDWARD C. ONG, petitioner, vs. THE COURT OF
APPEALS AND THE PEOPLE OF THE
PHILIPPINES, respondents.

Barbers Molina & Tamargo for petitioner.

SYNOPSIS

Petitioner was convicted of estafa for violation of the Trust Receipts Law by the
Regional Trial Court of Manila. He appealed his conviction to the Court of
Appeals which affirmed the trial court's decision in toto. Petitioner filed a
motion for reconsideration, but the same was denied. The Court of Appeals held
that although petitioner is neither a director nor an officer of ARMAGRI
International Corporation, he certainly comes within the term "employees or
other . . . persons therein responsible for the offense" in Section 13 of the Trust
Receipts Law. Hence, the present petition. Petitioner contended that the Court of
Appeals erred in finding him liable for the default of ARMAGRI, arguing that in
signing the trust receipts, he merely acted as an agent of ARMAGRI. Petitioner
asserted that nowhere in the trust receipts did he assume personal responsibility
for the undertakings of ARMAGRI which was the entrustee.
The Supreme Court affirmed petitioner's conviction. The Court ruled that
petitioner is the person responsible for the offense. First, petitioner is the
signatory to the trust receipts, the loan applications and the letters of credit.
Second, despite being the signatory to the trust receipts and the other documents,
petitioner did not explain or show why he is not responsible for the failure to turn
over the proceeds of the sale or account for the goods covered by the trust
receipts. The Court also held that there is no need to allege in the Informations in
what capacity petitioner participated to hold him responsible for the offense.
Under the Trust Receipts Law, it is sufficient to allege and establish the failure of
ARMAGRI, whom petitioner represented, to remit the proceeds or to return the
goods to the Bank.
SYLLABUS
1. MERCANTILE LAW; TRUST RECEIPTS LAW; WHEN VIOLATED;
PERSONS LIABLE FOR THE OFFENSE. — The Trust Receipts Lawis
violated whenever the entrustee fails to: (1) turn over the proceeds of the sale of
the goods, or (2) return the goods covered by the trust receipts if the goods are
not sold. The mere failure to account or return gives rise to the crime which
is malum prohibitum. There is no requirement to prove intent to defraud.
The Trust Receipts Law recognizes the impossibility of imposing the penalty of
imprisonment on a corporation. Hence, if the entrustee is a corporation, the law
makes the officers or employees or other persons responsible for the
offense liable to suffer the penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and other juridical entities cannot be put
to jail. Hence, the criminal liability falls on the human agent responsible for the
violation of the Trust Receipts Law. cIDHSC

2. ID.; ID.; PETITIONER, WHO ADMITTED BEING THE AGENT OF THE

ENTRUSTER, IS THE PERSON RESPONSIBLE FOR THE OFFENSE;
REASONS. — In the instant case, the Bank was the entruster while ARMAGRI
was the entrustee. Being the entrustee, ARMAGRI was the one responsible to
account for the goods or its proceeds in case of sale. However, the criminal
liability for violation of the Trust Receipts Law falls on the human agent
responsible for the violation. Petitioner, who admits being the agent of
ARMAGRI, is the person responsible for the offense for two reasons. First,
petitioner is the signatory to the trust receipts, the loan applications and the
letters of credit. Second, despite being the signatory to the trust receipts and the
other documents, petitioner did not explain or show why he is not responsible for
the failure to turn over the proceeds of the sale or account for the goods covered
by the trust receipts.
3. ID.; ID.; LAW OF AGENCY GOVERNING CIVIL CASES HAS NO
APPLICATION IN CRIMINAL CASES. — The Trust Receipts Lawexpressly
makes the corporation's' officers or employees or other persons therein
responsible for the offense liable to suffer the penalty of imprisonment. In the
instant case, petitioner signed the two trust receipts on behalf of ARMAGRI as
the latter could only act through its agents. When petitioner signed the trust
receipts, he acknowledged receipt of the goods covered by the trust receipts. In
addition, petitioner was fully aware of the terms and conditions stated in the trust
receipts, including the obligation to turn over the proceeds of the sale or return
the goods to the Bank. True, petitioner acted on behalf of ARMAGRI. However,
it is a well-settled rule that the law of agency governing civil cases has no
application in criminal cases. When a person participates in the commission of a
crime, he cannot escape punishment on the ground that he simply acted as an
agent of another party. In the instant case, the Bank accepted the trust receipts
signed by petitioner based on petitioner's representations. It is the fact of being
the signatory to the two trust receipts, and thus a direct participant to the crime,
which makes petitioner a person responsible for the offense.
4. ID.; ID.; NO NEED TO ALLEGE IN THE INFORMATIONS IN WHAT
CAPACITY PETITIONER PARTICIPATED TO HOLD HIM RESPONSIBLE
FOR THE OFFENSE; IT IS SUFFICIENT TO ALLEGE AND ESTABLISH
THE FAILURE OF THE ENTRUSTER, WHOM PETITIONER
REPRESENTED, TO REMIT THE PROCEEDS OR TO RETURN THE
GOODS. — Contrary to petitioner's assertions, the Informations explicitly
allege that petitioner, representing ARMAGRI, defrauded the Bank by failing to
remit the proceeds of the sale or to return the goods despite demands by the Bank,
to the latter's prejudice. As an essential element of estafa with abuse of
confidence, it is sufficient that the Informations specifically allege that the
entrustee received the goods. The Informations expressly state that ARMAGRI,
represented by petitioner, received the goods in trust for the Bank under the
express obligation to remit the proceeds of the sale or to return the goods upon
demand by the Bank. There is no need to allege in the Informations in what
capacity petitioner participated to hold him responsible for the offense. Under
the Trust Receipts Law, it is sufficient to allege and establish the failure of
ARMAGRI, whom petitioner represented, to remit the proceeds or to return the
goods to the Bank. When petitioner signed the trust receipts, he claimed he was
representing ARMAGRI. The corporation obviously acts only through its human
agents and it is the conduct of such agents which the law must deter. The
existence of the corporate entity does not shield from prosecution the agent who
knowingly and intentionally commits a crime at the instance of a corporation.
5. CRIMINAL LAW; ESTAFA; MERE FAILURE BY ENTRUSTEE TO
ACCOUNT FOR GOODS RECEIVED IN TRUST CONSTITUTES ESTAFA.
— It is a well-settled doctrine long before the enactment of the Trust Receipts
Law, that the failure to account, upon demand, for funds or property held in trust
is evidence of conversion or misappropriation. Under the law, mere failure by
the entrustee to account for the goods received in trust constitutes estafa:
The Trust Receipts Law punishes dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of public order. The mere failure to
deliver the proceeds of the sale or the goods if not sold constitutes a criminal
offense that causes prejudice not only to the creditor, but also to the public
interest. Evidently, the Bank suffered prejudice for neither money nor the goods
were turned over to the Bank. HcDSaT

6. ID.; ID.; CIVIL LIABILITY; PETITIONER'S CIVIL LIABILITY IS

LIMITED TO HIS SIGNED UNDERTAKING WHERE HE BOUND
HIMSELF TO PAY "JOINTLY AND SEVERALLY" A MONTHLY
PENALTY OF 1% IN CASE OF THE ENTRUSTER'S DEFAULT. —
In Prudential Bank, the Court ruled that the person signing the trust receipt for
the corporation is not solidarity liable with the entrustee-corporation for the civil
liability arising from the criminal offense. He may, however, be personally liable
if he bound himself to pay the debt of the corporation under a separate contract of
surety or guaranty. In the instant case, petitioner did not sign in his personal
capacity the solidary guarantee clause found on the dorsal portion of the trust
receipts. Petitioner placed his signature after the typewritten words "ARMCO
INDUSTRIAL CORPORATION" found at the end of the solidary guarantee
clause. Evidently, petitioner did not undertake to guaranty personally the
payment of the principal and interest of ARMAGRI's debt under the two trust
receipts. In contrast, petitioner signed the stamped additional undertaking
without any indication he was signing for ARMAGRI. Petitioner merely placed
his signature after the additional undertaking. Clearly, what petitioner signed in
his personal capacity was the stamped additional undertaking to pay a monthly
penalty of 1% of the total obligation in case of ARMAGRI's default. In the
additional undertaking, petitioner bound himself to pay "jointly and severally" a
monthly penalty of 1% in case of ARMAGRI's default. Thus, petitioner is liable
to the Bank for the stipulated monthly penalty of 1% on the outstanding amount
of each trust receipt. The penalty shall be computed from 15 July 1991, when
petitioner received the demand letter, until the debt is fully paid.
DECISION

CARPIO, J : p

The Case
Petitioner Edward C. Ong ("petitioner") filed this petition for review
on certiorari 1 to nullify the Decision 2 dated 27 October 1994 of the Court of
Appeals in CA-G.R. C.R. No. 14031, and its Resolution 3 dated 18 April 1995,
denying petitioner's motion for reconsideration. The assailed Decision
affirmed in toto petitioner's conviction 4 by the Regional Trial Court of Manila,
Branch 35, 5on two counts of estafa for violation of the Trust Receipts Law, 6 as
follows:
WHEREFORE, judgment is rendered: (1) pronouncing accused
EDWARD C. ONG guilty beyond reasonable doubt on two counts, as
principal on both counts, of ESTAFA defined under No. 1 (b) of
Article 315 of the Revised Penal Code in relation to Section 13
of Presidential Decree No. 115, and penalized under the 1st paragraph
of the same Article 315, and sentenced said accused in each count to
 TEN (10) YEARS of prision mayor, as minimum, to TWENTY (20)
YEARS of reclusion temporal, as maximum;

(2) ACQUITTING accused BENITO ONG of the crime charged

against him, his guilt thereof not having been established by the
People beyond reasonable doubt;

(3) Ordering accused Edward C. Ong to pay private complainant Solid

Bank Corporation the aggregate sum of P2,976,576.37 as reparation
for the damages said accused caused to the private complainant, plus
the interest thereon at the legal rate and the penalty of 1% per month,
both interest and penalty computed from July 15, 1991, until the
principal obligation is fully paid;

(4) Ordering Benito Ong to pay, jointly and severally with Edward C.
Ong, the private complainant the legal interest and the penalty of 1%
per month due and accruing on the unpaid amount of P1,449,395.71,
still owing to the private offended under the trust receipt Exhibit C,
computed from July 15, 1991, until the said unpaid obligation is fully
paid;

(5) Ordering accused Edward C. Ong to pay the costs of these two
actions.

SO ORDERED. 7

The Charge
Assistant City Prosecutor Dina P. Teves of the City of Manila charged petitioner
and Benito Ong with two counts of estafa under separate Informations dated 11
October 1991. DCcIaE

In Criminal Case No. 92-101989, the Information indicts petitioner and Benito
Ong of the crime of estafa committed as follows:
That on or about July 23, 1990, in the City of Manila, Philippines, the
said accused, representing ARMAGRI International Corporation,
conspiring and confederating together did then and there willfully,
unlawfully and feloniously defraud the SOLIDBANK Corporation
represented by its Accountant, DEMETRIO LAZARO, a corporation
duly organized and existing under the laws of the Philippines located
at Juan Luna Street, Binondo, this City, in the following manner, to
wit: the said accused received in trust from said SOLIDBANK
Corporation the following, to wit:
 10,000 bags of urea

valued at P2,050,000.00 specified in a Trust Receipt Agreement and

covered by a Letter of Credit No. DOM GD 90-009 in favor of the
Fertiphil Corporation; under the express obligation on the part of the
said accused to account for said goods to Solidbank Corporation
and/or remit the proceeds of the sale thereof within the period
specified in the Agreement or return the goods, if unsold immediately
or upon demand; but said accused, once in possession of said goods,
far from complying with the aforesaid obligation failed and refused
and still fails and refuses to do so despite repeated demands made
upon him to that effect and with intent to defraud, willfully,
unlawfully and feloniously misapplied, misappropriated and
converted the same or the value thereof to his own personal use and
benefit, to the damage and prejudice of the said Solidbank Corporation
in the aforesaid amount of P2,050,000.00 Philippine Currency.

Contrary to law.

In Criminal Case No. 92-101990, the Information likewise charges petitioner of

the crime of estafa committed as follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the
said accused, representing ARMAGRI International Corporation, did
then and there willfully, unlawfully and feloniously defraud the
SOLIDBANK Corporation represented by its Accountant,
DEMETRIO LAZARO, a corporation duly organized and existing
under the laws of the Philippines located at Juan Luna Street, Binondo,
this City, in the following manner, to wit: the said accused received in
trust from said SOLIDBANK Corporation the following goods, to wit:

125 pcs. Rear diff. assy RNZO 49"

50 pcs. Front & Rear diff assy. Isuzu Elof

85 units 1-Beam assy. Isuzu Spz

all valued at P2,532,500.00 specified in a Trust Receipt Agreement

and covered by a Domestic Letter of Credit No. DOM GD 90-006 in
favor of the Metropole Industrial Sales with address at P.O. Box AC
219, Quezon City; under the express obligation on the part of the said
accused to account for said goods to Solidbank Corporation and/or
remit the proceeds of the sale thereof within the period specified in the
Agreement or return the goods, if unsold immediately or upon demand;
but said accused, once in possession of said goods, far from
 complying with the aforesaid obligation failed and refused and still
fails and refuses to do so despite repeated demands made upon him to
that effect and with intent to defraud, willfully, unlawfully and
feloniously misapplied, misappropriated and converted the same or
the value thereof to his own personal use and benefit, to the damage
and prejudice of the said Solidbank Corporation in the aforesaid
amount of P2,532,500.00 Philippine Currency.

Contrary to law.

Arraignment and Plea

With the assistance of counsel, petitioner and Benito Ong both pleaded not guilty
when arraigned. Thereafter, trial ensued.
Version of the Prosecution
The prosecution's evidence disclosed that on 22 June 1990, petitioner,
representing ARMAGRI International Corporation 8("ARMAGRI"), applied for
a letter of credit for P2,532,500.00 with SOLIDBANK Corporation ("Bank") to
finance the purchase of differential assemblies from Metropole Industrial Sales.
On 6 July 1990, petitioner, representing ARMAGRI, executed a trust
receipt 9 acknowledging receipt from the Bank of the goods valued at
P2,532,500.00.
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied
for another letter of credit for P2,050,000.00 to finance the purchase of
merchandise from Fertiphil Corporation. The Bank approved the application,
opened the letter of credit and paid to Fertiphil Corporation the amount of
P2,050,000.00. On 23 July 1990, petitioner, signing for ARMAGRI, executed
another trust receipt 10 in favor of the Bank acknowledging receipt of the
merchandise.
Both trust receipts contained the same stipulations. Under the trust receipts,
ARMAGRI undertook to account for the goods held in trust for the Bank, or if
the goods are sold, to turn over the proceeds to the Bank. ARMAGRI also
undertook the obligation to keep the proceeds in the form of money, bills or
receivables as the separate property of the Bank or to return the goods upon
demand by the Bank, if not sold. In addition, petitioner executed the following
additional undertaking stamped on the dorsal portion of both trust receipts:
I/We jointly and severally agreed to any increase or decrease in the
interest rate which may occur after July 1, 1981, when the Central
Bank floated the interest rates, and to pay additionally the penalty of 1%
per month until the amount/s or installment/s due and unpaid under the
trust receipt on the reverse side hereof is/are fully paid. 11
 Petitioner signed alone the foregoing additional undertaking in the Trust
Receipt for P2,253,500.00, while both petitioner and Benito Ong signed the
additional undertaking in the Trust Receipt for P2,050,000.00. aESTAI

When the trust receipts became due and demandable, ARMAGRI failed to pay
or deliver the goods to the Bank despite several demand letters. 12 Consequently,
as of 31 May 1991, the unpaid account under the first trust receipt amounted to
P1,527,180.66, 13 while the unpaid account under the second trust receipt
amounted to P1,449,395.71. 14
Version of the Defense
After the prosecution rested its case, petitioner and Benito Ong, through counsel,
manifested in open court that they were waiving their right to present evidence.
The trial court then considered the case submitted for decision. 15
The Ruling of the Court of Appeals
Petitioner appealed his conviction to the Court of Appeals. On 27 October 1994,
the Court of Appeals affirmed the trial court's decision in toto. Petitioner filed a
motion for reconsideration but the same was denied by the Court of Appeals in
the Resolution dated 18 April 1995.
The Court of Appeals held that although petitioner is neither a director nor an
officer of ARMAGRI, he certainly comes within the term "employees or
other . . . persons therein responsible for the offense" in Section 13 of the Trust
Receipts Law. The Court of Appeals explained as follows:
It is not disputed that appellant transacted with the Solid Bank on
behalf of ARMAGRI. This is because the Corporation cannot by itself
transact business or sign documents it being an artificial person. It has
to accomplish these through its agents. A corporation has a personality
distinct and separate from those acting on its behalf. In the fulfillment
of its purpose, the corporation by necessity has to employ persons to
act on its behalf.

Being a mere artificial person, the law (Section 13, P.D. 115)
recognizes the impossibility of imposing the penalty of imprisonment
on the corporation itself. For this reason, it is the officers or employees
or other persons whom the law holds responsible. 16

The Court of Appeals ruled that what made petitioner liable was his failure to
account to the entruster Bank what he undertook to perform under the trust
receipts. The Court of Appeals held that ARMAGRI, which petitioner
represented, could not itself negotiate the execution of the trust receipts, go to the
Bank to receive, return or account for the entrusted goods. Based on the
representations of petitioner, the Bank accepted the trust receipts and,
consequently, expected petitioner to return or account for the goods entrusted. 17
The Court of Appeals also ruled that the prosecution need not prove that
petitioner is occupying a position in ARMAGRI in the nature of an officer or
similar position to hold him the "person(s) therein responsible for the offense."
The Court of Appeals held that petitioner's admission that his participation was
merely incidental still makes him fall within the purview of the law as one of the
corporation's "employees or other officials or persons therein responsible for the
offense." Incidental or not, petitioner was then acting on behalf of ARMAGRI,
carrying out the corporation's decision when he signed the trust receipts.
The Court of Appeals further ruled that the prosecution need not prove that
petitioner personally received and misappropriated the goods subject of the trust
receipts. Evidence of misappropriation is not required under the Trust Receipts
Law. To establish the crime of estafa, it is sufficient to show failure by the
entrustee to turn over the goods or the proceeds of the sale of the goods covered
by a trust receipt. Moreover, the bank is not obliged to determine if the goods
came into the actual possession of the entrustee. Trust receipts are issued to
facilitate the purchase of merchandise. To obligate the bank to examine the fact
of actual possession by the entrustee of the goods subject of every trust receipt
will greatly impede commercial transactions.

Hence, this petition. CSDcTH

The Issues
Petitioner seeks to reverse his conviction by contending that the Court of
Appeals erred:
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE
THAT PETITIONER ACTED AS AGENT AND SIGNED
FOR THE ENTRUSTEE CORPORATION, PETITIONER
WAS NECESSARILY THE ONE RESPONSIBLE FOR THE
OFFENSE; AND

2. IN CONVICTING PETITIONER UNDER

SPECIFICATIONS NOT ALLEGED IN THE
INFORMATION.

The Ruling of the Court

The Court sustains the conviction of petitioner.
 First Assigned Error:
Petitioner comes within the purview of
Section 13 of the Trust Receipts Law.
Petitioner contends that the Court of Appeals erred in finding him liable for the
default of ARMAGRI, arguing that in signing the trust receipts, he merely acted
as an agent of ARMAGRI. Petitioner asserts that nowhere in the trust receipts
did he assume personal responsibility for the undertakings of ARMAGRI which
was the entrustee.
Petitioner's arguments fail to persuade us.
The pivotal issue for resolution is whether petitioner comes within the purview
of Section 13 of the Trust Receipts Law which provides:
. . .. If the violation is committed by a corporation, partnership,
association or other juridical entities, the penalty provided for in this
Decree shall be imposed upon the directors, officers, employees or
other officials or persons therein responsible for the offense, without
prejudice to the civil liabilities arising from the offense. (Emphasis
supplied)

We hold that petitioner is a person responsible for violation of the Trust Receipts
Law.
The relevant penal provision of the Trust Receipts Law reads:
SEC. 13. Penalty Clause. — The failure of the entrustee to turn over
the proceeds of the sale of the goods, documents or instruments
covered by a trust receipt to the extent of the amount owing to the
entruster or as appears in the trust receipt or to return said goods,
documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime
of estafa, punishable under the provisions of Article Three Hundred
and Fifteen, Paragraph One (b), of Act Numbered Three Thousand
Eight Hundred and Fifteen, as amended, otherwise known as the
Revised Penal Code. If the violation or offense is committed by a
corporation, partnership, association or other juridical entities, the
penalty provided for in this Decree shall be imposed upon the
directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities
arising from the criminal offense. (Emphasis supplied)

The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn over
the proceeds of the sale of the goods, or (2) return the goods covered by the trust
receipts if the goods are not sold. 18 The mere failure to account or return gives
rise to the crime which is malum prohibitum. 19 There is no requirement to prove
intent to defraud. 20
The Trust Receipts Law recognizes the impossibility of imposing the penalty of
imprisonment on a corporation. Hence, if the entrustee is a corporation, the law
makes the officers or employees or other persons responsible for the
offense liable to suffer the penalty of imprisonment. The reason is obvious:
corporations, partnerships, associations and other juridical entities cannot be put
to jail. Hence, the criminal liability falls on the human agent responsible for the
violation of the Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the
entrustee. Being the entrustee, ARMAGRI was the one responsible to account
for the goods or its proceeds in case of sale. However, the criminal liability for
violation of the Trust Receipts Law falls on the human agent responsible for the
violation. Petitioner, who admits being the agent of ARMAGRI, is the person
responsible for the offense for two reasons. First, petitioner is the signatory to the
trust receipts, the loan applications and the letters of credit. Second, despite
being the signatory to the trust receipts and the other documents, petitioner did
not explain or show why he is not responsible for the failure to turn over the
proceeds of the sale or account for the goods covered by the trust receipts. HcaATE

The Bank released the goods to ARMAGRI upon execution of the trust receipts
and as part of the loan transactions of ARMAGRI. The Bank had a right to
demand from ARMAGRI payment or at least a return of the goods. ARMAGRI
failed to pay or return the goods despite repeated demands by the Bank.
It is a well-settled doctrine long before the enactment of the Trust Receipts Law,
that the failure to account, upon demand, for funds or property held in trust is
evidence of conversion or misappropriation. 21 Under the law, mere failure by
the entrustee to account for the goods received in trust constitutes estafa.
The Trust Receipts Law punishes dishonesty and abuse of confidence in the
handling of money or goods to the prejudice of public order. 22 The mere failure
to deliver the proceeds of the sale or the goods if not sold constitutes a criminal
offense that causes prejudice not only to the creditor, but also to the public
interest. 23Evidently, the Bank suffered prejudice for neither money nor the
goods were turned over to the Bank.
The Trust Receipts Law expressly makes the corporation's officers or employees
or other persons therein responsible for the offense liable to suffer the penalty of
imprisonment. In the instant case, petitioner signed the two trust receipts on
behalf of ARMAGRI 24 as the latter could only act through its agents. When
petitioner signed the trust receipts, he acknowledged receipt of the goods
covered by the trust receipts. In addition, petitioner was fully aware of the terms
and conditions stated in the trust receipts, including the obligation to turn over
the proceeds of the sale or return the goods to the Bank, to wit:
Received, upon the TRUST hereinafter mentioned from SOLIDBANK
CORPORATION (hereafter referred to as the BANK), the following
goods and merchandise, the property of said BANK specified in the
bill of lading as follows: . . . and in consideration thereof, I/we hereby
agree to hold said goods in Trust for the said BANK and as its
property with liberty to sell the same for its account but without
authority to make any other disposition whatsoever of the said goods
or any part thereof (or the proceeds thereof) either by way of
conditional sale, pledge, or otherwise.

In case of sale I/we agree to hand the proceeds as soon as received to

the BANK to apply against the relative acceptance (as described above)
and for the payment of any other indebtedness of mine/ours to
SOLIDBANK CORPORATION.

xxx xxx xxx.

I/we agree to keep said goods, manufactured products, or proceeds

thereof, whether in the form of money or bills, receivables, or
accounts, separate and capable of identification as the property of the
BANK.

I/we further agree to return the goods, documents, or instruments in

the event of their non-sale, upon demand or within ____ days, at the
option of the BANK.

xxx xxx xxx. (Emphasis supplied) 25

True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled

rule that the law of agency governing civil cases has no application in
criminal cases. When a person participates in the commission of a crime, he
cannot escape punishment on the ground that he simply acted as an agent of
another party. 26 In the instant case, the Bank accepted the trust receipts
signed by petitioner based on petitioner's representations. It is the fact of
being the signatory to the two trust receipts, and thus a direct participant to
the crime, which makes petitioner a person responsible for the offense.
Petitioner could have raised the defense that he had nothing to do with the failure
to account for the proceeds or to return the goods. Petitioner could have shown
that he had severed his relationship with ARMAGRI prior to the loss of the
proceeds or the disappearance of the goods. Petitioner, however, waived his right
to present any evidence, and thus failed to show that he is not responsible for the
violation of the Trust Receipts Law.
There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed the
two trust receipts 27 on behalf of ARMAGRI. Petitioner, acting on behalf of
ARMAGRI, expressly acknowledged receipt of the goods in trust for the Bank.
ARMAGRI failed to comply with its undertakings under the trust receipts. On
the other hand, petitioner failed to explain and communicate to the Bank what
happened to the goods despite repeated demands from the Bank. As of 13 May
1991, the unpaid account under the first and second trust receipts amounted to
P1,527,180.60 and P1,449,395.71, respectively. 28
Second Assigned Error:
Petitioner's conviction under the allegations
in the two Informations for Estafa.
Petitioner argues that he cannot be convicted on a new set of facts not alleged in
the Informations. Petitioner claims that the trial court's decision found that it was
ARMAGRI that transacted with the Bank, acting through petitioner as its agent.
Petitioner asserts that this contradicts the specific allegation in the Informations
that it was petitioner who was constituted as the entrustee and was thus obligated
to account for the goods or its proceeds if sold. Petitioner maintains that this
absolves him from criminal liability.
We find no merit in petitioner's arguments.
Contrary to petitioner's assertions, the Informations explicitly allege that
petitioner, representing ARMAGRI, defrauded the Bank by failing to remit the
proceeds of the sale or to return the goods despite demands by the Bank, to the
latter's prejudice. As an essential element of estafa with abuse of confidence, it is
sufficient that the Informations specifically allege that the entrustee received the
goods. The Informations expressly state that ARMAGRI, represented by
petitioner, received the goods in trust for the Bank under the express obligation
to remit the proceeds of the sale or to return the goods upon demand by the Bank.
There is no need to allege in the Informations in what capacity petitioner
participated to hold him responsible for the offense. Under the Trust Receipts
Law, it is sufficient to allege and establish the failure of ARMAGRI, whom
petitioner represented, to remit the proceeds or to return the goods to the
Bank. SAHEIc

When petitioner signed the trust receipts, he claimed he was representing

ARMAGRI. The corporation obviously acts only through its human agents and
it is the conduct of such agents which the law must deter. 29 The existence of the
corporate entity does not shield from prosecution the agent who knowingly and
intentionally commits a crime at the instance of a corporation. 30
 Penalty for the crime of Estafa.
The penalty for the crime of estafa is prescribed in Article 315 of the Revised
Penal Code, as follows:
1st. The penalty of prision correccional in its maximum period
to prision mayor in its minimum period, if the amount of the fraud is
over 12,000 pesos but does not exceed 22,000 pesos; and if such
amount exceeds the latter sum, the penalty provided in this paragraph
shall be imposed in its maximum period, adding one year for each
additional 10,000 pesos; but the total penalty which may be imposed
should not exceed twenty years. . . ..

In the instant case, the amount of the fraud in Criminal Case No. 92-101989 is
P1,527,180.66. In Criminal Case No. 92-101990, the amount of the fraud is
P1,449,395.71. Since the amounts of the fraud in each estafa exceeds
P22,000.00, the penalty of prision correccional maximum to prision
mayor minimum should be imposed in its maximum period as prescribed in
Article 315 of the Revised Penal Code. The maximum indeterminate sentence
should be taken from this maximum period which has a duration of 6 years, 8
months and 21 days to 8 years. One year is then added for each additional
P10,000.00, but the total penalty should not exceed 20 years. Thus, the
maximum penalty for each count of estafa in this case should be 20 years.
Under the Indeterminate Sentence Law, the minimum indeterminate sentence
can be anywhere within the range of the penalty next lower in degree to the
penalty prescribed by the Code for the offense. The minimum range of the
penalty is determined without first considering any modifying circumstance
attendant to the commission of the crime and without reference to the periods
into which it may be subdivided. 31 The modifying circumstances are considered
only in the imposition of the maximum term of the indeterminate
sentence. 32 Since the penalty prescribed in Article 315 is prision
correccional maximum to prision mayor minimum, the penalty next lower in
degree would be prision correccional minimum to medium. Thus, the minimum
term of the indeterminate penalty should be anywhere within 6 months and 1 day
to 4 years and 2 months. 33
Accordingly, the Court finds a need to modify in part the penalties imposed by
the trial court. The minimum penalty for each count of estafa should be reduced
to four (4) years and two (2) months of prision correccional.
As for the civil liability arising from the criminal offense, the question is whether
as the signatory for ARMAGRI, petitioner is personally liable pursuant to the
provision of Section 13 of the Trust Receipts Law.
In Prudential Bank v. Intermediate Appellate Court, 34 the Court discussed the
imposition of civil liability for violation of the Trust Receipts Law in this wise:
It is clear that if the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty shall
be imposed upon the directors, officers, employees or other officials
or persons responsible for the offense. The penalty referred to
is imprisonment, the duration of which would depend on the amount
of the fraud as provided for in Article 315 of the Revised Penal Code.
The reason for this is obvious: corporation, partnership, association or
other juridical entities cannot be put in jail. However, it is these
entities which are made liable for the civil liabilities arising from the
criminal offense. This is the import of the clause 'without prejudice to
the civil liabilities arising from the criminal offense.' (Emphasis
supplied)

In Prudential Bank, the Court ruled that the person signing the trust receipt
for the corporation is not solidarily liable with the entrustee-corporation for
the civil liability arising from the criminal offense. He may, however, be
personally liable if he bound himself to pay the debt of the corporation under
a separate contract of surety or guaranty.
In the instant case, petitioner did not sign in his personal capacity the solidary
guarantee clause 35 found on the dorsal portion of the trust receipts. Petitioner
placed his signature after the typewritten words "ARMCO INDUSTRIAL
CORPORATION" found at the end of the solidary guarantee clause. Evidently,
petitioner did not undertake to guaranty personally the payment of the principal
and interest of ARMAGRI's debt under the two trust receipts.
In contrast, petitioner signed the stamped additional undertaking without any
indication he was signing for ARMAGRI. Petitioner merely placed his signature
after the additional undertaking. Clearly, what petitioner signed in his personal
capacity was the stamped additional undertaking to pay a monthly penalty of 1%
of the total obligation in case of ARMAGRI's default.
In the additional undertaking, petitioner bound himself to pay "jointly and
severally" a monthly penalty of 1% in case of ARMAGRI's default. 36 Thus,
petitioner is liable to the Bank for the stipulated monthly penalty of 1% on the
outstanding amount of each trust receipt. The penalty shall be computed from 15
July 1991, when petitioner received the demand letter, 37 until the debt is fully
paid.
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In
Criminal Case No. 92-101989 and in Criminal Case No. 92-101990, for each
count of estafa, petitioner EDWARD C. ONG is sentenced to an indeterminate
penalty of imprisonment from four (4) years and two (2) months of prision
correctional as MINIMUM, to twenty (20) years of reclusion temporal as
MAXIMUM. Petitioner is ordered to pay SOLIDBANK CORPORATION the
stipulated penalty of 1% per month on the outstanding balance of the two trust
receipts to be computed from 15 July 1991 until the debt is fully paid.
SO ORDERED.
(Ong v. Court of Appeals, G.R. No. 119858, [April 29, 2003], 449 PHIL
|||

691-711)

[G.R. No. 116123. March 13, 1997.]

SERGIO F. NAGUIAT, doing business under the name and
style SERGIO F. NAGUIAT ENT., INC., & CLARK FIELD
TAXI, INC., petitioners, vs. NATIONAL LABOR
RELATIONS COMMISSION (THIRD DIVISION),
NATIONAL ORGANIZATION OF WORKINGMEN and
its members, LEONARDO T. GALANG, et al., respondents.

Villanueva, De Leon, Hipolito & Associates Law Offices for petitioners.

The Solicitor General for respondents.
SYLLABUS

1.REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; WHEN A

LABOR CASE MAY REACH THE SUPREME COURT; GROUNDS
THEREOF. — Firmly, we reiterate the rule that in a petition for certiorari filed
pursuant to Rule 65 of the Rules of Court, which is the only way a labor case may
reach the Supreme Court, the petitioner/s must clearly show that the NLRC acted
without or in excess of jurisdiction or with grave abuse of discretion.
2.ID.; EVIDENCE; FINDINGS OF FACTS OF AN ADMINISTRATE
AGENCY OR A QUASI-JUDICIAL BODY; BINDING UPON THE
SUPREME COURT; EXCEPTION. — Long-standing and well-settled in
Philippine jurisprudence is the judicial dictum that findings of facts of
administrative agencies and quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded
not only great respect but even finality, and are binding upon this Court unless
there is a showing of grave abuse of discretion, or where it is clearly shown that
they were arrived at arbitrarily or in disregard of the evidence on record.
Decisions, however concisely written, must distinctly and clearly set forth the
facts and law upon which they are based. This rule applies as well to dispositions
by quasi-judicial and administrative bodies.
3.LABOR AND SOCIAL LEGISLATION; LABOR CODE;
RETRENCHMENT; WHEN A COMPANY MAY BE EXEMPTED FROM
PAYMENT OF SEPARATION PAY; NOT APPLICABLE IN CASE AT BAR.
— Well-settled is the rule that business losses or financial reverses, in order to
sustain retrenchment of personnel or closure of business and warrant exemption
from payment of separation pay, must be proved with clear and satisfactory
evidence. The records, however, are devoid of such evidence. The labor arbiter,
as affirmed by NLRC, correctly found that petitioners stopped their taxi business
within Clark Air Base because of the phase-out of U.S. military presence thereat.
It was not due to any great financial loss because petitioners' taxi business was
earning profitably at the time of its closure. With respect to the amount of
separation pay that should be granted, Article 283 of the Labor Code provides:
". . . In case of retrenchment to prevent losses and in case of closures or cessation
of operations of establishment or undertaking not due to serious business losses
or financial reverses, the separation pay shall be equivalent to one (1) month pay
or at least one-half (½) month pay for every year of service, whichever is
higher. A fraction of at least six (6) months shall be-considered one (1) whole
year."
4.ID.; ID.; EMPLOYMENT; LABOR-ONLY CONTRACTING AND
INDEPENDENT CONTRACTORS, DISTINGUISHED. — Labor-only
contracting exists where: (1) the person supplying workers to an employer does
not have substantial capital or investment in the form of tools, equipment,
machinery, and work premises, among others; and (2) the workers recruited and
placed by such person are performing activities which are directly related to the
principal business of the employer. Independent contractors, meanwhile, are
those who exercise independent employment, contracting to do a piece of work
according to their own methods without being subject to control of their
employer except as to the result of their work.
5.COMMERCIAL LAW; CORPORATION; WHEN A STOCKHOLDER
MAY BE HELD LIABLE FOR CORPORATE TORT; CASE AT BAR. — Our
jurisprudence is wanting as to the definite scope of "corporate tort." Essentially,
"tort" consists in the violation of a right given or the omission of a duty imposed
by law. Simply stated, tort is a breach of a legal duty. Article 283 of the Labor
Code mandates the employer to grant separation pay to employees in case of
closure or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, which is the condition obtaining at
bar. CFTI failed to comply with this law-imposed duty or obligation.
Consequently, its stockholder who was actively engaged in the management or
operation of the business should be held personally liable. Furthermore, in MAM
Realty Development vs. NLRC, 244 SCRA 797, June 2, 1995, the Court
recognized that a director or officer may still be held solidarily liable with a
corporation by specific provision of law. thus: ". . . A corporation, being a
juridical entity, may act only through its directors, officers and employees.
Obligations incurred by them, acting as such corporate agents, are not theirs but
the direct accountabilities of the corporation they represent. True, solidary
liabilities may at times be incurred but only when exceptional circumstances
warrant such as, generally, in the following cases: . . . 4. When a director, trustee
or officer is made, by specific provision of law, personally liable for his
corporate action." As pointed out earlier, the fifth paragraph of Section 100 of
the Corporation Code specifically imposes personal liability upon the
stockholder actively managing or operating the business and affairs of the close
corporation. The Court here finds no application to the rule that a corporate
officer cannot be held solidarity liable with a corporation in the absence of
evidence that he had acted in bad faith or with malice. In the present case, Sergio
Naguiat is held solidarily liable for corporate tort because he had actively
engaged in the management and operation of CFTI, a close corporation.
DECISION

PANGANIBAN, J : p

Are private respondent-employees of petitioner Clark Field Taxi, Inc., who were
separated from service due to the closure of Clark Air Base, entitled to
separation pay and, if so, in what amount? Are officers of corporations ipso
facto liable jointly and severally with the companies they represent for the
payment of separation pay?
These questions are answered by the Court in resolving this petition for
certiorari under Rule 65 of the Rules of Court assailing the Resolutions of the
National Labor Relations Commission (Third Division) 1 promulgated on
February 28, 1994, 2 and May 31, 1994. 3 The February 28, 1994 Resolution
affirmed with modifications the decision 4 of Labor Arbiter Ariel C. Santos in
NLRC Case No. RAB-III-12-2477-91. The second Resolution denied the
motion for reconsideration of herein petitioners.
The NLRC modified the decision of the labor arbiter by granting
separation pay to herein individual respondents in the increased amount of
 US$120.00 for every year of service or its peso equivalent, and holding Sergio
F. Naguiat Enterprises, Inc., Sergio F. Naguiat and Antolin T. Naguiat, jointly
and severally liable with Clark Field Taxi, Inc. ("CFTI").
The Facts
The following facts are derived from the records of the case:
Petitioner CFTI held a concessionaire's contract with the Army Air
Force Exchange Services ("AAFES") for the operation of taxi services within
Clark Air Base. Sergio F. Naguiat was CFTI's president, while Antolin T.
Naguiat was its vice-president. Like Sergio F. Naguiat Enterprises,
Incorporated ("Naguiat Enterprises"), a trading firm, it was a family-owned
corporation.
Individual respondents were previously employed by CFTI as taxicab
drivers. During their employment, they were required to pay a daily "boundary
fee" in the amount of US$26.50 for those working from 1:00 a.m. to 12:00
noon, and US$27.00 for those working from 12:00 noon to 12:00 midnight. All
incidental expenses for the maintenance of the vehicles they were driving were
accounted against them, including gasoline expenses.
The drivers worked at least three to four times a week, depending on the
availability of taxicabs. They earned not less than US$15.00 daily. In excess of
that amount, however, they were required to make cash deposits to the
company, which they could later withdraw every fifteen days.
Due to the phase-out of the US military bases in the Philippines, from
which Clark Air Base was not spared, the AAFES was dissolved, and the
services of individual respondents were officially terminated on November 26,
1991.
The AAFES Taxi Drivers Association ("drivers' union"), through its
local president, Eduardo Castillo, and CFTI held negotiations as regards
separation benefits that should be awarded in favor of the drivers. They arrived
at an agreement that the separated drivers will be given P500.00 for every year
of service as severance pay. Most of the drivers accepted said amount in
December 1991 and January 1992. However, individual respondents herein
refused to accept theirs.
Instead, after disaffiliating themselves from the drivers' union,
individual respondents, through the National Organization of Workingmen
("NOWM"), a labor organization which they subsequently joined, filed a
complaint 5 against "Sergio F. Naguiat doing business under the name and
style Sergio F. Naguiat Enterprises, Inc., Army-Air Force Exchange Services
(AAFES) with Mark Hooper as Area Service Manager, Pacific Region, and
 AAFES Taxi Drivers Association with Eduardo Castillo as President," for
payment of separation pay due to termination/phase-out. Said complaint was
later amended 6 to include additional taxi drivers who were similarly situated
as complainants, and CFTI with Antolin T. Naguiat as vice president and
general manager, as party respondent.
In their complaint, herein private respondents alleged that they were
regular employees of Naguiat Enterprises, although their individual
applications for employment were approved by CFTI. They claimed to have
been assigned to Naguiat Enterprises after having been hired by CFTI, and that
the former thence managed, controlled and supervised their employment. They
averred further that they were entitled to separation pay based on their latest
daily earnings of US$15.00 for working sixteen (16) days a month.

In their position paper submitted to the labor arbiter, herein petitioners

claimed that the cessation of business of CFTI on November 26, 1991, was due
to "great financial losses and lost business opportunity" resulting from the
phase-out of Clark Air Base brought about by the Mt. Pinatubo eruption and
the expiration of the RP-US military bases agreement. They admitted that
CFTI had agreed with the drivers' union, through its President Eduardo Castillo
who claimed to have had blanket authority to negotiate with CFTI in behalf of
union members, to grant its taxi driver-employees separation pay equivalent to
P500.00 for every year of service.
The labor arbiter, finding the individual complainants to be regular
workers of CFTI, ordered the latter to pay them P1,200.00 for every year of
service "for humanitarian consideration," setting aside the earlier agreement
between CFTI and the drivers' union of P500.00 for every year of service. The
labor arbiter rejected the allegation of CFTI that it was forced to close business
due to "great financial losses and lost business opportunity" since, at the time it
ceased operations, CFTI was profitably earning and the cessation of its
business was due to the untimely closure of Clark Air Base. In not awarding
separation pay in accordance with the Labor Code, the labor-arbiter explained:
"To allow respondents exemption from its (sic) obligation to pay
separation pay would be inhuman to complainants but to impose a
monetary obligation to an employer whose profitable business was
abruptly shot (sic) down by force majeure would be unfair and unjust
to say the least." 7

and thus, simply awarded an amount for "humanitarian consideration."

Herein individual private respondents appealed to the NLRC. In its Resolution,
the NLRC modified the decision of the labor arbiter by granting separation pay
to the private respondents. The concluding paragraphs of the NLRC Resolution
read:
"The contention of complainant is partly correct. One-half month
salary should be US$120.00 but this amount can not be paid to the
complainant in U.S. Dollar which is not the legal tender in the
Philippines. Paras, in commenting on Art. 1249 of the New Civil Code,
defines legal tender as 'that which a debtor may compel a creditor to
accept in payment of the debt. The complainants who are the creditors
in this instance can be compelled to accept the Philippine peso which
is the legal tender, in which case, the table of conversion (exchange
rate) at the time of payment or satisfaction of the judgment should be
used. However, since the choice is left to the debtor, (respondents)
they may choose to pay in US dollar.' (Phoenix Assurance Co. vs.
Macondray & Co. Inc., L-25048, May 13, 1975)

In discharging the above obligations, Sergio F. Naguiat Enterprises,

which is headed by Sergio F. Naguiat and Antolin Naguiat, father and
son at the same time the President and Vice-President and General
Manager, respectively, should be joined as indispensable party whose
liability is joint and several. (Sec. 7, Rule 3, Rules of Court)" 8

As mentioned earlier, the motion for reconsideration of herein petitioners was

denied by the NLRC. Hence, this petition with prayer for issuance of a
temporary restraining order. Upon posting by the petitioners of a surety bond, a
temporary restraining order 9 was issued by this Court enjoining execution of the
assailed Resolutions.
Issues
The petitioners raise the following issues before this Court for resolution:
"I.Whether or not public respondent NLRC (3rd Div.) committed
grave abuse of discretion amounting to lack of jurisdiction in issuing
the appealed resolution;

II.Whether or not Messrs. Teofilo Rafols and Romeo N. Lopez could

validly represent herein private respondents; and,

III.Whether or not the resolution issued by public respondent is

contrary to law." 10

Petitioners also submit two additional issues by way of a supplement 11 to their

petition, to Wit: that Petitioners Sergio F. Naguiat and Antolin Naguiat were
denied due process; and that petitioners were not furnished copies of private
respondents' appeal to the NLRC. As to the procedural lapse of insufficient
copies of the appeal, the proper forum before which petitioners should have
raised it is the NLRC. They, however, failed to question this in their motion for
reconsideration. As a consequence, they are deemed to have waived the same
and voluntarily submitted themselves to the jurisdiction of the appellate body.
Anent the first issue raised in their original petition, petitioners contend
that NLRC committed grave abuse of discretion amounting to lack or excess of
jurisdiction in unilaterally increasing the amount of severance pay granted by
the labor arbiter. They claim that this was not supported by substantial
evidence since it was based simply on the self-serving allegation of
respondents that their monthly take-home pay was not lower than $240.00.
On the second issue, petitioners aver that NOWM cannot make legal
representations in behalf of individual respondents who should, instead, be
bound by the decision of the union (AAFES Taxi Drivers Association) of
which they were members.
As to the third issue, petitioners incessantly insist that Sergio F. Naguiat
Enterprises, Inc. is a separate and distinct juridical entity which cannot be held
jointly and severally liable for the obligations of CFTI. And similarly, Sergio F.
Naguiat and Antolin Naguiat were merely officers and stockholders of CFTI
and, thus, could not be held personally accountable for corporate debts.
Lastly, Sergio and Antolin Naguiat assail the Resolution of NLRC
holding them solidarily liable despite not having been impleaded as parties to
the complaint.
Individual respondents filed a comment separate from that of NOWM.
In sum, both aver that petitioners had the opportunity but failed to refute, the
taxi drivers' claim of having an average monthly earning of $240.00; that
individual respondents became members of NOWM after disaffiliating
themselves from the AAFES Taxi Drivers Association which, through the
manipulations of its President Eduardo Castillo, unconscionably compromised
their separation pay; and that Naguiat Enterprises, being their indirect
employer, is solidarily liable under the law for violation of the Labor Code, in
this case, for nonpayment of their separation pay.
The Solicitor General unqualifiedly supports the allegations of private
respondents. In addition, he submits that the separate personalities of
respondent corporations and their officers should be disregarded and
considered one and the same as these were used to perpetrate injustice to their
employees.
The Court's Ruling
As will be discussed below, the petition is partially meritorious.
 First Issue: Amount of Separation Pay
Firmly, we reiterate the rule that in a petition for certiorari filed pursuant to Rule
65 of the Rules of Court, which is the only way a labor case may reach the
Supreme Court, the petitioner/s must clearly show that the NLRC acted without
or in excess of jurisdiction or with grave abuse of discretion. 12
Long-standing and well-settled in Philippine jurisprudence is the judicial dictum
that findings of fact of administrative agencies and quasi-judicial bodies, which
have acquired expertise because their jurisdiction is confined to specific matters,
are generally accorded not only great respect but even finality; and are binding
upon this Court unless there is a showing of grave abuse of discretion, or where it
is clearly shown that they were arrived at arbitrarily or in disregard of the
evidence on record. 13
Nevertheless, this Court carefully perused the records of the instant case if only
to determine whether public respondent committed grave abuse of discretion,
amounting to lack of jurisdiction, in granting the clamor of private respondents
that their separation pay should be based on the amount of $240.00, allegedly
their minimum monthly earnings as taxi drivers of petitioners.
In their amended complaint before the Regional Arbitration Branch in San
Fernando, Pampanga, herein private respondents set forth in detail the work
schedule and financial arrangement they had with their employer. Therefrom
they inferred that their monthly take-home pay amounted to not less than
$240.00. Herein petitioners did not bother to refute nor offer any evidence to
controvert said allegations. Remaining undisputed, the labor arbiter adopted
such facts in his decision. Petitioners did not even appeal from the decision of the
labor arbiter nor manifest any error in his findings and conclusions. Thus,
petitioners are in estoppel for not having questioned such facts when they had all
opportunity to do so. Private respondents, like petitioners, are bound by the
factual findings of Respondent Commission.
Petitioners also claim that the closure of their taxi business was due to great
financial losses brought about by the eruption of Mt. Pinatubo which made the
roads practically impassable to their taxicabs. Likewise well-settled is the rule
that business losses or financial reverses, in order to sustain retrenchment of
personnel or closure of business and warrant exemption from payment of
separation pay, must be proved with clear and satisfactory evidence. 14 The
records, however, are devoid of such evidence. Cdasia

The labor arbiter; as affirmed by NLRC, correctly found that petitioners stopped
their taxi business within Clark Air Base because of the phase-out of U.S.
military presence thereat. It was not due to any great financial loss because
petitioners' taxi business was earning profitably at the time of its closure.
With respect to the amount of separation pay that should be granted, Article 283
of the Labor Code provides:
". . . In case of retrenchment to prevent losses and in cases of closures
or cessation of operations of establishment or undertaking not due to
serious business losses or financial reverses, the separation pay shall
be equivalent to one (1) month pay or at least one-half (½) month
pay for every year of service, whichever is higher. A fraction of at
least six (6) months shall be considered one (1 ) whole year."

Considering the above, we find that NLRC did not commit grave abuse of
discretion in ruling that individual respondents were entitled to separation
pay 15 in the amount $120.00 (one-half of $240.00 monthly pay) or its peso
equivalent for every year of service.
Second Issue: NOWM's Personality to
Represent Individual Respondents-Employees
On the question of NOWM's authority to represent private respondents, we hold
petitioners in estoppel for not having seasonably raised this issue before the
labor arbiter or the NLRC. NOWM was already a party-litigant as the
organization representing the taxi driver-complainants before the labor arbiter.
But petitioners who were party-respondents in said complaint did not assail the
juridical personality of NOWM and the validity of its representations in behalf
of the complaining taxi drivers before the quasi-judicial bodies. Therefore, they
are now estopped from raising such question before this Court. In any event,
petitioners acknowledged before this Court that the taxi drivers allegedly
represented by NOWM, are themselves parties in this case. 16
Third Issue: Liability of Petitioner-
Corporations and Their Respective Officers
The resolution of this issue involves another factual finding that Naguiat
Enterprises .actually managed, supervised and controlled employment terms of
the taxi drivers, making it their indirect employer. As adverted to earlier, factual
findings of quasi-judicial bodies are binding upon the court in the absence of a
showing of grave abuse of discretion.
Unfortunately, the NLRC did not discuss or give any explanation for
holding Naguiat Enterprises and its officers jointly and severally liable in
 discharging CFTI's liability for payment of separation pay. We again remind
those concerned that decisions, however concisely written, must distinctly and
clearly set forth the facts and law upon which they are based. 17 This rule
applies as well to dispositions by quasi-judicial and administrative bodies.
Naguiat Enterprises Not Liable
In impleading Naguiat Enterprises as solidarily liable for the obligations of CFTI,
respondents rely on Articles 106, 18 107 19 and 109 20 of the Labor Code.
Based on factual submissions of the parties, the labor arbiter, however,
found that individual respondents were regular employees of CFTI who
received wages on a boundary or commission basis.
We find no reason to make a contrary finding. Labor-only contracting
exists where: (1) the person supplying workers to an employer does not have
substantial capital or investment in the form of tools, equipment, machinery,
and work premises, among others; and (2) the workers recruited and placed by
such person are performing activities which are directly related to the principal
business of the employer. 21 Independent contractors, meanwhile, are those
who exercise independent employment, contracting to do a piece of work
according to their own methods without being subject to control of their
employer except as to the result of their work. 22
From the evidence proffered by both parties, there is no substantial
basis to hold that Naguiat Enterprises is an indirect employer of individual
respondents much less a labor only contractor. On the contrary, petitioners
submitted documents such as the drivers' applications for employment with
CFTI, 23 and social security remittances 24 and payroll 25 of Naguiat
Enterprises showing that none of the individual respondents were its
employees. Moreover, in the contract 26 between CFTI and AAFES, the former,
as concessionaire, agreed to purchase from AAFES for a certain amount within
a specified period a fleet of vehicles to be "ke(pt) on the road" by CFTI,
pursuant to their concessionaire's contract. This indicates that CFTI became
the owner of the taxicabs which became the principal investment and asset of
the company.
Private respondents failed to substantiate their claim that Naguiat
Enterprises managed, supervised and controlled their employment. It appears
that they were confused on the personalities of Sergio F. Naguiat as an
individual who was the president of CFTI, and Sergio F. Naguiat Enterprises,
Inc., as a separate corporate entity with a separate business. They presumed
that Sergio F. Naguiat, who was at the same time a stockholder and
director 27 of Sergio F. Naguiat Enterprises, Inc., was managing and
controlling the taxi business on behalf of the latter. A closer scrutiny and
analysis of the records, however, evince the truth of the matter: that Sergio F.
Naguiat, in supervising the-taxi drivers and determining their employment
terms, was rather carrying out his responsibilities as president of CFTI. Hence,
Naguiat Enterprises as a separate corporation does not appear to be involved at
all in the taxi business.
To illustrate further, we refer to the testimony of a driver-claimant on
cross examination.
"Atty. Suarez

Is it not true that you applied not with Sergio F. Naguiat but
with Clark Field Taxi?

Witness

I applied for (sic) Sergio F. Naguiat

Atty. Suarez

Sergio F. Naguiat as an individual or the corporation?

Witness

'Sergio F. Naguiat na tao.'

Atty. Suarez

Who is Sergio F. Naguiat?

Witness

He is the one managing the Sergio F. Naguiat Enterprises and

he is the one whom we believe as our employer.

Atty. Suarez

What is exactly the position of Sergio F. Naguiat with the

Sergio F. Naguiat Enterprises?

Witness

He is the owner, sir.

Atty. Suarez

How about with Clark Field Taxi Incorporated what is the

position of Mr. Naguiat?

Witness

What I know is that he is a concessionaire.

xxx xxx xxx

 Atty. Suarez

But do you also know that Sergio F. Naguiat is the President of

Clark Field Taxi, Incorporated?

Witness

Yes. sir.

Atty. Suarez

How about Mr. Antolin Naguiat what is his role in the taxi
services, the operation of the Clark Field Taxi, Incorporated?

Witness

He is the vice president." 28

And, although the witness insisted that Naguiat Enterprises was his employer, he
could not deny that he received his salary from the office of CFTI inside the base.
29
Another driver-claimant admitted, upon the prodding of counsel for the
corporations, that Naguiat Enterprises was in the trading business while CFTI
was in taxi services. 30
In addition, the Constitution 31 of CFTI-AAFES Taxi Drivers
Association which, admittedly, was the union of individual respondents while
still working at Clark Air Base, states that members thereof are the employees
of CFTI and "(f)or collective bargaining purposes, the definite employer is
the Clark Field Taxi Inc."
From the foregoing, the ineludible conclusion is that CFTI was the
actual and direct employer of individual respondents, and that Naguiat
Enterprises was neither their indirect employer nor labor-only contractor. It
was not involved at all in the taxi business.
CFTI president
solidarily liable
Petitioner-corporations would likewise want to avoid the solidary liability of
their officers. To bolster their position, Sergio F. Naguiat and Antolin T. Naguiat
specifically aver that they were denied due process since they were not parties to
the complaint below. 32 In the broader interest of justice, we, however, hold that
Sergio F. Naguiat, in his capacity as president of CFTI, cannot be exonerated
from joint and several liability in the payment of separation pay to individual
respondents.
 A.C. Ransom Labor Union-CCLU vs. NLRC 33 is the case in point. A.C.
Ransom Corporation was a family corporation, the stockholders of which were
members of the Hernandez family. In 1973, it filed an application for clearance
to close or cease operations, which was duly granted by the Ministry of Labor
and Employment, without prejudice to the right of employees to seek redress
of grievance, if any. Backwages of 22 employees, who engaged in a strike prior
to the closure, were subsequently computed at P164,984.00. Up to September
1976, the union filed about ten (10) motions for execution against the
corporation, but none could be implemented, presumably for failure to find
leviable assets of said corporation. In its last motion for execution, the union
asked that officers and agents of the company be held personally liable for
payment of the backwages. This was granted by the labor arbiter. In the
corporation's appeal to the NLRC, one of the issues raised was: "Is the
judgment against a corporation to reinstate its dismissed employees with
backwages, enforceable against its officer and agents, in their individual,
private and personal capacities, who were not parties in the case where the
judgment was rendered?" The NLRC answered in the negative, on the ground
that officers of a corporation are not liable personally for official acts unless
they exceeded the scope of their authority.
On certiorari, this Court reversed the NLRC and upheld the labor
arbiter. In imposing joint and several liability upon the company president, the
Court, speaking through Mme. Justice Ameurfina Melencio-Herrera,
ratiocinated this wise:
"(b)How can the foregoing (Articles 265 and 273 of the Labor Code)
provisions be implemented when the employer is a corporation? The
answer is found in Article 212(c) of the Labor Code which provides:

'(c)'Employer' includes any person acting in the interest of an

employer, directly or indirectly. The term shall not include any labor
organization or any of its officers or agents except when acting as
employer.'

The foregoing was culled from Section 2 of RA 602, the Minimum

Wage Law. Since RANSOM is an artificial person, it must have
an officer who can be presumed to be the employer, being the 'person
acting in the interest of (the) employer' RANSOM. The corporation,
only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held

personally, not to say even criminally, liable for nonpayment of back
wages. That is the policy of the law. . . .
 (c)If the policy of the law were otherwise, the corporation employer
can have devious ways for evading payment of back wages. . . .

(d)The record does not clearly identify 'the officer or officers' of

RANSOM directly responsible for failure to pay the back wages of the
22 strikers. In the absence of definite proof in that regard, we believe
it should be presumed that the responsible officer is the President of
the corporation who can be deemed the chief operation officer
thereof . Thus, in RA 602, criminal responsibility is with
the 'Manager or in his default, the person acting as such.' In
RANSOM, the President appears to be the Manager." (Emphasis
supplied.)

Sergio F. Naguiat, admittedly, was the president of CFTI who actively managed
the business. Thus, applying the ruling in A. C. Ransom, he falls within the
meaning of an "employer" as contemplated by the Labor Code, who may be held
jointly and severally liable for the obligations of the corporation to its dismissed
employees.
Moreover, petitioners also conceded that both CFTI and Naguiat
Enterprises were "close family corporations" 34 owned by the Naguiat family.
Section 100, paragraph 5, (under Title XII on Close Corporations) of the
Corporation Code, states:
"(5)To the extent that the stockholders are actively engage(d) in the
management or operation of the business and affairs of a close
corporation, the stockholders shall be held to strict fiduciary duties to
each other and among themselves. Said stockholders shall
be personally liable for corporate torts unless the corporation has
obtained reasonably adequate liability insurance." (emphasis
supplied)

Nothing in the records show whether CFTI obtained "reasonably adequate

liability insurance;" thus, what remains is to determine whether there was
corporate tort.
Our jurisprudence is wanting as to the definite scope of "corporate tort."
Essentially, "tort" consists in the violation of a right given or the omission of a
duty imposed by law. 35 Simply stated, tort is a breach of a legal duty. 36 Article
283 of the Labor Code mandates the employer to grant separation pay to
employees in case of closure or cessation of operations of establishment or
undertaking not due to serious business losses or financial reverses, which is the
condition obtaining at bar. CFTI failed to comply with this law-imposed duty or
obligation. Consequently, its stockholder who was actively engaged in the
management or operation of the business should be held personally liable.
Furthermore, in MAM Realty Development vs. NLRC, 37 the Court
recognized that a director or officer may still be held solidarily liable with a
corporation by specific provision of law. Thus:
". . . A corporation, being a juridical entity, may act only through its
directors, officers and employees. Obligations incurred by them,
acting as such corporate agents, are not theirs but the direct
accountabilities of the corporation they represent. True, solidary
liabilities may at times be incurred but only when exceptional
circumstances warrant such as, generally, in the following cases:

xxx xxx xxx

4.When a director, trustee or officer is made. by specific provision of

law, personally liable for his corporate action." (footnotes omitted)

As pointed out earlier, the fifth paragraph of Section 100 of the Corporation
Code specifically imposes personal liability upon the stockholder actively
managing or operating the business and affairs of the close corporation.
In fact, in posting the surety bond required by this Court for the issuance
of a temporary restraining order enjoining the execution of the assailed NLRC
Resolutions, only Sergio F. Naguiat, in his individual and personal capacity,
principally bound himself to comply with the obligation thereunder, i.e., "to
guarantee the payment to private respondents of any damages which they may
incur by reason of the issuance of a temporary restraining order sought, if it
should be finally adjudged that said principals were not entitled thereto." 38
The Court here finds no application to the rule that a corporate officer
cannot be held solidarily liable with a corporation in the absence of evidence
that he had acted in bad faith or with malice. 39 In the present case, Sergio
Naguiat is held solidarily liable for corporate tort because he had actively
engaged in the management and operation of CFTI, a close corporation.
Antolin Naguiat not personally liable
Antolin T. Naguiat was the vice president of the CFTI. Although he carried the
title of "general manager" as well, it had not been shown that he had acted in
such capacity. Furthermore, no evidence on the extent of his participation in the
management or operation of the business was proffered. In this light, he cannot
be held solidarily liable for the obligations of CFTI and Sergio Naguiat to the
private respondents.
Fourth Issue: No Denial of Due Process
Lastly, in petitioners' Supplement to their original petition, they assail the NLRC
Resolution holding Sergio F. Naguiat and Antolin T. Naguiat jointly and
severally liable with petitioner-corporations in the payment of separation pay,
averring denial of due process since the individual Naguiats were not impleaded
as parties to the complaint.
We advert to the case of A.C. Ransom once more. The officers of the
corporation were not parties to the case when the judgment in favor of the
employees was rendered. The corporate officers raised this issue when the
labor arbiter granted the motion of the employees to enforce the judgment
against them. In spite of this, the Court held the corporation president solidarily
liable with the corporation.
Furthermore, Sergio and Antolin Naguiat voluntarily submitted
themselves to the jurisdiction of the labor arbiter when they, in their individual
capacities, filed a position paper 40 together with CFTI, before the arbiter.
They cannot now claim to have been denied due process since they availed of
the opportunity to present their positions.
WHEREFORE, the foregoing premises considered, the petition is
PARTLY GRANTED. The assailed February 28, 1994 Resolution of the
NLRC is hereby MODIFIED as follows:
(1)Petitioner Clark Field Taxi, Incorporated, and Sergio F. Naguiat,
president and co-owner thereof, are ORDERED to pay, jointly and severally,
the individual respondents their separation pay computed at US$120.00 for
every year of service, or its peso equivalent at the time of payment or
satisfaction of the judgment; cdtai

(2)Petitioner Sergio F. Naguiat Enterprises, Incorporated, and Antolin T.

Naguiat are ABSOLVED from liability in the payment of separation pay to
individual respondents.
SO ORDERED.
(Naguiat v. National Labor Relations Commission, G.R. No. 116123, [March
|||

13, 1997], 336 PHIL 545-565)

[G.R. No. L-27155. May 18, 1978.]

PHILIPPINE NATIONAL BANK, petitioner, vs. THE
COURT OF APPEALS, RITA GUECO TAPNIO,
CECILIO GUECO and THE PHILIPPINE AMERICAN
GENERAL INSURANCE COMPANY, INC., respondents.
 Medina, Locsin, Coruña & Sumbillo for petitioner.
Manuel Lim & Associates for private respondents.
SYNOPSIS

Upon failure of Rita Tapnio to pay her account with the Philippine
National Bank which was secured by a bond of the Philippine American
General Insurance Company, Inc. (PHILAMGEN), the latter paid the same
and then sued Rita Tapnio on their indemnity agreement. Rita Tapnio filed a
third party complaint against petitioner Bank because, earlier, the bank, as
mortgagee of her sugar quota allocation for the year 1956-1957 at a
reasonable lease price and demanded parties to the lease contract to further
raise their consideration, the difference between the lease price offered and
that demanded by the Bank being a measly total of P200.00. As a result
thereof, Rita Tapnio failed to utilize her sugar quota for that particular crop
year and to realize an amount which was more than enough to pay the
balance of her indebtedness to the bank which was secured and subsequently
paid by the bonding company. The trial court ordered the Philippine National
Bank to pay Rita Tapnio the same amounts she was ordered to pay to the
PHILAMGEN. This decision was affirmed by the Court of Appeals.
The Supreme Court found no reasonable basis for the Board of
Directors of petitioner Bank to disapprove the lease contract because of the
measly sum of P200.00 and ruled that although the Bank had the ultimate
authority of approving or disapproving the proposed lease, since the sugar
quota was mortgaged to it, it still had the responsibility of observing, for the
protection and interest of the mortgagor, that degree of care, precaution and
vigilance which the circumstances justly demand in approving or
disapproving the lease of said sugar quota.
SYLLABUS

1. MORTGAGES; RIGHT AND CORRESPONDING OBLIGATION OF

MORTGAGE. — While a mortgagee bank has the authority of approving or
disapproving a proposed lease of sugar quota which are mortgaged to it, it
certainly cannot escape its responsibility of observing, for the protection and
interest of the mortgagor, that degree of care, precaution and vigilance which the
circumstances justly demand in approving or disapproving the lease of said
sugar quota.
2. ID.; ID.; DAMAGES; LIABILITY UNDER ARTICLE 21 OF THE NEW
CIVIL CODE FOR FAILURE TO OBSERVE CARE AND VIGILANCE
UNDER ARTICLE 19 OF THE NEW CIVIL CODE. — The Philippine
National Bank, as mortgagee of sugar quota allegations, is liable for damages
under Article 21 of the New Civil Code for its failure to observe reasonable care
and vigilance as required under Article 19 of the New Civil Code, by refusing to
approve the lease of the mortgaged sugar quota for a measly P200 difference in
the lease price offered and the price demanded by the Bank, and despite the fact
that all the mortgagor's accounts with the Bank were secured and that she had
apparently the means to pay her obligation to the Bank.
3. CORPORATION LAW; LIABILITY FOR TORTS. — The Philippine
National Bank, as a corporation, is civilly liable in the same manner as natural
persons for torts, because "generally speaking, the rules governing the liability of
a principal or master for a tort committed by an agent or servant are the same
whether the principal or master be a natural person or a corporation, and whether
the servant or agent be a natural or artificial person. All the authorities agree that
a principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person. A
corporation is liable, therefor, whenever a tortious act is committed by an officer
or agent under express direction or authority from the stockholders or members
acting as a body, or, generally, from the directors as the governing body."
4. APPEALS; JURISDICTION OF THE SUPREME COURT. — The
jurisdiction of the Supreme Court in a petition for review is limited to reviewing
only errors of law, accepting as conclusive the factual findings of the Court of
Appeals upon its own assessment of the evidence.
DECISION

ANTONIO, J : p

Certiorari to review the decision of the Court of Appeals which affirmed the
judgment of the Court of First Instance of Manila in Civil Case No. 34185,
ordering petitioner, as third-party defendant, to pay respondent Rita Gueco
Tapnio, as third-party plaintiff, the sum of P2,379.71, plus 12% interest per
annum from September 19, 1957 until the same is fully paid, P200.00 attorney's
fees and costs, the same amounts which Rita Gueco Tapnio was ordered to pay
the Philippine American General Insurance Co., Inc., to be paid directly to the
Philippine American General Insurance Co., Inc. in full satisfaction of the
judgment rendered against Rita Gueco Tapnio in favor of the former; plus
P500.00 attorney's fees for Rita Gueco Tapnio and costs. The basic action is the
complaint filed by Philamgen (Philippine American General Insurance Co., Inc.)
as surety against Rita Gueco Tapnio and Cecilio Gueco, for the recovery of the
sum of P2,379.71 paid by Philamgen to the Philippine National Bank on behalf
of respondents Tapnio and Gueco, pursuant to an indemnity agreement.
Petitioner Bank was made third-party defendant by Tapnio and Gueco on the
theory that their failure to pay the debt was due to the fault or negligence of
petitioner.
LibLex

The facts as found by the respondent Court of Appeals, in affirming the decision
of the Court of First Instance of Manila, are quoted hereunder:
"Plaintiff executed its Bond, Exh. A, with defendant Rita Gueco
Tapnio as principal, in favor of the Philippine National Bank Branch
at San Fernando, Pampanga, to guarantee the payment of defendant
Rita Gueco Tapnio's account with said Bank. In turn, to guarantee the
payment of whatever amount the bonding company would pay to the
Philippine National Bank, both defendants executed the indemnity
agreement, Exh. B. Under the terms and conditions of this indemnity
agreement, whatever amount the plaintiff would pay would earn
interest at the rate of 12% per annum, plus attorney's fees in the
amount of 15% of the whole amount due in case of court litigation.

"The original amount of the bond was for P4,000.00; but the amount
was later reduced to P2.000.00.

"It is not disputed that defendant Rita Gueco Tapnio was indebted to
the bank in the sum of P2,000.00, plus accumulated interests unpaid,
which she failed to pay despite demands. The Bank wrote a letter of
demand to plaintiff, as per Exh. C; whereupon, plaintiff paid the bank
on September 18, 1957, the full amount due and owing in the sum of
P2,379.91, for and on account of defendant Rita Gueco's obligation
(Exhs. D and D-1).

"Plaintiff, in turn, made several demands, both verbal and written,

upon defendants (Exhs. E and F), but to no avail.

"Defendant Rita Gueco Tapnio admitted all the foregoing facts. She
claims, however, when demand was made upon her by plaintiff for her
to pay her debt to the Bank, that she told the plaintiff that she did not
consider herself to be indebted to the Bank at all because she had an
agreement with one Jacobo Tuazon whereby she had leased to the
latter her unused export sugar quota for the 1956-1957 agricultural
year, consisting of 1,000 piculs at the rate of P2.80 per picul, or for a
total of P2,800.00, which was already in excess of her obligation
guaranteed by plaintiff's bond, Exh. A. This lease agreement,
according to her, was with the knowledge of the bank. But the Bank
has placed obstacles to the consummation of the lease, and the delay
caused by said obstacles forced Tuazon to rescind the lease contract.
Thus, Rita Gueco Tapnio filed her third-party complaint against the
Bank to recover from the latter any and all sums of money which may
be adjudged against her and in favor of the plaintiff, plus moral
damages, attorney's fees and costs.

"Insofar as the contentions of the parties herein are concerned, we

quote with approval the following findings of the lower court based on
the evidence presented at the trial of the case:

'It has been established during the trial that Mrs.

Tapnio had an export sugar quota of 1,000 piculs for the
agricultural year 1956-1957 which she did not need. She
agreed to allow Mr. Jacobo C. Tuazon to use said quota for the
consideration of P2,500.00 (Exh. "4"-Gueco). This agreement
was called a contract of lease of sugar allotment.

'At the time of the agreement, Mrs. Tapnio was

indebted to the Philippine National Bank at San Fernando,
Pampanga. Her indebtedness was known as a crop loan and
was secured by a mortgage on her standing crop including her
sugar quota allocation for the agricultural year corresponding
to said standing crop. This arrangement was necessary in order
that when Mrs. Tapnio harvests, the P.N.B., having a lien on
the crop, may effectively enforce collection against her. Her
sugar cannot be exported without sugar quota allotment.
Sometimes, however, a planter harvest less sugar than her
quota, so her excess quota is utilized by another who pays her
for its use. This is the arrangement entered into between Mrs.
Tapnio and Mr. Tuazon regarding the former's excess quota
for 1956-1957 (Exh. "4"-Gueco).

'Since the quota was mortgaged to the P.N.B., the

contract of lease had to be approved by said Bank. The same
was submitted to the branch manager at San Fernando,
Pampanga. The latter required the parties to raise the
consideration of P2.80 per picul or a total of P2,800.00 (Exh
"2-Gueco") informing them that "the minimum lease rental
acceptable to the Bank, is P2.80 per picul." In a letter
addressed to the branch manager on August 10, 1956, Mr.
Tuazon informed the manager that he was agreeable to raising
the consideration to P2.80 per picul. He further informed the
 manager that he was ready to pay said amount as the funds
were in his folder which was kept in the bank.

'Explaining the meaning of Tuazon's statement as to

the funds, it was stated by him that he had an approved loan
from the bank but he had not yet utilized it as he was intending
to use it to pay for the quota. Hence, when he said the amount
needed to pay Mrs. Tapnio was in his folder which was in the
bank, he meant and the manager understood and knew he had
an approved loan available to be used in payment of the quota.
In said Exh. "6-Gueco", Tuazon also informed the manager
that he would want for a notice from the manager as to the time
when the bank needed the money so that Tuazon could sign the
corresponding promissory note.'

"Further consideration of the evidence discloses that when the branch

manager of the Philippine National Bank at San Fernando
recommended the approval of the contract of lease at the price of
P2.80 per picul (Exh. 11-Bank), whose recommendation was
concurred in by the Vice president of said Bank, J. V. Buenaventura,
the board of directors required that the amount be raised to P3.00 per
picul. This act of the board of directors was communicated to Tuazon,
who in turn asked for a reconsideration thereof. On November 19,
1956, the branch manager submitted Tuazon's request for
reconsideration to the board of directors with another
recommendation for the approval of the lease at P2.80 per picul, but
the board returned the recommendation unacted upon, considering
that the current price prevailing at the time was P3.00 per picul (Exh.
9-Bank).

"The parties were notified of the refusal on the part of the board of
directors of the Bank to grant the motion for reconsideration. The
matter stood as it was until February 22, 1957, when Tuazon wrote a
letter (Exh. 10-Bank) informing the Bank that he was no longer
interested to continue the deal referring to the lease of sugar quota
allotment in favor of defendant Rita Gueco Tapnio. The result is that
the latter lost the sum of P2,800.00 which she should have received
from Tuazon and which she could have paid the Bank to cancel off her
indebtedness.

"The court below held, and in this holding we concur, that failure of
the negotiation for the lease of the sugar quota allocation of Rita
 Gueco Tapnio to Tuazon was due to the fault of the directors of the
Philippine National Bank. The refusal on the part of the bank to
approve the lease at the rate of P2.80 per picul which, as stated above,
would have enabled Rita Gueco Tapnio to realize the amount of
P2,800.00 which was more than sufficient to pay off her indebtedness
to the Bank, and its insistence on the rental price of P3.00 per picul
thus unnecessarily increasing the value by only a difference of
P200.00, inevitably brought about the rescission of the lease contract
to the damage and prejudice of Rita Gueco Tapnio in the aforesaid
sum of P2,800.00. The unreasonableness of the position adopted by
the board of directors of the Philippine National Bank in refusing to
approve the lease at the rate of P2.80 per picul and insisting on the rate
of P3.00 per picul, if only to increase the retail value by only P200.00
is shown by the fact that all the accounts of Rita Gueco Tapnio with
the Bank were secured by chattel mortgage on standing crops,
assignment of leasehold rights and interests on her properties, and
surety bonds, aside from the fact that from Exh. 8-Bank, it appears that
she was offering to execute a real estate mortgage in favor of the Bank
to replace the surety bond. This statement is further bolstered by the
fact that Rita Gueco Tapnio apparently had the means to pay her
obligation to the Bank, as shown by the fact that she has been granted
several sugar crop loans of the total value of almost P80,000.00 for the
agricultural years from 1952 to 1956." 1

Its motion for the reconsideration of the decision of the Court of Appeals having
been denied, petitioner filed the present petition. LLphil

The petitioner contends that the Court of Appeals erred:

(1) In finding that the rescission of the lease contract of the 1,000 piculs of sugar
quota allocation of respondent Rita Gueco Tapnio by Jacobo C. Tuazon was due
to the unjustified refusal of petitioner to approve said lease contract, and its
unreasonable insistence on the rental price of P3.00 instead of P2.80 per picul;
and
(2) In not holding that based on the statistics of sugar price and prices of sugar
quota in the possession of the petitioner, the latter's Board of Directors correctly
fixed the rental of price per picul of 1,000 piculs of sugar quota leased by
respondent Rita Gueco Tapnio to Jacobo C. Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the sugar quota of Tapnio, it has the right,
both under its own Charter and under the Corporation Law, to safeguard and
protect its rights and interests under the deed of assignment, which include the
right to approve or disapprove the said lease of sugar quota and in the exercise of
that authority, its Board of Directors necessarily had authority to determine and
fix the rental price per picul of the sugar quota subject of the lease between
private respondents and Jacobo C. Tuazon, It argued further that both under its
Charter and the Corporation Law, petitioner, acting thru its Board of Directors,
has the perfect right to adopt a policy with respect to fixing of rental prices of
export sugar quota allocations, and in fixing the rentals at P3.00 per picul, it did
not act arbitrarily since the said Board was guided by statistics of sugar price and
prices of sugar quotas prevailing at the time. Since the fixing of the rental of the
sugar quota is a function lodged with petitioner's Board of Directors and is a
matter of policy, the respondent Court of Appeals could not substitute its own
judgment for that of said Board of Directors, which acted in good faith, making
as its basis therefore the prevailing market price as shown by statistics which
were then in their possession.
Finally, petitioner emphasized that under the appealed judgment, it shall suffer a
great injustice because as a creditor, it shall be deprived of a just claim against its
debtor (respondent Rita Gueco Tapnio) as it would be required to return to
respondent Philamgen the sum of P2,379.71, plus interest, which amount had
been previously paid to petitioner by said insurance company in behalf of the
principal debtor, herein respondent Rita Gueco Tapnio, and without recourse
against respondent Rita Gueco Tapnio.
We must advert to the rule that this Court's appellate jurisdiction in proceedings
of this nature is limited to reviewing only errors of law, accepting as conclusive
the factual findings of the Court of Appeals upon its own assessment of the
evidence. 2
The contract of lease of sugar quota allotment at P2.50 per picul between Rita
Gueco Tapnio and Jacobo C. Tuazon was executed on April 17, 1956. This
contract was submitted to the Branch Manager of the Philippine National Bank
at San Fernando, Pampanga. This arrangement was necessary because Tapnio's
indebtedness to petitioner was secured by a mortgage on her standing crop
including her sugar quota allocation for the agricultural year corresponding to
said standing crop. The latter required the parties to raise the consideration to
P2.80 per picul, the minimum lease rental acceptable to the Bank, or a total of
P2,800.00. Tuazon informed the Branch Manager, thru a letter dated August 10,
1956, that he was agreeable to raising the consideration to P2.80 per picul. He
further informed the manager that he was ready to pay the said sum of P2,800.00
as the funds were in his folder which was kept in the said Bank. This referred to
the approved loan of Tuazon from the Bank which he intended to use in paying
for the use of the sugar quota. The Branch Manager submitted the contract of
lease of sugar quota allocation to the Head Office on September 7, 1956, with a
recommendation for approval, which recommendation was concurred in by the
Vice-President of the Bank, Mr. J. V. Buenaventura. This notwithstanding, the
Board of Directors of petitioner required that the consideration be raised to P3.00
per picul.
Tuazon, after being informed of the action of the Board of Directors, asked for a
reconsideration thereof. On November 19, 1956, the Branch Manager submitted
the request for reconsideration and again recommended the approval of the lease
at P2.80 per picul, but the Board returned the recommendation unacted, stating
that the current price prevailing at that time was P3.00 per picul. cdrep

On February 22, 1957, Tuazon wrote a letter, informing the Bank that he was no
longer interested in continuing the lease of sugar quota allotment. The crop year
1956-1957 ended and Mrs. Tapnio failed to utilize her sugar quota, resulting in
her loss in the sum of P2,800.00 which she should have received had the lease in
favor of Tuazon been implemented.
It has been clearly shown that when the Branch Manager of petitioner required
the parties to raise the consideration of the lease from P2.50 to P2.80 per picul, or
a total of P2,800.00, they readily agreed. Hence, in his letter to the Branch
Manager of the Bank on August 10, 1956, Tuazon informed him that the
minimum lease rental of P2.80 per picul was acceptable to him and that he even
offered to use the loan secured by him from petitioner to pay in full the sum of
P2,800.00 which was the total consideration of the lease. This arrangement was
not only satisfactory to the Branch Manager but it was also approved by
Vice-President J. V. Buenaventura of the PNB. Under that arrangement, Rita
Gueco Tapnio could have realized the amount of P2,800.00, which was more
than enough to pay the balance of her indebtedness to the Bank which was
secured by the bond of Philamgen.
There is no question that Tapnio's failure to utilize her sugar quota for the crop
year 1956-1957 was due to the disapproval of the lease by the Board of Directors
of petitioner. The issue, therefore, is whether or not petitioner is liable for the
damage caused.

As observed by the trial court, time is of the essence in the approval of the lease
of sugar quota allotments, since the same must be utilized during the milling
season, because any allotment which is not filled during such milling season may
be reallocated by the Sugar Quota Administration to other holders of
allotments. 3 There was no proof that there was any other person at that time
willing to lease the sugar quota allotment of private respondents for a price
higher than P2.80 per picul. "The fact that there were isolated transactions
wherein the consideration for the lease was P3.00 a picul", according to the trial
court, "does not necessarily mean that there are always ready takers of said
price." The unreasonableness of the position adopted by the petitioner's Board of
Directors is shown by the fact that the difference between the amount of P2.80
per picul offered by Tuazon and the P3.00 per picul demanded by the Board
amounted only to a total sum of P200.00. Considering that all the accounts of
Rita Gueco Tapnio with the Bank were secured by chattel mortgage on standing
crops, assignment of leasehold rights and interests on her properties, and surety
bonds and that she had apparently "the means to pay her obligation to the Bank,
as shown by the fact that she has been granted several sugar crop loans of the
total value of almost P80,000.00 for the agricultural years from 1952 to 1956",
there was no reasonable basis for the Board of Directors of petitioner to have
rejected the lease agreement because of a measly sum of P200.00.
While petitioner had the ultimate authority of approving or disapproving the
proposed lease since the quota was mortgaged to the Bank, the latter certainly
cannot escape its responsibility of observing, for the protection of the interest of
private respondents, that degree of care, precaution and vigilance which the
circumstances justly demand in approving or disapproving the lease of said
sugar quota. The law makes it imperative that 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." 4 This petitioner failed to do.
Certainly, it knew that the agricultural year was about to expire, that by its
disapproval of the lease private respondents would be unable to utilize the sugar
quota in question. In failing to observe the reasonable degree of care and
vigilance which the surrounding circumstances reasonably impose, petitioner is
consequently liable for the damages caused on private respondents. Under
Article 21 of the New Civil Code, "any person who wilfully causes loss or injury
to another in a manner that is contrary to morals, good customs or public policy
shall compensate the latter for the damage." The afore-cited provisions on
human relations were intended to expand the concept of torts in this jurisdiction
by granting adequate legal remedy for the untold number of moral wrongs which
is impossible for human foresight to specifically provide in the statutes. 5
A corporation is civilly liable in the same manner as natural persons for torts,
because "generally speaking, the rules governing the liability of a principal or
master for a tort committed by an agent or servant are the same whether the
principal or master be a natural person or a corporation, and whether the servant
or agent be a natural or artificial person. All of the authorities agree that a
principal or master is liable for every tort which he expressly directs or
authorizes, and this is just as true of a corporation as of a natural person. A
corporation is liable, therefore, whenever a tortious act is committed by an
officer or agent under express direction or authority from the stockholders or
members acting as a body, or, generally, from the directors as the governing
body." 6
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is
hereby AFFIRMED. LibLex

(Philippine National Bank v. Court of Appeals, G.R. No. L-27155, [May 18,
|||

1978], 172 PHIL 592-602)

Xxxxxxxxxxxxxxxxxxxxxxxxxxxx

HERMAN C. CRYSTAL, LAMBERTO C. CRYSTAL,

ANN GEORGIA C. SOLANTE, and DORIS C.
MAGLASANG, as Heirs of Deceased SPOUSES
RAYMUNDO I. CRYSTAL and DESAMPARADOS C.
CRYSTAL, petitioners, vs. BANK OF THE PHILIPPINE
ISLANDS, respondent.

DECISION

TINGA, J :p

Before us is a Petition for Review 1 of the Decision 2 and

Resolution 3 of the Court of Appeals dated 24 October 2005 and 31 March
2006, respectively, in CA G.R. CV No. 72886, which affirmed the 8 June
2001 decision of the Regional Trial Court, Branch 5, of Cebu City. 4
CHEDAc

The facts, as culled from the records, follow.

On 28 March 1978, spouses Raymundo and Desamparados Crystal
obtained a P300,000.00 loan in behalf of the Cebu Contractors Consortium
Co. (CCCC) from the Bank of the Philippine Islands-Butuan branch
(BPI-Butuan). The loan was secured by a chattel mortgage on heavy
equipment and machinery of CCCC. On the same date, the spouses executed
in favor of BPI-Butuan a Continuing Suretyship 5 where they bound
themselves as surety of CCCC in the aggregate principal sum of not
exceeding P300,000.00. Thereafter, or on 29 March 1979, Raymundo Crystal
executed a promissory note 6 for the amount of P300,000.00, also in favor of
BPI-Butuan.
Sometime in August 1979, CCCC renewed a previous loan, this time
from BPI, Cebu City branch (BPI-Cebu City). The renewal was evidenced by
a promissory note 7 dated 13 August 1979, signed by the spouses in their
personal capacities and as managing partners of CCCC. The promissory note
states that the spouses are jointly and severally liable with CCCC. It appears
that before the original loan could be granted, BPI-Cebu City required CCCC
to put up a security. However, CCCC had no real property to offer as security
for the loan; hence, the spouses executed a real estate mortgage 8 over their
own real property on 22 September 1977. 9 On 3 October 1977, they
executed another real estate mortgage over the same lot in favor of BPI-Cebu
City, to secure an additional loan of P20,000.00 of CCCC. 10
CCCC failed to pay its loans to both BPI-Butuan and BPI-Cebu City
when they became due. CCCC, as well as the spouses, failed to pay their
obligations despite demands. Thus, BPI resorted to the foreclosure of the
chattel mortgage and the real estate mortgage. The foreclosure sale on the
chattel mortgage was initially stalled with the issuance of a restraining order
against BPI. 11 However, following BPI's compliance with the necessary
requisites of extrajudicial foreclosure, the foreclosure sale on the chattel
mortgage was consummated on 28 February 1988, with the proceeds
amounting to P240,000.00 applied to the loan from BPI-Butuan which had
then reached P707,393.90. 12 Meanwhile, on 7 July 1981, Insular Bank of
Asia and America (IBAA), through its Vice-President for Legal and
Corporate Affairs, offered to buy the lot subject of the two (2) real estate
mortgages and to pay directly the spouses' indebtedness in exchange for the
release of the mortgages. BPI rejected IBAA's offer to pay. 13
BPI filed a complaint for sum of money against CCCC and the
spouses before the Regional Trial Court of Butuan City (RTC Butuan),
seeking to recover the deficiency of the loan of CCCC and the spouses with
BPI-Butuan. The trial court ruled in favor of BPI. Pursuant to the decision,
BPI instituted extrajudicial foreclosure of the spouses' mortgaged
property. 14THEDcS

On 10 April 1985, the spouses filed an action for Injunction With

Damages, With A Prayer For A Restraining Order and/or Writ of
Preliminary Injunction. 15 The spouses claimed that the foreclosure of the
real estate mortgages is illegal because BPI should have exhausted CCCC's
properties first, stressing that they are mere guarantors of the renewed loans.
They also prayed that they be awarded moral and exemplary damages,
attorney's fees, litigation expenses and cost of suit. Subsequently, the spouses
filed an amended complaint, 16 additionally alleging that CCCC had opened
and maintained a foreign currency savings account (FCSA-197) with BPI,
Makati branch (BPI-Makati), and that said FCSA was used as security for a
P450,000.00 loan also extended by BPI-Makati. The P450,000.00 loan was
allegedly paid, and thereafter the spouses demanded the return of the FCSA
passbook. BPI rejected the demand; thus, the spouses were unable to
withdraw from the said account to pay for their other obligations to BPI.
The trial court dismissed the spouses' complaint and ordered them to
pay moral and exemplary damages and attorney's fees to BPI. 17 It ruled that
since the spouses agreed to bind themselves jointly and severally, they are
solidarily liable for the loans; hence, BPI can validly foreclose the two real
estate mortgages. Moreover, being guarantors-mortgagors, the spouses are
not entitled to the benefit of exhaustion. Anent the FCSA, the trial court
found that CCCC originally had FCDU SA No. 197 with BPI, Dewey
Boulevard branch, which was transferred to BPI-Makati as FCDU SA
76/0035, at the request of Desamparados Crystal. FCDU SA 76/0035 was
thus closed, but Desamparados Crystal failed to surrender the passbook
because it was lost. The transferred FCSA in BPI-Makati was the one used as
security for CCCC's P450,000.00 loan from BPI-Makati. CCCC was no
longer allowed to withdraw from FCDU SA No. 197 because it was already
closed.
The spouses appealed the decision of the trial court to the Court of
Appeals, but their appeal was dismissed. 18 The spouses moved for the
reconsideration of the decision, but the Court of Appeals also denied their
motion for reconsideration. 19 Hence, the present petition.
Before the Court, petitioners who are the heirs of the spouses argue
that the failure of the spouses to pay the BPI-Cebu City loan of P120,000.00
was due to BPI's illegal refusal to accept payment for the loan unless the
P300,000.00 loan from BPI-Butuan would also be paid. Consequently, in
view of BPI's unjust refusal to accept payment of the BPI-Cebu City loan, the
loan obligation of the spouses was extinguished, petitioners contend.
The contention has no merit. Petitioners rely on IBAA's offer to
purchase the mortgaged lot from them and to directly pay BPI out of the
proceeds thereof to settle the loan. 20 BPI's refusal to agree to such payment
scheme cannot extinguish the spouses' loan obligation. In the first place,
IBAA is not privy to the loan agreement or the promissory note between the
spouses and BPI. Contracts, after all, take effect only between the parties,
their successors in interest, heirs and assigns. 21Besides, under Art. 1236 of
the Civil Code, the creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary. We see no stipulation in the
promissory note which states that a third person may fulfill the spouses'
obligation. Thus, it is clear that the spouses alone bear responsibility for the
same. aTEScI

In any event, the promissory note is the controlling repository of the

obligation of the spouses. Under the promissory note, the spouses defined the
parameters of their obligation as follows:
On or before June 29, 1980 on demand, for value received,
I/we promise to pay, jointly and severally, to the BANK OF THE
PHILIPPINE ISLANDS, at its office in the city of Cebu Philippines,
the sum of ONE HUNDRED TWENTY THOUSAND PESOS
(P120,000.00), Philippine Currency, subject to periodic installments
on the principal as follows: P30,000.00 quarterly amortization
starting September 28, 1979. . . . 22
A solidary obligation is one in which each of the debtors is liable for
the entire obligation, and each of the creditors is entitled to demand the
satisfaction of the whole obligation from any or all of the debtors. 23 A
liability is solidary "only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so requires." 24 Thus,
when the obligor undertakes to be "jointly and severally" liable, it means that
the obligation is solidary, 25 such as in this case. By stating "I/we promise to
pay, jointly and severally, to the BANK OF THE PHILIPPINE ISLANDS,"
the spouses agreed to be sought out and be demanded payment from, by BPI.
BPI did demand payment from them, but they failed to comply with their
obligation, prompting BPI's valid resort to the foreclosure of the chattel
mortgage and the real estate mortgages.
More importantly, the promissory note, wherein the spouses
undertook to be solidarily liable for the principal loan, partakes the nature of
a suretyship and therefore is an additional security for the loan. Thus we held
in one case that if solidary liability was instituted to "guarantee" a principal
obligation, the law deems the contract to be one of suretyship. 26 And while a
contract of a surety is in essence secondary only to a valid principal
obligation, the surety's liability to the creditor or promisee of the principal is
said to be direct, primary, and absolute; in other words, the surety is directly
and equally bound with the principal. The surety therefore becomes liable for
the debt or duty of another even if he possesses no direct or personal interest
over the obligations nor does he receive any benefit therefrom. 27
Petitioners contend that the Court of Appeals erred in not granting
their counterclaims, considering that they suffered moral damages in view of
the unjust refusal of BPI to accept the payment scheme proposed by IBAA
and the allegedly unjust and illegal foreclosure of the real estate mortgages
on their property. 28 Conversely, they argue that the Court of Appeals erred in
awarding moral damages to BPI, which is a corporation, as well as
exemplary damages, attorney's fees and expenses of litigation. 29 EDSAac

We do not agree. Moral damages are meant to compensate the

claimant for any physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation
and similar injuries unjustly caused. 30 Such damages, to be recoverable,
must be the proximate result of a wrongful act or omission the factual basis
for which is satisfactorily established by the aggrieved party. 31 There being
no wrongful or unjust act on the part of BPI in demanding payment from
them and in seeking the foreclosure of the chattel and real estate mortgages,
there is no lawful basis for award of damages in favor of the spouses.
Neither is BPI entitled to moral damages. 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. 32 The Court of Appeals
found BPI as "being famous and having gained its familiarity and respect not
only in the Philippines but also in the whole world because of its good will
and good reputation must protect and defend the same against any
unwarranted suit such as the case at bench." 33 In holding that BPI is entitled
to moral damages, the Court of Appeals relied on the case of People v.
Manero, 34 wherein the Court ruled that "[i]t is only when a juridical person
has a good reputation that is debased, resulting in social humiliation, that
moral damages may be awarded." 35
We do not agree with the Court of Appeals. A statement similar to that
made by the Court in Manero can be found in the case of Mambulao Lumber
Co. v. PNB, et al., 36 thus:
. . . Obviously, an artificial person like herein appellant
corporation cannot experience physical sufferings, mental anguish,
fright, serious anxiety, wounded feelings, moral shock or social
humiliation which are basis of moral damages. A corporation may
have good reputation which, if besmirched may also be a
ground for the award of moral damages. . . . (Emphasis supplied)
Nevertheless, in the more recent cases of ABS-CBN Corp. v. Court of
Appeals, et al., 37 and Filipinas Broadcasting Network, Inc. v. Ago Medical
and Educational Center-Bicol Christian College of
Medicine (AMEC-BCCM), 38 the Court held that the statements
 in Manero and Mambulao were mere obiter dicta, implying that the award
of moral damages to corporations is not a hard and fast rule. Indeed, while the
Court may allow the grant of moral damages to corporations, it is not
automatically granted; there must still be proof of the existence of the factual
basis of the damage and its causal relation to the defendant's acts. This is so
because moral damages, though incapable of pecuniary estimation, are in the
category of an award designed to compensate the claimant for actual
injury suffered and not to impose a penalty on the wrongdoer. 39 CcADHI

The spouses' complaint against BPI proved to be unfounded, but it

does not automatically entitle BPI to moral damages. Although the institution
of a clearly unfounded civil suit can at times be a legal justification for an
award of attorney's fees, such filing, however, has almost invariably been
held not to be a ground for an award of moral damages. The rationale for the
rule is that the law could not have meant to impose a penalty on the right to
litigate. Otherwise, moral damages must every time be awarded in favor of
the prevailing defendant against an unsuccessful plaintiff. 40 BPI may have
been inconvenienced by the suit, but we do not see how it could have
possibly suffered besmirched reputation on account of the single suit alone.
Hence, the award of moral damages should be deleted.
The awards of exemplary damages and attorney's fees, however, are
proper. Exemplary damages, on the other hand, are imposed by way of
example or correction for the public good, when the party to a contract acts in
a wanton, fraudulent, oppressive or malevolent manner, while attorney's fees
are allowed when exemplary damages are awarded and when the party to a
suit is compelled to incur expenses to protect his interest. 41 The spouses
instituted their complaint against BPI notwithstanding the fact that they were
the ones who failed to pay their obligations. Consequently, BPI was forced to
litigate and defend its interest. For these reasons, BPI is entitled to the awards
of exemplary damages and attorney's fees.
WHEREFORE, the petition is DENIED. The Decision and Resolution
of the Court of Appeals dated 24 October 2005 and 31 March 2006,
respectively, are hereby AFFIRMED, with the MODIFICATION that the
award of moral damages to Bank of the Philippine Islands is DELETED.
Costs against the petitioners.
SO ORDERED.
(Crystal v. Bank of the Philippine Islands, G.R. No. 172428, [November 28,
|||

2008], 593 PHIL 344-356)

 [G.R. No. 141994. January 17, 2005.]
FILIPINAS BROADCASTING NETWORK,
INC., petitioner, vs. AGO MEDICAL AND EDUCATIONAL
CENTER-BICOL CHRISTIAN COLLEGE OF
MEDICINE, (AMEC-BCCM) and ANGELITA F.
AGO, respondents.

DECISION

CARPIO, J : p

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, attorney's fees and costs of suit.
The Antecedents
"Exposé" is a radio documentary 4 program hosted by Carmelo 'Mel' Rima
("Rima") and Hermogenes ‘Jun' Alegre ("Alegre"). 5Exposé is aired every
morning over DZRC-AM which is owned by Filipinas Broadcasting Network,
Inc. ("FBNI"). "Exposé" 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 AMEC's 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: ETHCDS

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?

xxx xxx xxx

Second: Earlier AMEC students in Physical Therapy had complained

that the course is not recognized by DECS. . . .

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 AMEC's 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 xxx 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 you'll 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, isn't 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 latter's
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 xxx 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.TcDAHS

xxx xxx xxx

MEL RIMA:

. . . 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 I'm 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. Don't insist.

. . . 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 — that's why she (Lola) was taken in as Dean.

xxx 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. . . . 9 (Emphasis supplied)
The complaint further alleged that AMEC is a reputable learning institution.
With the supposed exposés, 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."prcd

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 FBNI's 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.
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 Rima's only
participation was when he agreed with Alegre's exposé. The trial court found
Rima's 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 attorney's fees, and to
pay the costs of suit.
DETcAH

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 court's judgment with modification. The appellate
court made Rima solidarily liable with FBNI and Alegre. The appellate court
denied Ago's claim for damages and attorney's 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 court's 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 Alegre's 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 AMEC's 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 Ago's claim for damages and attorney's 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,
attorney's fees and costs of suit.
CIAacS

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 ATTORNEY'S FEES
IS PROPER; and
IV. WHETHER FBNI IS SOLIDARILY LIABLE WITH
RIMA AND ALEGRE FOR PAYMENT OF MORAL
DAMAGES, ATTORNEY'S FEES AND COSTS OF
SUIT.
The Court's 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 AMEC's
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 Alegre's remarks such as "greed for money on the part of AMEC's
administrators"; "AMEC is a dumping ground, garbage of . . . 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. HDCAaS

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 AMEC's side and gave Ago the opportunity
to defend AMEC and its administrators. FBNI concludes that since there is no
malice, there is no libel.
FBNI's 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 exposé, 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 Alegre's reckless disregard of whether their report was true or
not.
Contrary to FBNI's 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 republisher's 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. AISHcD

FBNI's 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 AMEC's 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:
. . . 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.

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. ScaHDT

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. . . . 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:DEcTCa

B. PUBLIC AFFAIRS, PUBLIC ISSUES AND

COMMENTARIES

1. . . .

4. Public affairs program shall present public issues

free from personal bias, prejudice and inaccurate and
misleading information. . . . Furthermore, the station
shall strive to present balanced discussion of
issues. . . ..
 xxx xxx 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. TESDcA

II.
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to moral damages because it is a
corporation. 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 Court's 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, AMEC's 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 attorney's fees is proper
FBNI contends that since AMEC is not entitled to moral damages, there is no
basis for the award of attorney's fees. FBNI adds that the instant case does not
fall under the enumeration in Article 2208 48 of the Civil Code.
The award of attorney's fees is not proper because AMEC failed to justify
satisfactorily its claim for attorney's fees. AMEC did not adduce evidence to
warrant the award of attorney's fees. Moreover, both the trial and appellate
courts failed to explicitly state in their respective decisions the rationale for the
award of attorney's 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 counsel's fees are
not to be awarded every time a party wins a suit. The power of the
court to award attorney's 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 attorney's
fees. 51(Emphasis supplied) ASHEca
While it mentioned about the award of attorney's 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,
attorney's fees and costs of suit
FBNI contends that it is not solidarily liable with Rima and Alegre for the
payment of damages and attorney's 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 Alegre's 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." Rima's accreditation lapsed due to his non-payment of the
KBP annual fees while Alegre's 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.
FBNI's 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. HaAIES

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 FBNI's radio program Exposé 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. FBNI's 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 industry's 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.
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 FBNI's
"regimented process" of application. Furthermore, FBNI admits that Rima and
Alegre had deficiencies in their KBP accreditation, 56 which is one of FBNI's
requirements before it hires a broadcaster. Significantly, membership in the KBP,
while voluntary, indicates the broadcaster's strong commitment to observe the
broadcast industry's rules and regulations. Clearly, these circumstances show
FBNI's 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 attorney's fees
is deleted. Costs against petitioner.
HDITCS

SO ORDERED.
(Filipinas Broadcasting Network, Inc. v. Ago Medical & Educational
|||

Center-Bicol Christian College of Medicine, G.R. No. 141994, [January 17,

2005], 489 PHIL 380-405)
 [G.R. No. 119020. October 19, 2000.]
INTERNATIONAL EXPRESS TRAVEL & TOUR
SERVICES, INC., petitioner, vs. HON. COURT OF
APPEALS, HENRI KAHN, PHILIPPINES FOOTBALL
FEDERATION, respondents.

DECISION

KAPUNAN, J : p

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. AaCEDS

Petitioner secured the airline tickets for the trips of the athletes and officials of
the Federation to the South East Asian Games in Kuala Lumpur as well as
various other trips to the People's Republic of China and Brisbane. The total cost
of the tickets amounted to P449,654.83. For the tickets received, the Federation
made two partial payments, both in September of 1989, in the total amount of
P176,467.50. 2
On 4 October 1989, petitioner wrote the Federation, through the private
respondent a demand letter requesting for the amount of P265,894.33. 3 On 30
October 1989, the Federation, through the Project Gintong Alay, paid the
amount of P31,603.00. 4
On 27 December 1989, Henri Kahn issued a personal check in the amount of
P50,000 as partial payment for the outstanding balance of the
Federation. 5 Thereafter, no further payments were made despite repeated
demands.
This prompted petitioner to file a civil case before the Regional Trial Court of
Manila. Petitioner sued Henri Kahn in his personal capacity and as President of
the Federation and impleaded the Federation as an alternative defendant.
Petitioner sought to hold Henri Kahn liable for the unpaid balance for the tickets
purchased by the Federation on the ground that Henri Kahn allegedly guaranteed
the said obligation. 6
Henri Kahn filed his answer with counterclaim. While not denying the allegation
that the Federation owed the amount P207,524.20, representing the unpaid
balance for the plane tickets, he averred that the petitioner has no cause of action
against him either in his personal capacity or in his official capacity as president
of the Federation. He maintained that he did not guarantee payment but merely
acted as an agent of the Federation which has a separate and distinct juridical
personality. 7
On the other hand, the Federation failed to file its answer, hence, was declared in
default by the trial court. 8
In due course, the trial court rendered judgment and ruled in favor of the
petitioner and declared Henri Kahn personally liable for the unpaid obligation of
the Federation. In arriving at the said ruling, the trial court rationalized:
Defendant Henri Kahn would have been correct in his contentions had
it been duly established that defendant Federation is a corporation.
The trouble, however, is that neither the plaintiff nor the defendant
Henri Kahn has adduced any evidence proving the corporate existence
of the defendant Federation. In paragraph 2 of its complaint, plaintiff
asserted that "defendant Philippine Football Federation is a sports
association . . . ." 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 xxx 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.

xxx xxx xxx 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. SEHDIC
 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 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 AN
ASSURED PETITIONER OF FULLY SETTLING THE
OBLIGATION.
C. ASSUMING ARGUENDO THAT PRIVATE
RESPONDENT KAHN IS NOT PERSONALLY
LIABLE, THE HONORABLE COURT OF APPEALS
ERRED IN NOT EXPRESSLY DECLARING IN ITS
DECISION THAT THE PFF IS SOLELY LIABLE FOR
THE OBLIGATION.
The resolution of the case at bar hinges on the determination of the existence of
the Philippine Football Federation as a juridical person. In the assailed decision,
the appellate court recognized the existence of the Federation. In support of this,
the CA cited Republic Act 3135, otherwise known as the Revised Charter of the
Philippine Amateur Athletic Federation, and Presidential Decree No. 604 as the
laws from which said Federation derives its existence.
As correctly observed by the appellate court, both R.A. 3135 and P.D. No.
604 recognized the juridical existence of national sports associations. This may
be gleaned from the powers and functions granted to these associations. Section
14 of R.A. 3135 provides:
SEC. 14. Functions, powers and duties of Associations. — The
National Sports' Association shall have the following functions,
powers and duties:

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

organization and government.

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

their purposes.

3. To purchase, sell, lease or otherwise encumber property

both real and personal, for the accomplishment of their
purpose;
 4. To affiliate with international or regional sports'
Associations after due consultation with the executive
committee;

xxx xxx 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 hereto 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 xxx 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. 3135or 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. 3135provides:
SEC. 11. National Sports' Association; organization and recognition.
— A National Association shall be organized for each individual
sports in the Philippines in the manner hereinafter provided to
constitute the Philippine Amateur Athletic Federation. Applications
for recognition as a National Sports' Association shall be filed with the
executive committee together with, among others, a copy of the
constitution and by-laws and a list of the members of the proposed
association, and a filing fee of ten pesos.

The Executive Committee shall give the recognition applied for if it is

satisfied that said association will promote the purposes of this Act
and particularly section three thereof. No application shall be held
pending for more than three months after the filing thereof without
any action having been taken thereon by the executive committee.
Should the application be rejected, the reasons for such rejection shall
be clearly stated in a written communication to the applicant. Failure
to specify the reasons for the rejection shall not affect the application
which shall be considered as unacted upon: Provided however, That
until the executive committee herein provided shall have been formed,
applications for recognition shall be passed upon by the duly elected
members of the present executive committee of the Philippine
Amateur Athletic Federation. The said executive committee shall be
dissolved upon the organization of the executive committee herein
provided: Provided, further, That the functioning executive
committee is charged with the responsibility of seeing to it that the
National Sports' Associations are formed and organized within six
months from and after the passage of this Act.

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

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

The Department shall give the recognition applied for if it is satisfied

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

The Department shall supervise the national sports

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

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

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 principle 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 liabilities on a contract from which he has benefited on the
irrelevant ground of defective incorporation. 16 In the case at bar, the petitioner is
not trying to escape liability from the contract but rather is the one claiming from
the contract.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE.
The decision of the Regional Trial Court of Manila, Branch 35, in Civil Case No.
90-53595 is hereby REINSTATED.
SO ORDERED.
(International Express Travel & Tour Services, Inc. v. Court of Appeals, G.R.
|||

No. 119020, [October 19, 2000], 397 PHIL 751-762)

[G.R. No. 100866. July 14, 1992.]

REBECCA BOYER-ROXAS and GUILLERMO
ROXAS, petitioners, vs. HON. COURT OF APPEALS and
HEIRS OF EUGENIA V. ROXAS, INC., respondents.

Oscar Z. Benares for petitioners.

Benito P. Fabie for private respondent.
SYLLABUS

1. LEGAL ETHICS; ATTORNEY-CLIENT RELATIONSHIP; CLIENT

BOUND BY THE MISTAKE OF HIS LAWYER; EXCEPTION. — The
well-settled doctrine is that the client is bound by the mistakes of his lawyer.
(Aguila v. Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988]
and other cases cited) This rule, however, has its exceptions. Thus, in several
cases, we ruled that the party is not bound by the actions of his counsel in case
the gross negligence of the counsel resulted in the client's deprivation of his
property without due process of law. (Legarda v. Court of Appeals, 195 SCRA
418 [1991])
2. ID.; ID.; ID.; CLIENT IN CASE AT BAR, NOT A VICTIM OF LAWYER'S
GROSS NEGLIGENCE. — The petitioners were not victims of the gross
negligence of their counsel. They are to be blamed for the October 22, 1986
order issued by the lower court submitting the cases for decision. They received
notices of the scheduled hearings and yet they did not do anything. More
specifically, the parties received notice of the Order dated September 29, 1986
with the warning that if they fail to attend the October 22, 1986 hearing, the
cases would be submitted for decision based on the evidence on record. Earlier,
at the scheduled hearing on September 29, 1986, the counsel for the respondent
corporation moved that the cases be submitted for decision for failure of the
petitioners and their counsel to attend despite notice. The lower court denied the
motion and gave the petitioners and their counsel another chance by
rescheduling the October 22, 1986 hearing. Indeed, the petitioners knew all
along that their counsel was not attending the scheduled hearings. They did not
take steps to change their counsel or make him attend to their cases until it was
too late. On the contrary, they continued to retain the services of Atty. Manicad
knowing fully well his lapses vis-a-vis their cases. They, therefore, cannot raise
the alleged gross negligence of their counsel resulting in their denial of due
process to warrant the reversal of the lower court's decision.
3. COMMERCIAL LAW; CORPORATION LAW; CORPORATION; WITH
JURIDICAL PERSONALITY SEPARATE AND DISTINCT FROM ITS
STOCKHOLDERS. — The respondent is a bona fide corporation. As such, it
has a juridical personality of its own separate from the members composing it.
(Western Agro Industrial Corporation v. Court of Appeals, 188 SCRA 709
[1990] and other cases cited)
4. ID.; ID.; ID.; SHARES OF STOCK, AN ALIQUOT PART OF THE
CORPORATION'S PROPERTY. — Regarding properties owned by a
corporation, we stated in the case of Stockholders of F. Guanzon and Sons, Inc. v.
Register of Deeds of Manila, (6 SCRA 373 [1962]): ". . . Properties registered in
the name of the corporation are owned by it as an entity separate and distinct
from its members. While shares of stock constitute personal property, they do
not represent property of the corporation. The corporation has property of its
own which consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So.
75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock only typifies
an aliquot part of the corporation's property, or the right to share in its proceeds
to that extent when distributed according to law and equity (Hall &
Faley v. Alabama Terminal, 173 Ala., 398, 56 So. 235), but its holder is not the
owner of any part of the capital of the corporation (Bradley v. Bauder, 36 Ohio
St., 28). Nor is he entitled to the possession of any definite portion of its property
or assets (Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474).
The stockholder is not a co-owner or tenant in common of the corporate property
(Harton v. Johnston, 166 Ala., 317, 51 So., 992)."
5. ID.; ID.; ID.; TRANSACTS BUSINESS ONLY THRU ITS AUTHORIZED
OFFICERS OR AGENTS. — The corporation transacts its business only
through its officers or agents. (Western Agro Industrial Corporation v. Court of
Appeals, supra) Whatever authority these officers or agents may have is derived
from the board of directors or other governing body unless conferred by the
charter of the corporation. An officer's power as an agent of the corporation must
be sought from the statute, charter, the by-laws or in a delegation of authority to
such officer, from the acts of the board of directors, formally expressed or
implied from a habit or custom of doing business. (Vicente v. Geraldez, 52
SCRA 210 [1973]) In the present case, the record shows that Eufrocino V. Roxas
who then controlled the management of the corporation, being the majority
stockholder, consented to the petitioners' stay within the questioned properties.
Specifically, Eufrocino Roxas gave his consent to the conversion of the
recreation hall to a residential house, now occupied by petitioner Guillermo
Roxas. The Board of Directors did not object to the actions of Eufrocino Roxas.
The petitioners were allowed to stay within the questioned properties until
August 27, 1983, when the Board of Directors approved a Resolution ejecting
the petitioners.
6. ID.; ID.; ID.; ID.; ACT OF MANAGING STOCKHOLDER ALLOWING
THIRD PARTY POSSESSION OF CORPORATE PROPERTY, DOES NOT
PRECLUDE THE BOARD OF EJECTING PARTY; CASE AT BAR. — We
find nothing irregular in the adoption of the Resolution by the Board of Directors.
The petitioners' stay within the questioned properties was merely by tolerance of
the respondent corporation in deference to the wishes of Eufrocino Roxas, who
during his lifetime, controlled and managed the corporation. Eufrocino Roxas'
actions could not have bound the corporation forever. The petitioners have not
cited any provision of the corporation by-laws or any resolution or act of the
Board of Directors which authorized Eufrocino Roxas to allow them to stay
within the company premises forever. We rule that in the absence of any existing
contract between the petitioners and the respondent corporation, the corporation
may elect to eject the petitioners at any time it wishes for the benefit and interest
of the respondent corporation.
7. ID.; ID.; PIERCING THE VEIL OF CORPORATE FICTION; WHEN
RESORTED TO; NOT APPLICABLE IN CASE AT BAR. — The petitioners'
suggestion that the veil of the corporate fiction should be pierced is untenable.
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 to achieve equity or when necessary for the
protection of the creditors." (Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347
[1976]) The circumstances in the present cases do not fall under any of the
enumerated categories.
8. CIVIL LAW; PROPERTY; RIGHT OF ACCESSION WITH RESPECT TO
IMMOVABLE PROPERTY; RULE WHERE BOTH ARE CONSIDERED IN
GOOD FAITH; CASE AT BAR. — The petitioners insist that as regards the
unfinished building, Rebecca Boyer-Roxas is a builder in good faith. The
construction of the unfinished building started when Eriberto Roxas, husband of
Rebecca Boyer-Roxas, was still alive and was the general manager of the
respondent corporation. The couple used their own funds to finance the
construction of the building. The Board of Directors of the corporation, however,
did not object to the construction. They allowed the construction to continue
despite the fact that it was within the property of the corporation. Under these
circumstances, we agree with the petitioners that the provision of Article 453 of
the Civil Code should have been applied by the lower courts. Article 453 of the
Civil Code provides: "If there was bad faith, not only on the part of the person
who built, planted or sown on the land of another but also on the part of the
owner of such land, the rights of one and the other shall be the same as though
both had acted in good faith." In such a case, the provisions of Article 448 of the
Civil Code govern the relationship between petitioner Rebecca Boyer-Roxas
and the respondent corporation, to wit: "ART. 448. — The owner of the land on
which anything has been built, sown or planted in good faith, shall have the right
to appropriate as his own the works, sowing or planting after payment of the
indemnity provided for in articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper rent.
However, the builder or planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the
buildings or trees after proper indemnity. The parties shall agree upon the terms
of the lease and in case of disagreement, the court shall fix the terms thereof."
DECISION

GUTIERREZ, JR., J : p

This is a petition to review the decision and resolution of the Court of Appeals in
CA-G.R. No. 14530 affirming the earlier decision of the Regional Trial Court of
Laguna, Branch 37, at Calamba, in the consolidated RTC Civil Case Nos.
802-84-C and 803-84-C entitled "Heirs of Eugenia V. Roxas, Inc. v. Rebecca
Boyer-Roxas" and Heirs of Eugenia V. Roxas, Inc. v. Guillermo Roxas," the
dispositive portion of which reads:
 "IN VIEW OF THE FOREGOING, judgment is hereby rendered in
favor of the plaintiff and against the defendants, by ordering as it is
hereby ordered that:

1) In RTC Civil Case No. 802-84-C: Rebecca Boyer-Roxas and all

persons claiming under her to:

a) Immediately vacate the residential house near the Balugbugan pool

located inside the premises of the Hidden Valley Springs Resort at
Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September
10, 1983, for her occupancy of the residential house until the same is
vacated;

c) Remove the unfinished building erected on the land of the plaintiff

within ninety (90) days from receipt of this decision;

d) Pay the plaintiff the amount of P100.00 per month from September
10, 1983, until the said unfinished building is removed from the land
of the plaintiff; and

e) Pay the costs.

2) In RTC Civil Case No. 803-84-C: Guillermo Roxas and all persons
claiming under him to: LexLib

a) Immediately vacate the residential house near the tennis court

located within the premises of the Hidden Valley Springs Resort at
Limao, Calauan, Laguna;

b) Pay the plaintiff the amount of P300.00 per month from September
10, 1983, for his occupancy of the said residential house until the same
is vacated; and

c) Pay the costs." (Rollo, p. 36)

In two (2) separate complaints for recovery of possession filed with the Regional
Trial Court of Laguna against petitioners Rebecca Boyer-Roxas and Guillermo
Roxas respectively, respondent corporation, Heirs of Eugenia V. Roxas, Inc.,
prayed for the ejectment of the petitioners from buildings inside the Hidden
Valley Springs Resort located at Limao, Calauan, Laguna allegedly owned by
the respondent corporation.
In the case of petitioner Rebecca Boyer-Roxas (Civil Case No. 802-84-C), the
respondent corporation alleged that Rebecca is in possession of two (2) houses,
one of which is still under construction, built at the expense of the respondent
corporation; and that her occupancy on the two (2) houses was only upon the
tolerance of the respondent corporation.
In the case of petitioner Guillermo Roxas (Civil Case No. 803-84-C), the
respondent corporation alleged that Guillermo occupies a house which was built
at the expense of the former during the time when Guillermo's father, Eriberto
Roxas, was still living and was the general manager of the respondent
corporation; that the house was originally intended as a recreation hall but was
converted for the residential use of Guillermo; and that Guillermo's possession
over the house and lot was only upon the tolerance of the respondent
corporation.
In both cases, the respondent corporation alleged that the petitioners never paid
rentals for the use of the buildings and the lots and that they ignored the demand
letters for them to vacate the buildings.
In their separate answers, the petitioners traversed the allegations in the
complaint by stating that they are heirs of Eugenia V. Roxas and therefore,
co-owners of the Hidden Valley Springs Resort; and as co-owners of the
property, they have the right to stay within its premises.
The cases were consolidated and tried jointly.
At the pre-trial, the parties limited the issues as follows:
"1) whether plaintiff is entitled to recover the questioned premises;

2) whether plaintiff is entitled to reasonable rental for occupancy of

the premises in question;cdrep

3) whether the defendant is legally authorized to pierce the veil of

corporate fiction and interpose the same as a defense in an accion
publiciana;

4) whether the defendants are truly builders in good faith, entitled to

occupy the questioned premises;

5) whether plaintiff is entitled to damages and reasonable

compensation for the use of the questioned premises;

6) whether the defendants are entitled to their counterclaim to recover

moral and exemplary damages as well as attorney's fees in the two
cases;

7) whether the presence and occupancy by the defendants on the

premises in questioned (sic) hampers, deters or impairs plaintiff's
operation of Hidden Valley Springs Resort; and
 8) whether or not a unilateral and sudden withdrawal of plaintiff's
tolerance allowing defendants' occupancy of the premises in
questioned (sic) is unjust enrichment." (Original Records, 486)

Upon motion of the plaintiff respondent corporation Presiding Judge Francisco

Ma. Guerrero of Branch 34 issued an Order dated April 25, 1986 inhibiting
himself from further trying the case. The cases were re-raffled to Branch 37
presided by Judge Odilon Bautista. Judge Bautista continued the hearing of the
cases.
For failure of the petitioners (defendants below) and their counsel to attend the
October 22, 1986 hearing despite notice, and upon motion of the respondent
corporation, the court issued on the same day, October 22, 1986, an Order
considering the cases submitted for decision. At this stage of the proceedings,
the petitioners had not yet presented their evidence while the respondent
corporation had completed the presentation of its evidence.
The evidence of the respondent corporation upon which the lower court based its
decision is as follows:
"To support the complaints, the plaintiff offered the testimonies of
Maria Milagros Roxas and that of Victoria Roxas Villarta as well as
Exhibits 'A' to 'M-3'.

The evidence of the plaintiff established the following: that the

plaintiff, Heirs of Eugenia V. Roxas, Incorporated, was incorporated
on December 4, 1962 (Exh. 'C') with the primary purpose of engaging
in agriculture to develop the properties inherited from Eugenia V.
Roxas and that of Eufrocino Roxas; that the Articles of Incorporation
of the plaintiff, in 1871, was amended to allow it to engage in the
resort business (Exh. 'C-1'); that the incorporators as original members
of the board of directors of the plaintiff were all members of the same
family, with Eufrocino Roxas having the biggest share; that
accordingly, the plaintiff put up a resort known as Hidden Valley
Springs Resort on a portion of its land located at Bo. Limao, Calauan,
Laguna, and covered by TCT No. 32639 (Exhs. 'A' and 'A-1'); that
improvements were introduced in the resort by the plaintiff and among
them were cottages, houses or buildings, swimming pools, tennis
court, restaurant and open pavilions; that the house near the
Balugbugan Pool (Exh. 'B-1') being occupied by Rebecca B. Roxas
was originally intended as staff house but later used as the residence of
Eriberto Roxas, deceased husband of the defendant Rebecca
Boyer-Roxas and father of Guillermo Roxas; that this house presently
being occupied by Rebecca B. Roxas was built from corporate funds;
that the construction of the unfinished house (Exh. 'B-2') was started
by the defendant Rebecca Boyer-Roxas and her husband Eriberto
Roxas; that the third building (Exh. 'B-3') presently being occupied by
Guillermo Roxas was originally intended as a recreation hall but later
converted as a residential house; that this house was built also from
corporate funds; that the said house occupied by Guillermo Roxas
when it was being built had nipa roofing but was later changed to
galvanized iron sheets; that at the beginning, it had no partition
downstairs and the second floor was an open space; that the
conversion from a recreation hall to a residential house was with the
knowledge of Eufrocino Roxas and was not objected to by any of the
Board of Directors of the plaintiff; that most of the materials used in
converting the building into a residential house came from the
materials left by Coppola, a film producer, who filmed the movie
`Apocalypse Now'; that Coppola left the materials as part of his
payment for rents of the rooms that he occupied in the resort; that after
the said recreation hall was converted into a residential house,
defendant Guillermo Roxas moved in and occupied the same together
with his family sometime in 1977 or 1978; that during the time
Eufrocino Roxas was still alive, Eriberto Roxas was the general
manager of the corporation and there was seldom any board meeting;
that Eufrocino Roxas together with Eriberto Roxas were (sic) the ones
who were running the corporation; that during this time, Eriberto
Roxas was the restaurant and wine concessionaire of the resort; that
after the death of Eufrocino Roxas, Eriberto Roxas continued as the
general manager until his death in 1980; that after the death of Eriberto
Roxas in 1980, the defendants Rebecca B. Roxas and Guillermo
Roxas, committed acts that impeded the plaintiff's expansion and
normal operation of the resort; that the plaintiff could not even use its
own pavilions, kitchen and other facilities because of the acts of the
defendants which led to the filing of criminal cases in court; that cases
were even filed before the Ministry of Tourism, Bureau of Domestic
Trade and the Office of the President by the parties herein; that the
defendants violated the resolution and orders of the Ministry of
Tourism dated July 28, 1983, August 3, 1983 and November 26, 1984
(Exhs. 'G', 'H' and 'H-1') which ordered them or the corporation they
represent to desist from and to turn over immediately to the plaintiff
the management and operation of the restaurant and wine outlets of
the said resort (Exh. 'G-1'); that the defendants also violated the
decision of the Bureau of Domestic Trade dated october 23, 1983 (Exh.
'C'); that on August 27, 1983, because of the acts of the defendants, the
 Board of Directors of the plaintiff adopted Resolution No. 83-12
series of 1983 (Exh. 'F') authorizing the ejectment of the defendants
from the premises occupied by them; that on September 1, 1983,
demand letters were sent to Rebecca Boyer-Roxas and Guillermo
Roxas (Exhs. 'D' and 'D-1') demanding that they vacate the respective
premises they occupy; and that the dispute between the plaintiff and
the defendants was brought before the barangay level and the same
was not settled (Exhs. 'E' and 'E-1')." (Original Records, pp.
454-456) prcd

The petitioners appealed the decision to the Court of Appeals. However, as

stated earlier, the appellate court affirmed the lower court's decision. The
petitioners' motion for reconsideration was likewise denied.
Hence, this petition.
In a resolution dated February 5, 1992, we gave due course to the petition.
The petitioners now contend:
I. Respondent Court erred when it refused to pierce the veil of
corporate fiction over private respondent and maintain the petitioners
in their possession and/or occupancy of the subject premises
considering that petitioners are owners of aliquot part of the properties
of private respondent. Besides, private respondent itself discarded the
mantle of corporate fiction by acts and/or omissions of its board of
directors and/or stockholders.

II. The respondent Court erred in not holding that petitioners were in
fact denied due process or their day in court brought about by the gross
negligence of their former counsel.

III. The respondent Court misapplied the law when it ordered

petitioner Rebecca Boyer-Roxas to remove the unfinished building in
RTC Case No. 802-84-C, when the trial court opined that she spent her
own funds for the construction thereof. (CA Rollo, pp. 17-18)

Were the petitioners denied due process of law in the lower court?
After the cases were re-raffled to the sala of Presiding Judge Odilon Bautista of
Branch 37 the following events transpired:
On July 3, 1986, the lower court issued an Order setting the hearing of the cases
on July 21, 1986. Petitioner Rebecca V. Roxas received a copy of the Order on
July 15, 1986, while petitioner Guillermo Roxas received his copy on July 18,
1986. Atty. Conrado Manicad, the petitioners' counsel received another copy of
the Order on July 11, 1986. (Original Records, p. 260)
On motion of the respondent corporation's counsel, the lower court issued an
Order dated July 15, 1986 cancelling the July 21, 1986 hearing and resetting the
hearing to August 11, 1986. (Original records, 262-263) Three separate copies of
the order were sent and received by the petitioners and their counsel. (Original
Records, pp. 268, 269, 271)
A motion to cancel and re-schedule the August 11, 1986 hearing filed by the
respondent corporation's counsel was denied in an Order dated August 8, 1986.
Again separate copies of the Order were sent and received by the petitioners and
their counsel. (Original Records, pp. 276-279)
At the hearing held on August 11, 1986, only Atty. Benito P. Fabie, counsel for
the respondent corporation appeared. Neither the petitioners nor their counsel
appeared despite notice of hearing. The lower court then issued an Order on the
same date, to wit:
"ORDER

When these cases were called for continuation of trial, Atty. Benito P.
Fabie appeared before this Court, however, the defendants and their
lawyer despite receipt of the Order setting the case for hearing today
failed to appear. On Motion of Atty. Fabie, further cross examination
of witness Victoria Vallarta is hereby considered as having been
waived.

The plaintiff is hereby given twenty (20) days from today within
which to submit formal offer of evidence and defendants are also
given ten (10) days from receipt of such formal offer of evidence to
file their objection thereto.

In the meantime, hearing in these cases is set to September 29, 1986 at

10:00 o'clock in the morning." (Original Records, p. 286)

Copies of the Order were sent and received by the petitioners and their counsel
on the following dates — Rebecca Boyer-Roxas on August 20, 1986, Guillermo
Roxas on August 26, 1986, and Atty. Conrado Manicad on September 19, 1986.
(Original Records, pp. 288-290)
On September 1, 1986, the respondent corporation filed its "Formal Offer of
Evidence." In an Order dated September 29, 1986, the lower court issued an
Order admitting exhibits "A" to "M-3" submitted by the respondent corporation
in its "Formal Offer of Evidence . . . there being no objection . . . ." (Original
Records, p. 418) Copies of this Order were sent and received by the petitioners
and their counsel on the following dates: Rebecca Boyer-Roxas on October 9,
1986 and Atty. Conrado Manicad on October 4, 1986 (Original Records, pp. 420,
421, 428)
The scheduled hearing on September 29, 1986 did not push through as the
petitioners and their counsel were not present prompting Atty. Benito Fabie, the
respondent corporation's counsel to move that the cases be submitted for
decision. The lower court denied the motion and set the cases for hearing on
October 22, 1986. However, in its Order dated September 29, 1986, the
court warned that in the event the petitioners and their counsel failed to appear
on the next scheduled hearing, the court shall consider the cases submitted for
decision based on the evidence on record. (Original Records, p. 429, 430 and
431)
Separate copies of this Order were sent and received by the petitioners and their
counsel on the following dates: Rebecca Boyer-Roxas on October 9, 1986,
Guillermo Roxas on October 9, 1986; and Atty. Conrado Manicad on October 1,
1986. (Original Records, pp. 429-430) prcd

Despite notice, the petitioners and their counsel again filed to attend the
scheduled October 22, 1986 hearing. Atty. Fabie representing the respondent
corporation was present. Hence, in its Order dated October 22, 1986, on motion
of Atty. Fabie and pursuant to the order dated September 29, 1986, the Court
considered the cases submitted for decision. (Original Records, p. 436)
On November 14, 1986, the respondent corporation, filed a "Manifestation",
stating that ". . . it is submitting without further argument its `Opposition to the
Motion for Reconsideration' for the consideration of the Honorable Court in
resolving subject incident." (Original Records, p. 442)
On December 16, 1986, the lower court issued an Order, to wit:
"ORDER

Considering that the Court up to this date has not received any Motion
for Reconsideration filed by the defendants in the above-entitled cases,
the Court cannot act on the Opposition to Motion for Reconsideration
filed by the plaintiff and received by the Court on November 14,
1986." (Original Records, p. 446)

On January 15, 1987, the lower court rendered the questioned decision in the two
(2) cases. (Original Records, pp. 453-459)
On January 20, 1987, Atty. Conrado Manicad, the petitioners' counsel filed an
Ex-Parte Manifestation and attached thereto, a motion for reconsideration of the
October 22, 1986 order submitting the cases for decision. He prayed that the
Order be set aside and the cases be re-opened for reception of evidence for the
petitioners. He averred that: 1) within the reglementary period he prepared the
motion for reconsideration and among other documents, the draft was sent to his
law office thru his messenger; after signing the final copies, he caused the
service of a copy to the respondent corporation's counsel with the instruction that
the copy of the Court be filed; however, there was a miscommunication between
his secretary and messenger in that the secretary mailed the copy for the
respondent corporation's counsel and placed the rest in an envelope for the
messenger to file the same in court but the messenger thought that it was the
secretary who would file it; it was only later on when it was discovered that the
copy for the Court has not yet been filed and that such failure to file the motion
for reconsideration was due to excusable neglect and/or accident. The motion for
reconsideration contained the following allegations: that on the date set for
hearing (October 22, 1986), he was on his way to Calamba to attend the hearing
but his car suffered transmission breakdown; and that despite efforts to repair
said transmission, the car remained inoperative resulting in his absence at the
said hearing. (Original Records, pp. 460-469)
On February 3, 1987, Atty. Manicad filed a motion for reconsideration of the
January 15, 1987 decision. He explained that he had to file the motion because
the receiving clerk refused to admit the motion for reconsideration attached to
the ex-parte manifestation because there was no proof of service to the other
party. Included in the motion for reconsideration was a notice of hearing of the
motion on February 3, 1987. (Original Records, p. 476-A)
On February 4, 1987, the respondent corporation through its counsel filed a
Manifestation and Motion manifesting that they received the copy of the motion
for reconsideration only today (February 4, 1987), hence they prayed for the
postponement of the hearing. (Original Records, pp., 478-479)
On the same day, February 4, 1987, the lower court issued an Order setting the
hearing on February 13, 1987 on the ground that it received the motion for
reconsideration late. Copies of this Order were sent separately to the petitioners
and their counsel. The records show that Atty. Manicad received his copy on
February 11, 1987. As regards the petitioners, the records reveal that Rebecca
Boyer-Roxas did not receive her copy while as regards Guillermo Roxas,
somebody signed for him but did not indicate when the copy was received.
(Original Records, pp. 481-483)
At the scheduled February 13, 1987 hearing, the counsels for the parties were
present. However, the hearing was reset for March 6, 1987 in order to allow the
respondent corporation to file its opposition to the motion for reconsideration.
(Order dated February 13, 1987, Original Records, p. 486) Copies of the Order
were sent and received by the petitioners and their counsel on the following dates:
Rebecca Boyer-Roxas on February 23, 1987; Guillermo Roxas on February 23,
1987 and Atty. Manicad on February 19, 1987. (Original Records, pp. 487,
489-490)
The records are not clear as to whether or not the scheduled hearing on March 6,
1987 was held. Nevertheless, the records reveal that on March 13, 1987, the
lower court issued an Order denying the motion for reconsideration.
The well-settled doctrine is that the client is bound by the mistakes of his lawyer.
(Aguila v. Court of First Instance of Batangas, Branch I, 160 SCRA 352 [1988];
See also Vivero v. Santos, et al., 98 Phil. 500 [1956]; Isaac v. Mendoza, 89 Phil.
279 [1951]; Montes v. Court of First Instance of Tayabas, 48 Phil. 640 [1926];
People v. Manzanilla, 43 Phil. 167 [1922]; United States v. Dungca, 27 Phil. 274
[1914]; and United States v. Umali, 15 Phil. 33 [1910]) This rule, however, has
its exceptions. Thus, in several cases, we ruled that the party is not bound by the
actions of his counsel in case the gross negligence of the counsel resulted in the
client's deprivation of his property without due process of law. In the case
of Legarda v. Court of Appeals (195 SCRA 418 [1991]), we said:
"In People's Homesite & Housing Corp. v. Tiongco and Escasa
(12 SCRA 471 [1964]), this Court ruled as follows:

'Procedural technicality should not be made a bar to the

vindication of a legitimate grievance. When such technicality
deserts from being an aid to justice, the courts are justified in
excepting from its operation a particular case. Where there was
something fishy and suspicious about the actuations of the
former counsel of petitioners in the case at bar, in that he did
not give any significance at all to the processes of the court,
which has proven prejudicial to the rights of said clients, under
a lame and flimsy explanation that the court's processes just
escaped his attention, it is held that said lawyer deprived his
clients of their day in court, thus entitling said clients to
petition for relief from judgment despite the lapse of the
reglementary period for filing said period for filing said
petition.'

"In Escudero v. Judge Dulary (158 SCRA 69 [1988]), this Court, in

holding that the counsel's blunder in procedure is an exception to the
rule that the client is bound by the mistakes of counsel, made the
following disquisition:
 'Petitioners contend, through their new counsel, that
the judgment rendered against them by the respondent court
was null and void, because they were therein deprived of their
day in court and divested of their property without due process
of law, through the gross ignorance, mistake and negligence of
their previous counsel. They acknowledge that, while as a rule,
clients are bound by the mistake of their counsel, the rule
should not be applied automatically to their case, as their trial
counsel's blunder in procedure and gross ignorance of existing
jurisprudences changed their cause of action and violated their
substantial rights.

'We are impressed with petitioner's contentions. cdrep

xxx xxx xxx

'While this Court is cognizant of the rule that, generally,

a client will suffer consequences of the negligence, mistake or
lack of competence of his counsel, in the interest of justice and
equity, exceptions may be made to such rule, in accordance
with the facts and circumstances of each case. Adherence to
the general rule would, in the instant case, result in the outright
deprivation of their property through a technicality.'

"In its questioned decision dated November 19, 1989 the Court of
Appeals found, in no uncertain terms, the negligence of the then
counsel for petitioners when he failed to file the proper motion to
dismiss or to draw a compromise agreement if it was true that they
agreed on a settlement of the case; or in simply filing an answer; and
that after having been furnished a copy of the decision by the court he
failed to appeal therefrom or to file a petition for relief from the order
declaring petitioners in default. In all these instances the appellate
court found said counsel negligent but his acts were held to bind his
client, petitioners herein, nevertheless.

The Court disagrees and finds that the negligence of counsel in this
case appears to be so gross and inexcusable. This was compounded by
the fact, that after petitioner gave said counsel another chance to make
up for his omissions by asking him to file a petition for annulment of
the judgment in the appellate court, again counsel abandoned the case
of petitioner in that after he received a copy of the adverse judgment of
the appellate court, he did not do anything to save the situation or
inform his client of the judgment. He allowed the judgment to lapse
and become final. Such reckless and gross negligence should not be
 allowed to bind the petitioner. Petitioner was thereby effectively
deprived of her day in court." (at pp. 426-427)

The herein petitioners', however, are not similarly situated as the parties
mentioned in the abovecited cases. We cannot rule that they, too, were victims of
the gross negligence of their counsel.
The petitioners are to be blamed for the October 22, 1986 order issued by the
lower court submitting the cases for decision. They received notices of the
scheduled hearings and yet they did not do anything. More specifically, the
parties received notice of the Order dated September 29, 1986 with
the warning that if they fail to attend the October 22, 1986 hearing, the cases
would be submitted for decision based on the evidence on record. Earlier, at the
scheduled hearing on September 29, 1986, the counsel for the respondent
corporation moved that the cases be submitted for decision for failure of the
petitioners and their counsel to attend despite notice. The lower court denied the
motion and gave the petitioners and their counsel another chance by
rescheduling the October 22, 1986 hearing.
Indeed, the petitioners knew all along that their counsel was not attending the
scheduled hearings. They did not take steps to change their counsel or make him
attend to their cases until it was too late. On the contrary, they continued to retain
the services of Atty. Manicad knowing fully well his lapses vis-a-vis their cases.
They, therefore, cannot raise the alleged gross negligence of their counsel
resulting in their denial of due process to warrant the reversal of the lower court's
decision. In a similar case, Aguila v. Court of First Instance of Batangas, Branch
1 (supra), we ruled:
"In the instant case, the petitioner should have noticed the succession
of errors committed by his counsel and taken appropriate steps for his
replacement before it was altogether too late. He did not. On the
contrary, he continued to retain his counsel through the series of
proceedings that all resulted in the rejection of his cause, obviously
through such counsel's 'ineptitude' and, let it be added, the clients'
forbearance. The petitioner's reverses should nave cautioned him that
his lawyer was mishandling his case and moved him to seek the help
of other counsel, which he did in the end but rather tardily.

Now petitioner wants us to nullify all of the antecedent proceedings

and recognize his earlier claims to the disputed property on the
justification that his counsel was grossly inept. Such a reason is hardly
plausible as the petitioner's new counsel should know. Otherwise, all a
defeated party would have to do to salvage his case is claim neglect or
mistake on the part of his counsel as a ground for reversing the adverse
 judgment. There would be no end to litigation if these were allowed as
every shortcoming of counsel could be the subject of challenge by his
client through another counsel who, if he is also found wanting, would
likewise be disowned by the same client through another counsel, and
so on ad infinitum. This would render court proceedings indefinite,
tentative and subject to reopening at any time by the mere subterfuge
of replacing counsel." (at pp. 357-358)

We now discuss the merits of the cases.

In the first assignment of error, the petitioners maintain that their possession of
the questioned properties must be respected in view of their ownership of an
aliquot portion of all the properties of the respondent corporation being
stockholders thereof. They propose that the veil of corporate fiction be pierced,
considering the circumstances under which the respondent corporation was
formed.
Originally, the questioned properties belonged to Eugenia V. Roxas. After the
death, the heirs of Eugenia V. Roxas, among the petitioners herein, decided to
form a corporation — Heirs of Eugenia V. Roxas, Incorporated (private
respondent herein) with the inherited properties as capital of the corporation. The
corporation was incorporated on December 4, 1962 with the primary purpose of
engaging in agriculture to develop the inherited properties. The Articles of
Incorporation of the respondent corporation were amended in 1971 to allow it to
engage in the resort business. Accordingly, the corporation put up a resort
known as Hidden Valley Springs Resort where the questioned properties are
located.
These facts, however, do not justify the position taken by the petitioners.
The respondent is a bona fide corporation. As such, it has a juridical personality
of its own separate from the members composing it. (Western Agro Industrial
Corporation v. Court of Appeals, 188 SCRA 709 [1990]; Tan Boon Bee & Co.,
Inc. v. Jarencio, 163 SCRA 205 [1988]; Yutivo Sons Hardware Company v.
Court of Tax Appeals, 1 SCRA 160 [1961]; Emilio Cano Enterprises, Inc. v.
Court of Industrial Relations, 13 SCRA 290 [1965]) There is no dispute that title
over the questioned land where the Hidden Valley Springs Resort is located is
registered in the name of the corporation. The records also show that the staff
house being occupied by petitioner Rebecca Boyer-Roxas and the recreation hall
which was later on converted into a residential house occupied by petitioner
Guillermo Roxas are owned by the respondent corporation. Regarding properties
owned by a corporation, we stated in the case of Stockholders of F. Guanzon and
Sons, Inc. v. Register of Deeds of Manila, (6 SCRA 373 [1962]): Cdpr
 xxx xxx xxx

". . . Properties registered in the name of the corporation are owned by

it as an entity separate and distinct from its members. While shares of
stock constitute personal property, they do not represent property of
the corporation. The corporation has property of its own which
consists chiefly of real estate (Nelson v. Owen, 113 Ala., 372, 21 So.
75; Morrow v. Gould, 145 Iowa 1, 123 N.W. 743). A share of stock
only typifies an aliquot part of the corporation's property, or the right
to share in its proceeds to that extent when distributed according to
law and equity (Hall & Faley v. Alabama Terminal, 173 Ala., 398, 56
So. 235), but its holder is not the owner of any part of the capital of the
corporation (Bradley v. Bauder, 36 Ohio St., 28). Nor is he entitled to
the possession of any definite portion of its property or assets
(Gottfried v. Miller, 104 U.S., 521; Jones v. Davis, 35 Ohio St., 474 ).
The stockholder is not a co-owner or tenant in common of the
corporate property (Harton v. Johnston, 166 Ala., 317, 51 So., 992)."
(at pp. 375-376)

The petitioners point out that their occupancy of the staff house which was later
used as the residence of Eriberto Roxas, husband of petitioner Rebecca
Boyer-Roxas and the recreation hall which was converted into a residential
house were with the blessings of Eufrocino Roxas, the deceased husband of
Eugenia V. Roxas, who was the majority and controlling stockholder of the
corporation. In his lifetime, Eufrocino Roxas together with Eriberto Roxas, the
husband or petitioner Rebecca Boyer-Roxas, and the father of petitioner
Guillermo Roxas managed the corporation. The Board of Directors did not
object to such an arrangement. The petitioners argue that ". . . that authority thus
given by Eufrocino Roxas for the conversion of the recreation hall into a
residential house can no longer be questioned by the stockholders of the private
respondent and/or its board of directors for they impliedly but no less explicitly
delegated such authority to said Eufrocino Roxas." (Rollo, p. 12)
Again, we must emphasize that the respondent corporation has a distinct
personality separate from its members. The corporation transacts its business
only through its officers or agents. (Western Agro Industrial Corporation v.
Court of Appeals, supra) Whatever authority these officers or agents may have
is derived from the board of directors or other governing body unless conferred
by the charter of the corporation. An officer's power as an agent of the
corporation must be sought from the statute, charter, the by-laws or in a
delegation of authority to such officer, from the acts of the board of directors,
formally expressed or implied from a habit or custom of doing business.
(Vicente v. Geraldez, 52 SCRA 210 [1973])
In the present case, the record shows that Eufrocino V. Roxas who then
controlled the management of the corporation, being the majority stockholder,
consented to the petitioners' stay within the questioned properties. Specifically,
Eufrocino Roxas gave his consent to the conversion of the recreation hall to a
residential house, now occupied by petitioner Guillermo Roxas. The Board of
Directors did not object to the actions of Eufrocino Roxas. The petitioners were
allowed to stay within the questioned properties until August 27, 1983, when the
Board of Directors approved a Resolution ejecting the petitioners, to wit:
"RESOLUTION No. 83-12

RESOLVED, That Rebecca B. Roxas and Guillermo Roxas, and all

persons claiming under them, be ejected from their occupancy of the
Hidden Valley Springs compound on which their houses have been
constructed and/or are being constructed only on tolerance of the
Corporation and without any contract therefore, in order to give way
to the Corporation's expansion and improvement program and obviate
prejudice to the operation of the Hidden Valley Springs Resort by
their continued interference.

RESOLVED, Further that the services of Atty. Benito P. Fabie be

engaged and that he be authorized as he is hereby authorized to effect
the ejectment, including the filing of the corresponding suits, if
necessary to do so." (Original Records, p. 327)

We find nothing irregular in the adoption of the Resolution by the Board of

Directors. The petitioners' stay within the questioned properties was merely by
tolerance of the respondent corporation in deference to the wishes of Eufrocino
Roxas, who during his lifetime, controlled and managed the corporation.
Eufrocino Roxas' actions could not have bound the corporation forever. The
petitioners have not cited any provision of the corporation by-laws or any
resolution or act of the Board of Directors which authorized Eufrocino Roxas to
allow them to stay within the company premises forever. We rule that in the
absence of any existing contract between the petitioners and the respondent
corporation, the corporation may elect to eject the petitioners at any time it
wishes for the benefit and interest of the respondent corporation.
The petitioners' suggestion that the veil of the corporate fiction should be pierced
is untenable. 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 to achieve equity or when necessary for the
protection of the creditors." (Sulo ng Bayan, Inc. v. Araneta, Inc., 72 SCRA 347
[1976] cited in Tan Boon Bee & Co., Inc., v. Jarencio, supra and Western AGro
Industrial Corporation v. Court of Appeals, supra) The circumstances in the
present cases do not fall under any of the enumerated categories.
In the third assignment of error, the petitioners insists that as regards the
unfinished building, Rebecca Boyer-Roxas is a builder in good faith.
The construction of the unfinished building started when Eriberto Roxas,
husband of Rebecca Boyer-Roxas, was still alive and was the general manager of
the respondent corporation. The couple used their own funds to finance the
construction of the building. The Board of Directors of the corporation, however,
did not object to the construction. They allowed the construction to continue
despite the fact that it was within the property of the corporation. Under these
circumstances, we agree with the petitioners that the provision of Article 453 of
the Civil Code should have been applied by the lower courts.
Article 453 of the Civil Code provides:
"If there was bad faith, not only on the part of the person who built,
planted or sown on the land of another but also on the part of the
owner of such land, the rights of one and the other shall be the same as
though both had acted in good faith."

In such a case, the provisions of Article 448 of the Civil Code govern the
relationship between petitioner Rebecca Boyer-Roxas and the respondent
corporation, to wit:LibLex

"ART. 448. — The owner of the land on which anything has been built,
sown or planted in good faith, shall have the right to appropriate as his
own the works, sowing or planting after payment of the indemnity
provided for in articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper
rent. However, the builder or planter cannot be obliged to buy the land
if its value is considerably more than that of the building or trees. In
such case, he shall pay reasonable rent, if the owner of the land does
not choose to appropriate the buildings or trees after proper indemnity.
The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof."

WHEREFORE, the present petition is partly GRANTED. The questioned

decision of the Court of Appeals affirming the decision of the Regional Trial
Court of Laguna, Branch 37, in RTC Civil Case No. 802-84-C is MODIFIED in
that subparagraphs (c) and (d) of Paragraph 1 of the dispositive portion of the
decision are deleted. In their stead, the petitioner Rebecca Boyer-Roxas and the
respondent corporation are ordered to follow the provisions of Article 448 of the
Civil Code as regard the questioned unfinished building in RTC Civil Case No.
802-84-C. The questioned decision is affirmed in all other respects.
SO ORDERED.
(Boyer-Roxas v. Court of Appeals, G.R. No. 100866, [July 14, 1992], 286 PHIL
|||

595-617)

[G.R. No. 182398. July 20, 2010.]

BENNY Y. HUNG, n petitioner, vs. BPI CARD FINANCE
CORP., respondent.

DECISION

PEREZ, J : p

For our resolution is the instant petition for review

by certiorari assailing the Decision 1 dated 31 August 2007 and
Resolution 2 dated 14 April 2008 of the Court of Appeals in CA-G.R. CV No.
84641. The Court of Appeals' Decision affirmed the Order 3 dated 30
November 2004 of the Regional Trial Court (RTC) of Makati City in Civil
Case No. 99-2040, entitled BPI Card Finance Corporation v. B & R
Sportswear Distributor, Inc., finding petitioner Benny Hung liable to
respondent BPI Card Finance Corporation (BPI for brevity) for the
satisfaction of the RTC's 24 June 2002 Decision 4 against B & R Sportswear
Distributor, Inc. The pertinent portion of the Decision states:
xxx xxx xxx

The delivery by the plaintiff to the defendant of P3,480,427.43

pursuant to the Merchant Agreements was sufficiently proven by the
checks, Exhibits B to V-5. Plaintiff's evidence that the amount due to
the defendant was P139,484.38 only was not controverted by the
defendant, hence the preponderance of evidence is in favor of the
plaintiff. The lack of controversy on the amount due to the defendant
when considered with the contents of the letter of the defendant,
Exhibit TT when it returned to plaintiff P963,604.03 "as partial
settlement of overpayments made by BPI Card Corporation to B & R
Sportswear, pending final reconciliation of exact amount of
 overpayment" amply support the finding of the Court that plaintiff
indeed has a right to be paid by the defendant of the amount of
P2,516,826.68.

Plaintiff claims interest of 12%. The obligation of the defendant to

return did not arose out of a loan or forbearance of money, hence,
applying Eastern Shipping Lines Inc. vs. Court of Appeals, 234 SCRA
78 (1994) the rate due is only 6% computed from October 4, 1999 the
date the letter of demand was presumably received by the defendant.

The foregoing effectively dispose of the defenses raised by the

defendant and furnish the reason of the Court for not giving due course
to them.DASCIc

WHEREFORE, judgment is rendered directing defendant to pay

plaintiff P2,516,826.68 with interest at the rate of 6% from October 4,
1999 until full payment.

The antecedent facts of the case are as follows:

Guess? Footwear and BPI Express Card Corporation entered into two
merchant agreements, 5 dated 25 August 1994 and 16 November 1994,
whereby Guess? Footwear agreed to honor validly issued BPI Express Credit
Cards presented by cardholders in the purchase of its goods and services. In
the first agreement, petitioner Benny Hung signed as owner and manager of
Guess? Footwear. He signed the second agreement as president of Guess?
Footwear which he also referred to as B & R Sportswear Enterprises.
From May 1997 to January 1999, respondent BPI mistakenly credited,
through three hundred fifty-two (352) checks, Three Million Four Hundred
Eighty Thousand Four Hundred Twenty-Seven Pesos and 23/100
(P3,480,427.23) to the account of Guess? Footwear. When informed of the
overpayments, 6 petitioner Benny Hung transferred Nine Hundred
Sixty-Three Thousand Six Hundred Four Pesos and 03/100 (P963,604.03)
from the bank account of B & R Sportswear Enterprises to BPI's account as
partial payment. 7 The letter dated 31 May 1999 was worded as follows:
Dear Sir/Madame

This is to authorize BPI Ortigas Branch to transfer the amount of

P963,604.03 from the account of B & R Sportswear Enterprises to the
account of BPI Card Corporation.

The aforementioned amount shall represent partial settlement of

overpaymentsmade by BPI Card Corporation to B & R Sportswear,
 pending final reconciliation of exact amount of
overpayment. (Emphasis supplied.)

Thank you for your usual kind cooperation.

Very truly yours,

(Sgd.)
Benny Hung

In a letter dated 27 September 1999, BPI demanded the balance

payment amounting to Two Million Five Hundred Sixteen Thousand Eight
Hundred Twenty-Six Pesos and 68/100 (P2,516,826.68), but Guess?
Footwear failed to pay.
BPI filed a collection suit before the RTC of Makati City naming as
defendant B & R Sportswear Distributor, Inc. 8Although the case was against
B & R Sportswear Distributor, Inc., it was B & R Footwear Distributors, Inc.,
that filed an answer, appeared and participated in the trial. 9
On 24 June 2002, the RTC rendered a decision ordering defendant B
& R Sportswear Distributor, Inc., to pay the plaintiff (BPI) P2,516,826.68
with 6% interest from 4 October 1999. The RTC ruled that the overpayment
of P3,480,427.43 was proven by checks credited to the account of Guess?
Footwear and the P963,604.03 partial payment proved that defendant ought
to pay P2,516,826.68 10 more. During the execution of judgment, it was
discovered that B & R Sportswear Distributor, Inc., is a non-existing entity.
Thus, the trial court failed to execute the judgment. CDAHIT

Consequently, respondent filed a Motion 11 to pierce the corporate

veil of B & R Footwear Distributors, Inc. to hold its stockholders and officers,
including petitioner Benny Hung, personally liable. In its 30 November 2004
Order, the RTC ruled that petitioner is liable for the satisfaction of the
judgment, since he signed the merchant agreements in his personal
capacity. 12
The Court of Appeals affirmed the order and dismissed petitioner's
appeal. It ruled that since B & R Sportswear Distributor, Inc. is not a
corporation, it therefore has no personality separate from petitioner Benny
Hung who induced the respondent BPI and the RTC to believe that it is a
corporation. 13
After his motion for reconsideration was denied, petitioner filed the
instant petition anchored on the following grounds:
I.
 PIERCING THE VEIL OF CORPORATE FICTION CANNOT
JUSTIFY EXECUTION AGAINST [HIM].

II.

FOR LACK OF SERVICE OF SUMMONS AND A COPY OF THE

COMPLAINT UPON [HIM], THE ASSAILED DECISION OF THE
COURT OF APPEALS, AS WELL AS, ITS RESOLUTION
DENYING [HIS] MOTION FOR RECONSIDERATION SHOULD
BE DECLARED NULL AND VOID FOR LACK OF
JURISDICTION. 14

In essence, the basic issue is whether petitioner can be held liable for
the satisfaction of the RTC's Decision against B & R Sportswear Distributor,
Inc.? As we answer this question, we shall pass upon the grounds raised by
petitioner.
Petitioner claims that he never represented B & R Sportswear
Distributor, Inc., the non-existent corporation sued by respondent; that it
would be unfair to treat his single proprietorship B & R Sportswear
Enterprises as B & R Sportswear Distributor, Inc.; that the confusing
similarity in the names should not be taken against him because he
established his single proprietorship long before respondent sued; that he did
not defraud respondent; that he even paid respondent "in the course of their
mutual transactions;" and that without fraud, he cannot be held liable for the
obligations of B & R Footwear Distributors, Inc. or B & R Sportswear
Distributor, Inc. by piercing the veil of corporate fiction.
Petitioner also states that the "real corporation" B & R Footwear
Distributors, Inc. or Guess? Footwear acknowledged itself as the "real
defendant." It answered the complaint and participated in the trial. According
to petitioner, respondent should have executed the judgment against it as the
"real contracting party" in the merchant agreements. Execution against him
was wrong since he was not served with summons nor was he a party to the
case. Thus, the lower courts did not acquire jurisdiction over him, and their
decisions are null and void for lack of due process. cdtai

Respondent counters that petitioner's initial silence on the

non-existence of B & R Sportswear Distributor, Inc. was intended to mislead.
Still, the evidence showed that petitioner treats B & R Footwear Distributors,
Inc. and his single proprietorship B & R Sportswear Enterprises as one and
the same entity. Petitioner ordered the partial payment using the letterhead of
B & R Footwear Distributor, Inc. and yet the fund transferred belongs to his
single proprietorship B & R Sportswear Enterprises. This fact, according to
respondent, justifies piercing the corporate veil of B & R Footwear
Distributor, Inc. to hold petitioner personally liable.
Citing Sections 4 and 5, Rule 10 of the Rules of Court, respondent also
prays that the name of the inexistent defendant B & R Sportswear Distributor,
Inc. be amended and changed to Benny Hung and/or B & R Footwear
Distributors, Inc.
Moreover, respondent avers that petitioner cannot claim that he was
not served with summons because it was served at his address and the
building standing thereon is registered in his name per the tax declaration.
At the outset, we note the cause of respondent's predicament in failing
to execute the 2002 judgment in its favor: its own failure to state the correct
name of the defendant it sued and seek a correction earlier. Instead of suing
Guess? Footwear and B & R Sportswear Enterprises, the contracting parties
in the merchant agreements, BPI named B & R Sportswear Distributor, Inc.
as defendant. BPI likewise failed to sue petitioner Benny Hung who signed
the agreements as owner/manager and president of Guess? Footwear and B &
R Sportswear Enterprises. Moreover, when B & R Footwear Distributors, Inc.
appeared as defendant, no corresponding correction was sought.
Unfortunately, BPI has buried its omission by silence and lamented instead
petitioner's alleged initial silence on the non-existence of B & R Sportswear
Distributor, Inc. Respondent even accused the "defendant" in its motion to
pierce the corporate veil of B & R Footwear Distributors, Inc. of having
"employed deceit, bad faith and illegal scheme/maneuver," 15 an accusation
no longer pursued before us.
Our impression that respondent BPI should have named petitioner as a
defendant finds validation from (1) petitioner's own admission that B & R
Sportswear Enterprises is his sole proprietorship and (2) respondent's belated
prayer that defendant's name be changed to Benny Hung and/or B & R
Footwear Distributors, Inc. on the ground that such relief is allowed under
Sections 4 16 and 5, 17 Rule 10 of the Rules of Court.
Indeed, we can validly make the formal correction on the name of the
defendant from B & R Sportswear Distributor, Inc. to B & R Footwear
Distributors, Inc. Such correction only confirms the voluntary correction
already made by B & R Footwear Distributors, Inc. which answered the
complaint and claimed that it is the defendant. Section 4, Rule 10 of the Rules
of Court also allows a summary correction of this formal defect. Such
correction can be made even if the case is already before us as it can be made
at any stage of the action. 18 Respondent's belated prayer for correction is
also sufficient since a court can even make the correction motu propio. More
importantly, no prejudice is caused to B & R Footwear Distributors, Inc.
considering its participation in the trial. Hence, petitioner has basis for saying
that respondent should have tried to execute the judgment against B & R
Footwear Distributors, Inc.
But we cannot agree with petitioner that B & R Footwear Distributors,
Inc. or Guess? Footwear is the only "real contracting party." The facts show
that B & R Sportswear Enterprises is also a contracting party. Petitioner
conveniently ignores this fact although he himself signed the second
agreement indicating that Guess? Footwear is also referred to as B & R
Sportswear Enterprises. Petitioner also tries to soften the significance of his
directive to the bank, under the letterhead of B & R Footwear Distributor's,
Inc., to transfer the funds belonging to his sole proprietorship B & R
Sportswear Enterprises as partial payment to the overpayments made by
respondent to Guess? Footwear. He now claims the partial payment as his
payment to respondent "in the course of their mutual transactions." ETIHCa

Clearly, petitioner has represented in his dealings with respondent that

Guess? Footwear or B & R Footwear Distributors, Inc. is also B & R
Sportswear Enterprises. For this reason, the more complete correction on the
name of defendant should be from B & R Sportswear Distributor, Inc. to B &
R Footwear Distributors, Inc. and Benny Hung. Petitioner is the proper
defendant because his sole proprietorship B & R Sportswear Enterprises has
no juridical personality apart from him. 19 Again, the correction only
confirms the voluntary correction already made by B & R Footwear
Distributors, Inc. or Guess? Footwear which is also B & R Sportswear
Enterprises. Correction of this formal defect is also allowed by Section 4,
Rule 10 of the Rules of Court.
Relatedly, petitioner cannot complain of non-service of summons
upon his person. Suffice it to say that B & R Footwear Distributors, Inc. or
Guess? Footwear which is also B & R Sportswear Enterprises had answered
the summons and the complaint and participated in the trial.
Accordingly, we find petitioner liable to respondent and we affirm,
with the foregoing clarification, the finding of the RTC that he signed the
second merchant agreement in his personal capacity.
The correction on the name of the defendant has rendered moot any
further discussion on the doctrine of piercing the veil of corporate fiction. In
any event, we have said that whether the separate personality of a corporation
should be pierced hinges on facts pleaded and proved. 20 In seeking to pierce
the corporate veil of B & R Footwear Distributors, Inc., respondent
complained of "deceit, bad faith and illegal scheme/maneuver." As stated
earlier, respondent has abandoned such accusation. And respondent's proof
— the SEC certification that B & R Sportswear Distributor, Inc. is not an
existing corporation — would surely attest to no other fact but the
inexistence of a corporation named B & R Sportswear Distributor, Inc. as
such name only surfaced because of its own error. Hence, we cannot agree
with the Court of Appeals that petitioner has represented a non-existing
corporation and induced the respondent and the RTC to believe in his
representation.
On petitioner's alleged intention to mislead for his initial silence on
the non-existence of the named defendant, we find more notable respondent's
own silence on the error it committed. Contrary to the allegation, the "real"
defendant has even corrected respondent's error. While the evidence showed
that petitioner has treated B & R Footwear Distributors, Inc. or Guess?
Footwear as B & R Sportswear Enterprises, respondent did not rely on this
ground in filing the motion to pierce the corporate veil of B & R Footwear
Distributors, Inc. Respondent's main contention therein was petitioner's
alleged act to represent a non-existent corporation amounting to deceit, bad
faith and illegal scheme/maneuver.
With regard to the imposable rate of legal interest, we find application
of the rule laid down by this Court in Eastern Shipping Lines, Inc. vs. Court
of Appeals, 21 to wit:
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established
with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to
run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged. DSEaHT

3. When the judgment of the court awarding a sum of money becomes

final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
 Since this case before us involves an obligation not arising from a loan
or forbearance of money, the applicable interest rate is 6% per annum. The
legal interest rate of 6% shall be computed from 4 October 1999, the date the
letter of demand was presumably received by the defendant. 22 And in
accordance with the aforesaid decision, the rate of 12% per annum shall be
charged on the total amount outstanding, from the time the judgment
becomes final and executory until its satisfaction.
WHEREFORE, we DENY the petition for lack of merit,
and ORDER B & R Footwear Distributors, Inc. and petitioner Benny
Hung TO PAY respondent BPI Card Finance Corporation: (a)
P2,516,823.40, representing the overpayments, with interest at the rate of 6%
per annum from 4 October 1999 until finality of judgment; and (b) additional
interest of 12% per annum from finality of judgment until full payment.
No pronouncement as to costs.
SO ORDERED.
(Hung v. BPI Card Finance Corp., G.R. No. 182398, [July 20, 2010], 639 PHIL
|||

179-192)